The document discusses the shanzhai phenomenon in China and its implications. It begins by introducing shanzhai and analyzing it through the lens of open-source innovation models. Key enabling factors that fueled the growth of shanzhai include the availability of turnkey chipsets, a vibrant supply chain ecosystem, and cultural acceptance. Examples are provided of how some shanzhai firms have transformed into innovative companies through fast learning and imitation. The document concludes by outlining implications for entrepreneurs, corporations, and policymakers, emphasizing opportunities to foster hyper-innovation through bazaars that reduce risks and costs of experimentation.
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Did You Shanzhai Today? The Cathedral and the Bazaar in China.
1. 1
Dr. Virginia Cha,
Chief, Research
Institute of Systems Science,
National University of Singapore
October 7, 2011
2. Outline
2 /40
Problem Definition
Introduction of Shanzhai
Analysis on the Cathedral and the Bazaar
Enabling Factors
Shanzhai and Innovation
Evolution of Shanzhai (from 2005 to 2010)
Implications
For entrepreneurs
For corporate innovators
For economic/policy advisors
Grateful acknowledgement of partial research funding from NUS University Innovation Fund
4. Picture of a capacitor lablled as
6800uF/50V and one with the
innards exposed showing really it’s
a 2200 uF/35V
4
5. Enabling Factors – Shanzhai and the Bazaar
5 /40
1st Factor – Release of MTK Turnkey chipset (2005) created a platform for bazaar
High R&D Cost
Short Long R&D
R&D Cycle
Cycle
The Advantage of Turn-Key
The Turnkey platform shortened the
R&D cycle from 9-12 months to < 3
months and lowered the technology
costs for middle and small mobile
Low R&D Cost
phone manufacturers.
MTK mobile phone manufacturers
Vertically integrated mobile phone manufacturers
6. Enabling Factors – Shanzhai Mobile Phone
and the Bazaar
6 /40
Provides the fuel to a faster churning supply chain ecosystem
Quick R&D, Quick Design, Quick Manufacturing, Quick Shipment
•A typical large-scale, vertically
integrated, international phone Industry Chain of Shanzhai Phones in Shenzhen
manufacturer (e.g. Samsung) releases Number of firms cooperating in Shanzhai ecosystem:
around 50 new mobile phone products,
averagely 4 new products per month. Shanzhai Phone 3000+
Manufacturers
•In Shenzhen, the main “Bandit city” of Phone Components 3000
Shanzhai phones, there are on 5 new Manufacturers
mobile phone launches every day. The Phone Mold
number of new products in Shenzhen 200
Manufacturers
exceeds 1000 annually.
Industrial Design 100
•The Shanzhai manufacturers adopt an Logistics, trade and
“open to point of promiscuity” attitude - related businesses
Sharing of BoM
•Release Early, Release Often
http://findwhatworks.files.wordpress.com/2010/09/nytimes-technology-adoption-chart.gif
7. Ecosystem enabling Shanzhai
7 /40
Photos taken by author/research assistants on trips to Huaqiangbei, Shenzhen, 2010-2011
8. Ecosystem enabling Shanzhai
8
Photos taken by author/research assistants on trips to Huaqiangbei, Shenzhen, 2010-2011
9. Components
9 /40
Photos taken by author/research assistants on trips to Huaqiangbei, Shenzhen, 2010-2011
10. Enabling Factors – Shanzhai and the Bazaar
10 /40
2nd Factor – technology creating new forms of consumption
Graphic from:
http://findwhatworks.files.wordpress.com/2010/09
/nytimes-technology-adoption-chart.gif
11. Enabling Factors – Shanzhai and the Bazaar
11 /40
3rd Factor – Cultural acceptance of Shanzhaiism
Video Graphic from:
http://micgadget.com/12077/an-
in-depth-video-tour-of-shanzhai-
industry-part-1/
12. Dominant Design, Platform Strategy, Complementary
Assets Market
Demand
Value of Product
+
platform to
customers 1 +
Platform
Release(s)
5 2
+ +
Availability Size of
of installed
applications 4 3 base
+
page
Adapted from from Establishing a Standard: Competitive Strategytechnological Standards in Winner-Take-All Industries, Charles W. L.W. L.
