Shanzhai: Chinese-Style Innovation

I had my first contact with Shanzhai about seven years ago when I spontaneously ordered an "iPhone mini" online for a handful of dollars. Not that Apple ever offered a miniature version of its smartphone, and not that I needed a new phone. It was a joke: who else could boast such a device?

"iPhone" mini

A few weeks later, I received a smartphone in a package sent to Shanghai that wasn't actually a smartphone at all: the hardware and user interface looked like an iPhone, but the software was more than lousy. The menu items were obviously translated from Chinese using Google Translate, the Safari logo didn't have a browser but a game associated with it, and the thing was generally very slow. On the other hand, a replacement battery was included free of charge, the cell phone could easily handle two SIM cards at the same time, and the device also recognized Chinese letters drawn on the display without any problems - so it came with features that the original from Apple still does not support in some cases today.

Origin in product piracy

Shanzhai (山寨) literally means mountain village, but has become common in China as a term for product piracy (because the fakes were manufactured in factories outside of regulation). At least for electronics - cell phones, tablets, but also laptops and game consoles - is Shenzhen in southern China in Guangzhou Province. 35 years ago, Shenzhen was still a small fishing village on the Chinese mainland immediately north of Hong Kong. Since the city was declared the first special economic zone by the government, it has been growing inexorably - it is now significantly larger than its famous neighbor, and Hong Kong has been reduced to a suburb.

Not only do the factories in and around Shenzhen produce most of the world's electrical products, but they have also created a very active shanzhai scene. Fake cell phones, like my iPhone Mini. But Shanzhai has always been very innovative: An iPhone ripoff with Mickey Mouse ears and a built-in lighter? No problem. You can laugh about that, but it's an example of how the Shanzhai scene works: even the craziest feature ideas are combined with role models at a very rapid pace. For example, I bought a digital watch with an integrated cell phone on the wholesale market in China in 2009; Apple only launched its smartwatch in 2014. Today, Shanzhai products are not only manufactured in the consumer electronics industry, even Shanzhai electric cars are available. Regardless of the product, the principle is always the same: If the manufactured product is accepted on the market, it will be further developed, improved and new features designed in this direction. If not, experimentation will take place on other fronts.

Extremely fast product development cycles

The Shanzhai companies have professionalized at a rapid pace. While just a few years ago they were building miserable knock-off cell phones with a poor Chinese operating system (NucleusOS), today most cell phones and tablets are of fairly high quality at very affordable prices and are based on Android. It is not uncommon for a Shanzhai manufacturer to be the first in the world to deliver the latest Android version - even before big players like Samsung. How do the Shanzhai producers manage this? Five points are central:

Standardized components: Most companies use the Taiwanese chip manufacturer's modular platform MediaTek. Depending on the platform you choose, dual SIM LTE (important in China due to national roaming), high-resolution touchscreens and cameras are supported. MediaTek supplies the necessary drivers for the inexpensive components. To put it simply, the end producer simply combines different components, designs a housing and modifies the software. This means that the development process from the initial idea to the start of series production can be reduced to just a few days. This is why fakes of Samsung cell phones, for example, can be bought on the black market shortly after the original is presented, while the original is not yet available in stores. However, it can be observed that the more professional Shanzhai producers have longer development cycles to ensure quality - but they are still massively faster than Apple or Samsung.

Semi-legal production: Many of Shanzhai's factories do not have licenses for the technologies they use. Often the license costs for the 3G and 4G modules are not paid and fictitious IMEI numbers are used (not to mention radiation values...). Nevertheless, the devices are fully functional. Perhaps the factories themselves do not meet the standards of Western companies; However, I cannot judge this conclusively as I have not yet had the opportunity to visit a factory in person. Videos on YouTube give this impression. In addition, rejects seem to be relatively high, which is why most shops for Western customers still carry out their own quality controls.

@@IMAGE@@eyJzcmMiOiIvYXBwL3B1YmxpYy9tZWRpYS91cGxvYWRzLzIwMTYvMDMvU2hlbnpoZW4tSmFudWFyeS0 yMDEyLTQ2OS0zMDB4MjI1LmpwZyIsImFsdCI6Ildob2xlc2FsZS1NYXJrdCBpbiBTaGVuemhlbiAoMjAxMikifQ== Wholesale market in Shenzhen (2012) Wholesale sales: As a rule, the manufacturer of the cell phone or tablet does not act as a seller for end customers, but relies on (for us opaque) networks of Chinese business people. On Huaqiangbei Road in Shenzhen there are several huge wholesale markets where all sorts of devices and accessories can be purchased in small and large quantities. Couriers deliver directly to the customer's office, who usually also resells the devices. Since marketing is largely avoided except for websites, costs can be kept very low. In these markets, where haggling is the main activity, mini-wholesale shops are lined up closely next to each other; the latest firmware can often be flashed there upon customer request or even custom devices can be ordered. For several years now, professional online shops have been shipping devices directly to end customers all over the world, some of which have focused on the German-speaking market.

Low end: Most Shanzhai factories produce their devices for mainland China, but the more professional brands also produce their devices for emerging markets such as India. In 2008, for example, resourceful Shanzhai producers produced an Obama cell phone for the Kenyan market. The focus on price-sensitive low-end markets obviously makes sense; In combination with the low production costs, lack of marketing, innovative sales channels and the high demand for smartphones, high margins can be achieved. Only extremely professional manufacturers like Siswoo make devices for Europe (Siswoo only seems to have existed for about a year and a half, but the company has been a partner of T-Mobile for low-budget phones for some time).

Cooperation with app manufacturers: Chinese smartphones are usually full of bloatware, i.e. pre-installed apps. Since these apps are usually Chinese, there is very little you can do with them. While some of the apps make sense (commonly... QQ - a Chinese messenger - and Weixin - known here as WeChat, i.e. the Chinese WhatsApp - preinstalled), sometimes dubious software or, in the worst case, even viruses are included. The manufacturer benefits from revenue sharing with the app manufacturers. A model that Samsung also uses for pre-installed apps such as MyTaxi, but the Chinese have "perfected" this method.

Basis for companies like Xiaomi

These Shanzhai strategies were able to help successful Chinese startups like OnePlus or Xiaomi, the "Apple of China", adopt and perfect it. The Beijing-based startup Xiaomi has made a name for itself worldwide for its extremely high-quality, but very affordable devices. Xiaomi also offers weekly updates for its cell phones; Even devices that are years old are still supplied with new features and security updates. Big brands like Samsung, on the other hand, are known for having a miserable update policy.

The combination of excellent price-performance ratio, good support and an ever-growing community outside of China make these manufacturers so dangerous for classic electronics producers. Players like Siswoo appear out of nowhere and deliver good devices at a speed that even innovative brands cannot keep up with.

Startups can learn from Shanzhai how to produce high-quality prototypes and series-ready hardware in a very short time, while at the same time quickly obtaining feedback from real consumers on the market. As we know from Lean Startup, there is no better market proof than paying consumers. And that's exactly what Shanzhai is optimized for: growing as quickly as possible and generating the greatest possible sales.