Thursday, June 16, 2011

Impact of China's Growing Mobile Phone Industry

An article by Greg Lindsay on Fast Company (see here) argues that the increasing penetration of mobile phones designed in China into other countries has had a wide range of impact, including aiding the recent revolutions in the Middle East.

While the Middle East claim is intriguing, I'd like to see more evidence.  For example, it would be helpful to know the penetration of Chinese-designed phones in Egypt and what the consumers would have done had the phones not been available.  Regardless, in making his case Lindsay raises several issues related to some earlier posts here.

He discusses how the making of mobile phones in China became far more practical due to the availability of a cheap way to design them:
"In 2004, a Taiwanese electronics firm named MediaTek unveiled its latest product--a cell-phone-in-a-box aimed at manufacturers, equipped with everything they needed to make the guts of a working phone on one chipset. Write some software, add features, and snap a plastic case on the front and you've produced a new model. It was an immediate hit with China’s notorious counterfeiters, the shanzhai.

In 2004, MediaTek sold 3 million of its chips; six years later, its sales had soared to 500 million, more than a third of the worldwide market. Nearly half of those went to shanzhai. The sudden ability to design, manufacture, and ship millions of dirt-cheap handsets in total secrecy led to an explosion in Internet-enabled devices in China. “Five years ago, there were no counterfeit phones,” the sales manager at a Chinese component manufacturer told The New York Times in 2009. “You needed a design house. You needed software guys. You needed hardware design. But now, a company with five guys can do it.”"
I believe that the increased numbers of people making mobile phones in China relates to another issue I've raised here and here -- that while copying remains relatively common in China, innovation is also occurring.  Relevant to this point, Lindsay writes:
"The key to the cheap phones was the combination of MediaTek’s chipsets and the vast component bazaars of Shenzhen. While MediaTek’s engineers focused on adding software features such as touchscreen recognition and instant messaging to their chips, shanzhaitricked out basic models with speakers, telescopic photo lenses, and flashlight-strength LEDs. Before long, “Nckias” and “Blockberrys” began appearing across Shenzhen and Shanghai.

With their tiny production runs, shanzhai could manufacture a thousand phones, seed the local markets, see if they caught on, and then crank out some more. Established players like Nokia were soon crying foul, even as they scrambled to keep up. Development cycles collapsed from 9 to 12 months to as little as three months. Instead of knockoffs, the counterfeiters were churning out innovation and forcing large companies to play catch up."
Lindsay also points out that the cheap Chinese-brand mobile phone manufactures are expanding their sales to regions where such phones may be strongly desired, such as India:
"India, with its low PC penetration, high fixed-broadband costs, and proximity to China, was a natural fit. In 2009, shanzhai phones began flooding the market, offering “good functionality at a fraction of the cost of established brands,” according to BCG."
As shared in a reader's comments here not only may Chinese-brand mobile be appealing in other countries for their lower cost, but also for the functionality they may offer, such as dual SIM card support.

Finally, in his article Lindsay refers to the Chinese phones as "shanzhai" -- a term usually reserved for mobile phones made in China that copy established brands.  In part due to the innovation that Lindsay himself notes and that there are Chinese brands of mobile phones that appear to be making an effort to distinguish themselves from better known brands, I don't think the term is always appropriate when discussing mobile phones designed in China.  Scroll though the many photos included here (all of my posts on mobile phones) and see what you think based just on looking at the many examples of Chinese designed phones.  Should Oppo and BBK really be classified with Nckia and Blockberry?  There's of course more to this than looking at a few photos, but I think they help make a point.

I'm not sure how Lindsay was using the term but in general the way the term "shanzhai" is sometimes used can gloss over some very key distinctions about mobile phones designed in China.  More on this topic later.  For now, I'll just add that when you see the term "shanzhai" you may want to consider how the word is being used.

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