Adapted Establishing a Standard: Competitive Strategy and and technological Standards in Winner-Take-All Industries, Charles Hill,
The Academy Academy of Management Executive (May, 1997: figure 1).
Hill, The of Management Executive (May, 1997: figure 1). 12
14. Shanzhai Ups and Downs
14 /40
Some imitators transform to innovators and grow
Logo images from
Baidu vs Google,
Tencent’s QQ vs MSN Chat
BYD logo vs BMW logo
Those who just copy… simply fade away
Logo images from
Goojie and 360Quan
Source: Baidu.com and Google Images
15. BYD’s Cost Innovation in Manufacturing
15 /40
• The F3 is an exact copy of
Toyota, but costs 50% less to
Picture images of manufacture
Toyota Corolla
• In Zhengzhou, F3 owners
and BYD F3 can spend a few hundred
yuan to have the exterior
badge replaced with a Toyota
logo
• Strategy is to achieve quantum drops in cost by copying
• Openly copies by reverse-engineering
• Can you open new markets with cost innovation?
Source: http://www.chinacartimes.com/2010/02/11/the‐%E2%80%98truth‐about‐byd‐replication‐cost‐cutting‐and‐car‐production/
http://english.caing.com/englishNews.jsp?id=100117245&time=2010‐02‐10&cl=111&page=all Image source: Baidu.com and Google Images
16. WingTech 闻 泰 集 团
16 /40
Photos taken by Virginia Cha on visit to Wingtech factory, Jiaxing, China. Aug. 30, 2011
17. 17
Photos taken by Virginia Cha on visit to Wingtech factory, Jiaxing, China. Aug. 30, 2011
18. Tianyu and Product Innovation
18 /40
Android 2.2 smartphone
uses dual-core processor NVIDIA Tegra 2
512MB RAM and 8GB of internal memory
480 × 800 resolution 3.8-inch size touchscreen
5 Megapixel camera which can record 720p video
0.3 Megapixel front camera for video chat
supports GPS / A-GPS, Bluetooth and WiFi
connectivity.
pre-loaded with applications for Sina Weibo, QQ,
Kaixin, Youku
FM-tuner, microSD card slot, digital compass,
accelerometer and ambient light sensors
100GB free of online storage cloud computing
Released in China in mid-April 2011 through China
Unicom to about 3500 Chinese yuan
Photo source: Virginia Cha
19. Shanzhai and Innovation
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Shanzhai players can evolve to become sources of innovation.
Source: Baidu.com and Google Images
20. More cases
20 /40
Renren is the first SNS in NYSE IPO
weibo.com is the largest
Microblog site in China
with > 200M accounts.
Internet café in China was
flooded with computer virus.
youku.com raised $203m
in NYSE IPO 2010.
Source: Baidu.com and Google Images
22. Agilent and RIGOL
22 /40
Picture of Picture of
an Agilent a Robol
Oscilloscope Oscilloscope
(DSO1014A Oscilloscope) (DS1000A Oscilloscope)
Agilent (Big Firm) RIGOL (Small Company)
1939 Founded
1998 WORKSHOP Established
1999 Spun off from Hewlett-Packard
Company, high end strategy
2000 Founded, low –end strategy
2001-2008 Economical downturn and Development of DS1000A
frugal strategy in the 3rd quarter Tech [3]
2008, low –end strategy [1]
2009 Similar features as DS1000A
from RIGOL [2]
Photo source: Agilent and Rigol company websites.
