Did You Shanzhai Today? The Cathedral and the Bazaar in China.

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Institute of Systems Science, National University of SingaporeOctober 7, 2011

Dr. Virginia Cha,Chief, Research

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Outline

Problem DefinitionIntroduction of Shanzhai

Analysis on the Cathedral and the BazaarEnabling Factors

Shanzhai and Innovation

Evolution of Shanzhai (from 2005 to 2010)

ImplicationsFor entrepreneurs

For corporate innovators

For economic/policy advisors

Grateful acknowledgement of partial research funding from NUS University Innovation Fund

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Benjamin’s Digital Naturalism3

Source: Google Images

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Picture of a capacitor lablled as 6800uF/50V and one with the innards exposed showing really it’s a 2200 uF/35V

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Enabling Factors – Shanzhai and the Bazaar

1st Factor – Release of MTK Turnkey chipset (2005) created a platform for bazaar 5

MTK mobile phone manufacturers

Vertically integrated mobile phone manufacturers

The Advantage of Turn-KeyThe Turnkey platform shortened the R&D cycle from 9-12 months to < 3 months and lowered the technology costs for middle and small mobile

phone manufacturers.

High R&D Cost

Low R&D Cost

Long R&D Cycle

Short R&D Cycle

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http://findwhatworks.files.wordpress.com/2010/09/nytimes-technology-adoption-chart.gif

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•A typical large-scale, vertically integrated, international phone manufacturer (e.g. Samsung) releases around 50 new mobile phone products, averagely 4 new products per month.

•In Shenzhen, the main “Bandit city” of Shanzhai phones, there are on 5 new mobile phone launches every day. The number of new products in Shenzhen exceeds 1000 annually.

•The Shanzhai manufacturers adopt an “open to point of promiscuity” attitude -Sharing of BoM

•Release Early, Release Often

3000+

3000

200

100

Shanzhai Phone Manufacturers

Phone Components Manufacturers

Phone Mold Manufacturers

Industrial Design

Logistics, trade and related businesses

Industry Chain of Shanzhai Phones in ShenzhenNumber of firms cooperating in Shanzhai ecosystem:

Provides the fuel to a faster churning supply chain ecosystem

Quick R&D, Quick Design, Quick Manufacturing, Quick Shipment

Enabling Factors – Shanzhai Mobile PhoneEnabling Factors – Shanzhai and the Bazaar

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Ecosystem enabling Shanzhai

Photos taken by author/research assistants on trips to Huaqiangbei, Shenzhen, 2010-2011

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Ecosystem enabling Shanzhai


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Components


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2nd Factor – technology creating new forms of consumption

http://findwhatworks.files.wordpress.com/2010/09/nytimes-technology-adoption-chart.gif

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Graphic from:

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3rd Factor – Cultural acceptance of Shanzhaiism11

http://micgadget.com/12077/an-in-depth-video-tour-of-shanzhai-industry-part-1/


Video Graphic from:

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5

Availability of applications

Value of platform to customers

ProductPlatform Release(s)

Size of installed base

Market Demand

Dominant Design, Platform Strategy, Complementary Assets

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Adapted from Establishing a Standard: Competitive Strategy and technological Standards in Winner-Take-All Industries, Charles W. L. Hill, The Academy of Management Executive (May, 1997: figure 1).

Adapted from Establishing a Standard: Competitive Strategy and technological Standards in Winner-Take-All Industries, Charles W. L. Hill, The Academy of Management Executive (May, 1997: figure 1).

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Shanzhai as an innovation model

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Some imitators transform to innovators and grow

Shanzhai Ups and Downs14

simply fade away Those who just copy…

Source: Baidu.com and Google Images

Logo images from Baidu vs Google,Tencent’s QQ vs MSN ChatBYD logo vs BMW logo

Logo images from Goojie and 360Quan

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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

• Strategy is to achieve quantum drops in cost by copying

• Openly copies by reverse-engineering

• Can you open new markets with cost innovation?

• The F3 is an exact copy of Toyota, but costs 50% less to manufacture

• In Zhengzhou, F3 owners can spend a few hundred yuan to have the exterior badge replaced with a Toyota logo

BYD’s Cost Innovation in Manufacturing

Image source: Baidu.com and Google Images

Picture images ofToyota Corollaand BYD F3

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Photos taken by Virginia Cha on visit to Wingtech factory, Jiaxing, China. Aug. 30, 2011

WingTech闻泰集团

17Photos taken by Virginia Cha on visit to Wingtech factory, Jiaxing, China. Aug. 30, 2011

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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 WiFiconnectivity.

