Shanzhai - Power of Cluster
from a blog post on Shanzhai on bunnie's blog
The contemporary shanzhai are rebellious, individualistic, underground, and self-empowered innovators. They are rebellious in the sense that the shanzhai are celebrated for their copycat products; they are the producers of the notorious knock-offs of the iPhone and so forth. They individualistic in the sense that they have a visceral dislike for the large companies; many of the shanzhai themselves used to be employees of large companies (both US and Asian) who departed because they were frustrated at the inefficiency of their former employers. They are underground in the sense that once a shanzhai “goes legit” and starts doing business through traditional retail channels, they are no longer considered to be in the fraternity of the shanzai. They are self-empowered in the sense that they are universally tiny operations, bootstrapped on minimal capital, and they run with the attitude of “if you can do it, then I can as well”.
An estimate I heard places 300 shanzhai organizations operating in Shenzhen. These shanzai consist of shops ranging from just a couple folks to a few hundred employees; some just specialize in things like tooling, PCB design, PCB assembly, cell phone skinning, while others are a little bit broader in capability. The shanzai are efficient: one shop of under 250 employees churns out over 200,000 mobile phones per month with a high mix of products (runs as short as a few hundred units is possible); collectively an estimate I heard places shanzhai in the Shenzhen area producing around 20 million phones per month. That’s an economy approaching a billion dollars a month. Most of these phones sell into third-world and emerging markets: India, Africa, Russia, and southeast Asia; I imagine if this model were extended to the PC space the shanzhai would easily accomplish what the OLPC failed to do. Significantly, the shanzai are almost universally bootstrapped on minimal capital with almost no additional financing — I heard that typical startup costs are under a few hundred thousand for an operation that may eventually scale to over 50 million revenue per year within a couple years.
Interestingly, the shanzhai employ a concept called the “open BOM” — they share their bill of materials and other design materials with each other, and they share any improvements made; these rules are policed by community word-of-mouth, to the extent that if someone is found cheating they are ostracized by the shanzhai ecosystem.
In a sense, I feel like the shanzhai are brethren of the classic western notion of hacker-entrepreneurs, but with a distinctly Chinese twist to them. My personal favorite shanzhai story is of the chap who owns a house that I’m extraordinarily envious of. His house has three floors: on the top, is his bedroom; on the middle floor is a complete SMT manufacturing line; on the bottom floor is a retail outlet, selling the products produced a floor above and designed two floors above. How cool would it be to have your very own SMT line right in your home! It would certainly be a disruptive change to the way I innovate to own infrastructure like that — not only would I save on production costs, reduce my prototyping time, and turn inventory aggressively (thereby reducing inventory capital requirements), I would be able to cut out the 20-50% minimum retail margin typically required by US retailers, assuming my retail store is in a high-traffic urban location.
The contemporary shanzhai are rebellious, individualistic, underground, and self-empowered innovators. They are rebellious in the sense that the shanzhai are celebrated for their copycat products; they are the producers of the notorious knock-offs of the iPhone and so forth. They individualistic in the sense that they have a visceral dislike for the large companies; many of the shanzhai themselves used to be employees of large companies (both US and Asian) who departed because they were frustrated at the inefficiency of their former employers. They are underground in the sense that once a shanzhai “goes legit” and starts doing business through traditional retail channels, they are no longer considered to be in the fraternity of the shanzai. They are self-empowered in the sense that they are universally tiny operations, bootstrapped on minimal capital, and they run with the attitude of “if you can do it, then I can as well”.
An estimate I heard places 300 shanzhai organizations operating in Shenzhen. These shanzai consist of shops ranging from just a couple folks to a few hundred employees; some just specialize in things like tooling, PCB design, PCB assembly, cell phone skinning, while others are a little bit broader in capability. The shanzai are efficient: one shop of under 250 employees churns out over 200,000 mobile phones per month with a high mix of products (runs as short as a few hundred units is possible); collectively an estimate I heard places shanzhai in the Shenzhen area producing around 20 million phones per month. That’s an economy approaching a billion dollars a month. Most of these phones sell into third-world and emerging markets: India, Africa, Russia, and southeast Asia; I imagine if this model were extended to the PC space the shanzhai would easily accomplish what the OLPC failed to do. Significantly, the shanzai are almost universally bootstrapped on minimal capital with almost no additional financing — I heard that typical startup costs are under a few hundred thousand for an operation that may eventually scale to over 50 million revenue per year within a couple years.
Interestingly, the shanzhai employ a concept called the “open BOM” — they share their bill of materials and other design materials with each other, and they share any improvements made; these rules are policed by community word-of-mouth, to the extent that if someone is found cheating they are ostracized by the shanzhai ecosystem.
In a sense, I feel like the shanzhai are brethren of the classic western notion of hacker-entrepreneurs, but with a distinctly Chinese twist to them. My personal favorite shanzhai story is of the chap who owns a house that I’m extraordinarily envious of. His house has three floors: on the top, is his bedroom; on the middle floor is a complete SMT manufacturing line; on the bottom floor is a retail outlet, selling the products produced a floor above and designed two floors above. How cool would it be to have your very own SMT line right in your home! It would certainly be a disruptive change to the way I innovate to own infrastructure like that — not only would I save on production costs, reduce my prototyping time, and turn inventory aggressively (thereby reducing inventory capital requirements), I would be able to cut out the 20-50% minimum retail margin typically required by US retailers, assuming my retail store is in a high-traffic urban location.