23. 23 /40
Photo taken by Virginia Cha, Huaqiangbei, Sept 14, 2011
24. 24
Photo taken by Virginia Cha, Huaqiangbei, Sept 14, 2011
25. 25
Photo taken by Virginia Cha, Huaqiangbei, Sept 14, 2011
26. Fast Learning
/40
Picture of Picture of
2 months
an older generation a newer generation
of shanzhai phone 4 of shanzhai phone 4
Traditional removable back cover Irremovable back cover and the
And the internal SIM card slot for Eternal SIM Card slot
Shanzhai iPhone 4 (Oct-2010) for Shanzhai iPhone 4 (Dec-2010)
Learning through feedback collection (from research of traders in Mintong Plaza,
Huaqiangbei, Jan 2011)
Customer Trader Manufacturer
• How fast was the feedback collecting process in Shenzhen?
7 Days 1D < 3 Day
customer trader manufacturers
27. Shanzhai 2.0: Recent Developments
27 /40
iPod Touch Apple Peel Released July 2010 – a
device ‘skin’ for iPod Touch.
It acts like a phone without a
screen.
-Inside contains
-complete set of GSM
communication module
-Antenna
-SIM card slot
-Additional battery
Creates an iPhone at ½
Photo source: Virginia Cha
price
28. The Apple Peel Survey
28 /40
How do you know Apple Peel What do you think of its basic functions?
9.43% 3.77% Internet
50.00% 45.28%
5.66% Newspaper 40.00% 33.96%
Friends 30.00%
Others 20.00% 11.32%
7.55%
10.00% 1.89%
0.00%
81.13%
Very satisfied (1) Somewhat satisfied (4)
Neither satisfied nor dissatisfied (24) Somewhat dissatisfied (18)
How do you seek technical Very dissatisfied (6)
support?
60 53
50 Do you think of Apple Peel as Will Shanzhai achieve
40 32
a Shanzhai product? sustainability?
30 100.00% 20
18 62.26%
20
7 50.00% 37.74% 10
10
0 0.00% 0
Online forum Instant Phone Face to face
Messenger Yes (33) No (20) Yes No
C Peel users Apple Peel 520 users potential customers total
effective response 16 9 28 53
invitation sent 100 100 About 600 About 800
response ratio 16.00% 9.00% 4.67% 6.62%
Survey posted on various leading Apple Peel vendors (e.g. coming, yosion) bbs, April 2011
29. Shanzhai 2.0 (2010)
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Moving away from copying hardware (such as creating a fake
iPhone, Air Phone)
Looking towards building upon existing popular electronics and
creating products around them ala Apple skin model.
Photo images of various newer Chinese products
that plug into iphone including cameras, printer,
power extenders
Photo source: Mili, apple, dx-power company websites.
33. The story so far…
33 /40
The Cathedral and The Bazaar
Open-system like innovation model enabled by platform
availability, market demand, and willing users
Manufacturers/traders/buyers engaged in a very rapid feedback
cycle
Enables fast external learning
Vibrant and large ecosystem in support of bazaar
IP enforcement still fluid
Enables low risk experimentation
34. Implications – for entrepreneurs
34 /40
Opportunities enabled by Bazaar
Visit bazaars to get ideas
Learn how to get to assembling of prototypes rapidly
with low cost
Figure out how to release early, release often
Photos taken by author/research assistants on trips to Huaqiangbei, Shenzhen, 2010-2011
35. Implications – for corporate innovators
35 /40
Get to fast external learning from the bazaar
You have the requisite R&D intensity
You may be constrained in experimenting
You need to participate in bazaars
Look towards ‘trouble reports’ as a source of ideas
You need to have a vibrant and rapid feedback loop to identify gaps and
opportunities
Rethink the role of your distributor network – they can be part of your
virtual R&D team
36. Implications – for policy/economic advisors
36 /40
Look for opportunities to create bazaars for hyper
innovation activities
Look for ways to reduce risk and lower the cost of
experimentation
37. 4F’s of Shanzhai Innovation
37 /40
Rapid Experimentation Low cost
Quick Response Modular components
Speed Affordable
Fast Frugal
Fit Fad
Localization Trend setting
Targeted features Early adoptor
Customized Status seeking