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

Tianyu and Product Innovation

Photo source: Virginia Cha

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Shanzhai and Innovation19

Shanzhai players can evolve to become sources of innovation.


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Renren is the first SNS in NYSE IPO

weibo.com is the largest Microblog site in Chinawith > 200M accounts.

Internet café in China was flooded with computer virus.

youku.com raised $203m in NYSE IPO 2010.

More cases


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(DSO1014A Oscilloscope)Agilent (Big Firm) RIGOL (Small Company)

1939 Founded1998 WORKSHOP Established1999 Spun off from Hewlett-Packard

Company, high end strategy2000 Founded, low –end strategy2001-2008 Economical downturn and

frugal strategy in the 3rd quarter 2008, low –end strategy [1]

Development of DS1000A Tech [3]

2009 Similar features as DS1000A from RIGOL [2]

(DS1000A Oscilloscope)

Agilent and RIGOL

Photo source: Agilent and Rigol company websites.

Picture ofan AgilentOscilloscope

Picture ofa RobolOscilloscope

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Photo taken by Virginia Cha, Huaqiangbei, Sept 14, 2011

24Photo taken by Virginia Cha, Huaqiangbei, Sept 14, 2011

25Photo taken by Virginia Cha, Huaqiangbei, Sept 14, 2011

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Fast Learning

•How fast was the feedback collecting process in Shenzhen?

7 Days < 3 Day1D

customer trader manufacturers

Customer Trader Manufacturer

Learning through feedback collection (from research of traders in Mintong Plaza, Huaqiangbei, Jan 2011)

Traditional removable back coverAnd the internal SIM card slot for Shanzhai iPhone 4 (Oct-2010)

Irremovable back cover and the Eternal SIM Card slot for Shanzhai iPhone 4 (Dec-2010)

2 monthsPicture ofan older generationof shanzhai phone 4

Picture ofa newer generationof shanzhai phone 4

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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 ½price

Shanzhai 2.0: Recent Developments


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C Peel users Apple Peel 520 users potential customers totaleffective response 16 9 28 53invitation sent 100 100 About 600 About 800response ratio 16.00% 9.00% 4.67% 6.62%

81.13%

5.66%

9.43% 3.77%

How do you know Apple Peel

InternetNewspaperFriendsOthers

1.89%7.55%

45.28%

33.96%

11.32%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

What do you think of its basic functions?

Very satisfied (1) Somewhat satisfied (4)

Neither satisfied nor dissatisfied (24) Somewhat dissatisfied (18)

Very dissatisfied (6)

53

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18

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Online forum InstantMessenger

Phone Face to face0

102030405060

How do you seek technical support?

62.26%37.74%

0.00%

50.00%

100.00%

Do you think of Apple Peel as a Shanzhai product?

Yes (33) No (20)

0

10

20

Will Shanzhai achieve sustainability?

Yes No

The Apple Peel Survey

Survey posted on various leading Apple Peel vendors (e.g. coming, yosion) bbs, April 2011

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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.

Shanzhai 2.0 (2010)

Photo source: Mili, apple, dx-power company websites.

Photo images of various newer Chinese productsthat plug into iphone including cameras, printer, power extenders

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31Photo source: Virginia Cha

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So, what does this all mean?32

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The story so far…

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

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Implications – for entrepreneurs

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


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Implications – for corporate innovators

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

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Implications – for policy/economic advisors

Look for opportunities to create bazaars for hyper innovation activities

Look for ways to reduce risk and lower the cost of experimentation

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4F’s of Shanzhai Innovation

Fast Frugal

Fit Fad

Rapid Experimentation

Quick Response

Speed

Low cost

Modular components

Affordable

Localization

Targeted features

Customized

Trend setting

Early adoptor

Status seeking

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Drawing courtesy of Priscilla Wong

Did you shanzhai today?

Did You Shanzhai Today? The Cathedral and the Bazaar in China.

Technology

Transcript of Did You Shanzhai Today? The Cathedral and the Bazaar in China.