China's Shanzhai Companies Moving On From Counterfeit Imitation To Collaborative Innovation

from the bunnie-was-right dept

Techdirt has been keeping an eye on the world of "shanzhai" companies for a while now. The term originally meant those places in China that were outside government control, and so, by extension, it referred to Chinese outfits specializing in counterfeit goods. But shanzhai companies are moving on, as this fascinating piece in The Atlantic makes clear:

Shanzhai used to refer to knock-off retail, and later end-consumer electronics, such as mobile phones of major brands like Nokia, Motorola and Ericson, often specifically designed for non-Western markets in China, South East Asia, South America, the Middle East and Africa. The ecosystem grew rapidly and by 2010, it was producing 200 million phones annually and was responsible for a quarter of the global mobile phone market. Since then, the shanzhai ecology has moved beyond cloning and enabled a wealth of iterative innovations including dual-SIM for frequent travelers to avoid roaming charges, seven-speaker phones for workers to listen to music at construction sites, and custom-designed phones for migrant populations unable to afford the latest smartphone.

Alongside those areas, here's an example of what's happening in the currently-fashionable sector of smart watches:

WPI [the Taiwanese electronic sourcing company World Peace Industrial] and other solution houses create gongban [standard circuit boards], which provide common electronic functions including Bluetooth connectivity to mobile phones, and sensors to measure the wearers' movement, as well as monitor heart rate and other vital bodily statistics. These gongban are designed to fit into a variety of gongmo [standard cases] that are ready to be branded on order. The flexibility to mix and match gongban and gongmo enable companies to quickly put together their own smart watches with customized functions and styles for various niche markets. Today, customers of WPI ship close to 100,000 smart watches per month.

That is, the shanzhai system is starting to adopt a highly-flexible approach that allows customized products to be designed and manufactured extremely quickly from sets of standardized parts. This has much in common with free software's modular developmental methodology, and next-generation shanzhai companies are also borrowing open source's business models:

[WPI] develops 130 gongbans annually in areas ranging from smart phones, tablets, smart watches, smart homes, and industrial controls -- and distributes the designs for free. WPI then makes money by trading in the boards' components.

That is, WPI gives away the basic designs to encourage their uptake, and then makes money from supplying the large open ecosystem that it creates by doing so. As Andrew "bunnie" Huang predicted, China's shanzhai sector has moved on a long way from simply copying, and is now innovating in multiple ways that industries in other countries could usefully learn from.

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Filed Under: china, collaboration, copying, counterfeit, innovation, patents, shanzai