Tech Trend: Shanzhai
The shanzhai of China are a tech trend to keep an eye on. Typically dismissed by popular press as simply the “copycat barons from China”, I think they may have something in common with Hewlett and Packard or Jobs and Wozniak back when they were working out of garages. I’ve heard quite a few stories about the shanzhai while on my most recent trip to China, some of which I will share here.
First, let’s try to understand the cultural context of the word shanzhai . Shanzhai (山寨) comes from the Chinese words “mountain fortress”. The literal translation is a bit misleading. The English term “fortress” connotes a fortified structure or stronghold that is large, perhaps conjuring imagery of castle turrets and moats. On the other hand, the denotation simply states that it is simply a fortified place. This latter denotation is closer to the original meaning from Chinese; in fact, the fortress they are referring to is closer to a cave or guerrilla-style hideout. In its contemporary context, shanzhai is a historical allusion to the legends that dwelled within. One such legend is the 12th-century story of the 108 bandits of Song Jiang . It is still a popular tale today; my father recognized it instantly when I asked him about it. A friend of mine described Song Jiang as a sort of Robin Hood meets Che Guevara; Song Jiang was a rebel and a soldier of fortune, yet selfless and kind to those in need.
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.