Seminar on Shazhai Culture (山寨文化) and Innovation Management

We were glad to invite Prof. Chunli SI (司春林教授), who is Director of Research Center for Entrepreneurship & Venture Capital, Fudan University and Chief Editor, R&D Management in China, to give us a seminar entitled Shazhai Culture and Innovation Management: The Case Study on Shanzhai Handset (山寨文化與創新治理: 山寨手機案例分析) on 20 August 2010, organized by Hong Kong Society for Quality (HKSQ) and co-organized by America Society for Quality (ASQ) – HK session in The City University of Hong Kong.


In the beginning, Prof. SI introduced the seminar which would provide a detail analysis on the challenges of Shanzhai Culture in all respects including those affected the industry itself and the governing authorities.

What is the meaning on “Shanzhai”? Based on the dictionary, it was cottage, independent and could against authority. However, the word was used in Hong Kong in 70’s. In that time, Hong Kong economic growth significantly and light industry was developing from squatter area. These factories were called “Shanzhai Factory” (山寨廠).

Now, the word “Shanzhai” was familiar in cell phone and its meaning included:
i) Similar name with famous brand (Such as NOKLA vs NOKIA, Samsang vs Samsung, etc.)
ii) Made in rough cottages
iii) No Brand
iv) No QA
v) High tech and low price
vi) Fashionable appearance

The following showed some Shanzhai Handset examples.

HiPhone vs iPhone

Cigarette phone

Phone for Buddhist

Others

There were different comments on Shanzhai Handset in China.
Agreed: Important innovation, technology improvement and against Monopoly
Disagreed: Copycat, Violate IP Right
Neutral: It is only Shanzhai Phenomenon.

Why Shanzhai Handset appeared?
It was because of technology breakthrough that MTK company of Taiwan (聯發科技) provided Handset solution through “Turn-key” model. (Turnkey Service provides a complete silicon-to-component value chain, delivering a specified volume of completely tested components to a specific place at a specific time all on a single purchase order to TSMC.) After that, cell phone could be DIY through this technology.

The following diagram showed the technology background and platform.

After Shanzhai Handset appeared, the market characteristic was changed. Before Shanzhai Handset produced, high level customer enjoyed Hi-tech functions and services but higher cost. After that low level customer also enjoyed Hi-tech function and service using lower cost.

There were three different challenges on Shanzhai Handset included Government, Industry and Management.

For Government, Shanzhai would be dead if strongly control. It would be affected a lot of people live.

For industry, it was several technical and managerial problems if IMEI code for handset hand used.

Prof. SI introduced three management mechanism included Industry, Internal and Administration.

For industry management, destructive innovation and game theory were discussed.

Shanzhai Handset market share was expanded so fast and threat large brand manufacturer (like NOKIA). Then large brand manufacturer used a strategy called “To pay somebody (back) in his own coin” (以其人之道還治其人之身). (example: NOKIA went to low tech market and their phone was only RMB500.)

For internal management, an alliance of Shanzhai manufacturers might be established such as The China Association for Shanzhai (中國山寨協會). They aimed to control the quality and avoided violation of IP right, etc. Some Shanzhai manufacturers were registered to be their own brand.

The following was Big Ten Shanzhai Brand with different comments.

K-touch (天語) was a success story from Shanzhai to Original Brand. The roadmap was shown as follow.
i) Brand establishment and focus on Hi-tech Market
ii) Sign agreement with MicroSoft for WindowsMobile platform, and then followed Android and Linux platform.
iii) For 3G, cooperation with on CDMA, CDMA2000 and WCDMA.
iv) Increase price properly
v) K-touch focused on 3G just before China 3G register announcement.

For administrative management, it was suggested to more tolerant but under regulation.

Finally, Prof. SI concluded the Shanzhai Culture characteristics:
i) Based on a certain platform
ii) Large market and customer capacity
iii) Copy some Big Brand and gave a destructive affect
iv) It needed an integration management.

“山寨現象”有着深刻而複雜的社會經濟背景, 是在一定的技術經濟與社會變革條件下的產物, 具有包含社會底層的最廣泛的群眾基礎, 其生存與發展要行政, 行業與內部的綜合治理.

During Q&A session, Prof. SI answered some HKSQ members’ questions.

At the end, I represented HKSQ to present a souvenir to Prof. SI. Then we invited Prof. SI to have a nice dinner.

Reference:
MTK company of Taiwan (聯發科技): http://www.mediatek.com/tw/
K-Touch (天語) http://www.k-touch.cn/