[LINK] shanzhai phones

[stephen at melbpc.org.au]

 http://www.nytimes.com/2009/04/28/technology/28cell.html?th&emc=th


Technological advances have allowed hundreds of small Chinese companies, 
some with as few as 10 employees, to churn out what are known here as 
shanzhai, or black market, cellphones, often for as little as $20 apiece.

After years of making fake luxury bags and cheap DVDs, Chinese companies 
are capturing market share from the world’s biggest mobile phone makers. 

Although shanzhai phones have only been around a few years, they already 
account for more than 20 percent of sales in China, which is the world’s 
biggest mobile phone market, according to the research firm Gartner.

They are also being illegally exported to Russia, India, the Middle East, 
Europe, even the United States. 

“The shanzhai phone market is expanding crazily,” says Wang Jiping, a 
senior analyst at IDC, which tracks technology trends. “They copy Apple, 
Nokia, whatever they like, and they respond to the market swiftly.” 

Even Chinese mobile phone producers are losing market share to 
underground companies, which have a built-in cost advantage because they 
evade taxes, regulatory fees and safety checks.

So far, however, China has done little to stop the proliferation of fake 
mobile phones, which are even advertised on late-night television 
infomercials with pitches like “one-fifth the price, but the same 
function and look,” or patriotic appeals like “Buy shanzhai to show your 
love of our country.”

A few weeks ago, a 45-year-old man in south China was severely burned 
after his cellphone exploded in his shirt pocket, according to state-run 
news media.

But that hasn’t seemed to affect sales of black market phones, which 
typically sell at retail for $100 to $150. 

In the spirit of what is called “shanzhai” — which suggests rebels or 
bandits and which applies to counterfeit products of all kinds — many 
consumers are willing to take a risk on a cheap item that looks stylish.

Some experts say they believe the shanzhai phenomena is about being 
creative, Chinese style.

“Chinese grass-roots companies are actually very innovative,” says Yu 
Zhou, a professor at Vassar College. “It’s not so much technology as how 
they form supply chains and how rapidly they react to new trends.”

While the phones may look like famous brands, companies actually add 
special features like bigger screens, dual-mode SIM cards (which allow 
two phone numbers) and even a telescopic lens attachment for the phone’s 
camera. 

Since it is the SIM card that makes a phone run in China, as in most 
places other than the United States, all you have to do is insert a valid 
SIM card into a shanzhai phone and it works.

All this innovation comes from an industry that only took off in 2005, 
after Mediatek, a semiconductor design company from Taiwan, helped 
significantly reduce the cost and complexity of producing a mobile phone.

Using what experts call a turnkey solution, Mediatek developed a circuit 
board that could inexpensively integrate the functions of multiple chips, 
offering start-ups a platform to produce a low-cost mobile phone.

The industry got another boost in 2007, when regulators said companies no 
longer needed a license to manufacture a cellphone.

That set off a scramble by entrepreneurs in this electronics 
manufacturing center. Counterfeiting and off-brand knockoffs flourished.

Marketing strategies were simple: steal. Designs and brand names were 
copied identically or simply mimicked. (Sumsung for Samsung or Nckia for 
Nokia.)

Tapping into the supply chains of big brands is easy, producers 
say. “It’s really common for factories to do a night shift for other 
companies,” says Zhang Haizhen, who recently ran a shanzhai company here. 

“No one will refuse an order if it is over 5,000 mobile phones.”

The people who make fake iPhones admit it’s a shady business.

“We are a kind of illegal producer,” says Zhang Feiyang, whose company, 
Yuanyang, makes an iPhone clone. “In Shenzhen there are many small mills, 
hidden. Basically, we can make any type of cellphone.”

The competition is already forcing global brands to lower prices, 
analysts say.

“Our phone is even better than the iPhone,” says Liu Zeyu, a Meizu 
salesman in Shenzhen. “Our goal is to create a phone that makes Chinese 
proud.”

Chen Yang contributed research.

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Cheers,
Stephen