State of Shanzhai

A state of the art of Shanzhai: "Open Innovation with Chinese Characteristics!" 

by David Li

The term shanzhai was originally used to describe the clusters of companies producing "counterfeit" mobile phones starting from 2005. These are companies who brought us the amazing brands of “Nakia” and“Anycoll." Noted that the counterfeits is quoted because only the skin (look) of the phone is pirated and internal structures and electronics are developed locally. This Shanzhai system has amazing growth from 2005 through 2009 and created and produced feature phones for developing countries in South East Asia, Africa, Middle-East, South American and India where $10 phones doesn't meet the market plan of major brands like Motorola, Nokia, Ericsson, Samsung and etc. The business has grown rapidly in the past decades and now Shanzhai phone accounts for 25% of the global mobile phones shipment. On the back of Shanzhai, new company like MediaTek and other are founded to supply this market. 

MediaTek on the Forbes World’s Most Innovative Companies List

This has recently been noted in Eric Schmidt and Jared Cohen's new book "The New Digital Age" and here is the quote:

And the developing world will not be left out of the advances in gadgetry and other high-tech machinery. Even if the prices for sophisticated smart phones and robots to perform household tasks like vacuuming remain high, illicit markets like China’s expansive “shanzhai” network for knock-off consumer electronics will produce and distribute imitations that bridge the gap. And technologies that emerged in first-world contexts will find renewed purpose in developing countries.

Read an excerpt from the book Glenn Beck will be discussing with Google’s Eric Schmidt and Google Ideas’ Jared Cohen on this evening’s program

There has been serious and in-depth look into Shanzhai since 2010. Chipchase's "Shanzai!" piece on Wired is a great read. 

The 40-year-old Briton, a former Nokia researcher who has spent the past decade documenting the way technology is used around the world, has whiled away countless hours in similar places. Unlike the hundreds of shoppers crowding the gangways, he's not here to buy a new device or avoid the heat. Instead, Chipchase -- dressed in a dark T-shirt and military trousers -- is feeding one of his obsessions: the esoteric world of counterfeit, or "shanzhai", phones.
"Every time I go out, I want to see something that challenges my perception of what I know," Chipchase says. "I like to live somewhere that shapes the way that you see the world."

Shanzai!  (Wired UK)

And early notice about the potential to innovate by Shanzhai by Econemist

A second area where the Chinese excel is in “bandit” or “guerrilla” innovation, known asshanzhai. The original bandits lived in isolated villages and carried out raids on upright citizens. Today's bandits live at the margins of official society but are much in evidence: in Shanghai's People's Square you will be offered a cheap watch or phone at every step.
These bandits are parasites who profit from China's weak property rights, but they are also talented innovators, quickly producing copies of high-tech gadgets that are cheap enough for migrant workers to be able to afford them but also fashionable enough for young professionals to covet them. Some of the more exotic phones are designed to look like watches or packets of cigarettes (they even have room for a few real ones) and often have striking new features, such as solar chargers, superloud speakers, telephoto lenses or ultraviolet lights that make it easier to detect forged currency. In their own way the bandits deploy as much innovation and ingenuity as their legitimate counterparts.

First break all the rules

The rapidly growing Maker Movement and Open Source hardware have a lot in common with Shanzhai in term of how companies in the ecosystem are collaborating building a repository of sharable hardware designs. We have a very interesting discussion on the topic back in 2011 hosted by Lyn Jeffery of IFTF based in San Francisco.

Over a few months in early 2011, in the course of doing research for an IFTF Tech Horizons Program’s study on the future of “open fabrication,” I convened what turned out to be a remarkable, free-wheeling conversation among a set of pioneering thinker/makers in China, Singapore, and the U.S. What started out as a set of distinct one-on-one research emails turned into a group discussion on the nature of Chinese manufacturing, global open innovation, and the burgeoning, disruptive potential of the growing connections between (mostly) Western-based hackers and agile Chinese manufacturing networks. As David Li wrote: Shanzhai and Open Source Hardware are twins separated at birth and if we can join them, it will create some very interesting opportunities.

Twins separated at birth - Shanzhai and Open Source Hardware

Lyn Jeffery gave a great panel in last's year's SXSW on the subject:

From watches, bags and shoes to touchscreen tablets, fast food and electric cars -- you can find thousands of knockoff brands in China. Large, highly coordinated networks of innovative companies take the products and services we love in the U.S., alter them relentlessly and make them … better. Then they speed them to one of the world’s largest consumer markets and sell them at devastatingly low margins. 
The problem with U.S. innovation? Our broken business models. American companies were built to be predictable, not adaptable. Trends like mobile, social and the cloud are major disruptive forces and businesses are struggling to keep up. Instead of fearing the Shanzhai, we can look at their 4 core tenets to reorganize the way we do business: 
-Build nothing from scratch 
-Innovate process at small scales 
-Share as much as you can 
-Act responsibly in the network
By adopting the philosophy of the Shanzhai “copycat culture,” companies can innovate faster and remain competitive.

Silvia also presented "Made with China" in this year's SXSW. 

China is often portrayed as an enormous factory that pumps out products invented elsewhere. But as global "maker culture" is transitioning from a hobby into a profession, China is playing a significant role in changes to industrial production and hardware innovation. It might surprise you; China’s image contrasts with contemporary maker culture, celebrated for its creativity and roots in 1960s U.S. counterculture. But China’s rapid growth in open source hardware and maker communities challenges our assumptions. They show an alternative version of innovation, built on a home-grown version of open source that has developed in China's small-scale factories over the last 20 years. Makers in China show that this history of open manufacturing will change not only what we understand by making, but also where we locate innovation. As China's DIY makers are coming together with manufacturers, they are spurring a shift in industrial production, from "made in China" to "made with China."

The Shanzhai has made Shenzhen a hotbed for global hardware startups and accelerators. Haxlr8r has been one of the leading hardware accelerator based in Shenzhen. 

- The art of the Shanzhai. There is some serious brilliance hidden in the cheap solar lamp or fake iPhone! Tap some of that genius and apply it towards other objectives.

Program - HACK WHAT? - HAXLR8R

PCH a major manufacture based in Shenzhen has recently launch an accelerator programHighway1 in San Francisco and here is how the CEO's take on Shanzhai:

WSJ: Why is Shenzhen still attractive for PCH?
Casey: The “shanzhai” culture is really important (Shanzhai literally means “mountain fortress.” Once a term used to suggest something cheap or inferior, shanzhai now suggests to many a certain Chinese cleverness and ingenuity.) It has this disruptive culture of wanting to be different, of wanting to be fast, wanting to show what’s possible.

Q&A: PCH International Chief Sees Edge in Having Base in Shenzhen - Digits - WSJ

The Economist has also published several articles on how Shanzhai will be relevant to the innovation in China and the potential to change now new hardware are created. 

What gives these young Chinese firms a potential edge is their close connections with the so-called shanzhaiproduction networks centred on Shenzhen, China’s high-tech manufacturing hub. The term shanzhai is often used pejoratively to refer to Chinese copycat producers of mobile phones and other electronic devices, based on copied designs and knock-off brand names. But its literal meaning is “mountain village”, and it refers to bandits who opposed corrupt rulers and hid in the countryside—much like Robin Hood in English folklore. David Li, co-founder of XinCheJian, Shanghai’s first “maker space” (essentially, an open-access workshop), says the Robin Hood spirit is inspiring legitimate and often quite innovative products, as the socially progressive maker movement teams up with hard-nosed manufacturers.

Made in China

Silvia Lindtner of the University of California, Irvine, and Fudan University in Shanghai, who follows the startup scene in China, is not surprised. The two sides complement each other, she says. The founders of hardware startups, often steeped in the open-source culture, partner with factories rooted in the Chinese culture of shanzhai, which translates as “mountain stronghold”. It used to mean pirated electronic goods but now stands for open-source manufacturing.

Hacking Shenzhen

And Wall Street Journal also has noticed this disruptive force of change:

Some observers see China's maker movement as yet another instance of the country's tendency to produce shanzhai, or copycat goods. But Mr. Pan advises patience. "China is just on the way," he said. "The first time you learn to write, you cannot write novels. You have to copy from the textbook to learn to write A, B, C, D."

China's maker movement is shaking up innovation.