Shenzhen: Where does the City of Copycats head to?

At 2016 CES, there are 1300 Chinese companies as exhibitors, among which there are 652 Shenzhen companies (The total number of exhibitors from around the world is 4119).

It drives people’s attention again to Shenzhen: East Silicon Valley, the Mecca of Electronics, Hardware Hollywood, Paradise of Makers… But still, Shenzhen is still branded deeply with Huaqiangbei imprints — Fast, Cheap, Replicable.

This is a corner in Huaqiangbei when the Apple Watch was going to be launched in the market. If you are looking at this product from 5 meters away, it is hardly possible to tell it from the authentic Apple Watch — from the design, strap, even the user interface.

The Booming Generation

People love Shenzhen. People hate Shenzhen.

People love Shenzhen, because they can always find the electronics parts they want: any model, pricing range, current stock, specification. From my perspective, Huaqiangbei is just like an offline Kickstarter. New products will be displayed in these small counters (just like various booths in the exhibitions). The potential buyers from all over China and rest of the world are the traffic, and they ask for the product and pricing info when they are interested, or give orders. When they decide to give orders, the buyers will give a certain percentage of the deposit, generally 40%.

To walk around the huge Huaqiangbei electronics wholesale market, you need a map

People hate Shenzhen, because the supply chain here shows extremely strong realisablility in the trendy hardware products or even those not yet in the market. These manufacturers keep their eyes, ears and all other senses open to the best-sellers (or the next best-seller-to-be), and probably launch a clone within several days. When some great concept products designed in US are not available in the market, Huaqiangbei will already have quite a few available samples. But these local manufacturers hardly focus on just one product (or product line) ; instead they rely on making money by the first batch of these copycats, then stop with revenue from the last hardware fad, and invest in the next project. Manufacturers have learnt to to cut all the fat out of their business. According to Lyn Jeffery of the Palo Alto-based Institute for the Future, they might break even on a phone that sells only 10,000 units — enabling them to innovate wildly and build specialized products for specific markets — even for different cities.

Despite their disregard for intellectual property laws and safety testing, the culture of these manufacturers is modern and collaborative. Design files are shared, with each maker contributing to the pool of knowledge. To some extent, Shenzhen represents the world’s peak of supply chain management.

The Struggle

Foxconn and Huangqiangbei are two landmarks of Shenzhen city: one is the authority of supply chain, and the other is a leading role in electronics distribution. Along these years, there are multiple changes in Shenzhen electronics history, such as the transformation from the disorderly electronics market, to a much more well-organized and branding-focused in 2C-market and a systematic account-management in 2B market.

Most factories in Shenzhen put their focus in cost down, other than product design and innovation. During the past few years, it is noticed that there are some local well-branded companies with high investment in RnD and design, such as DJI, Royole, OPPO, etc. This arouses the public discussion about, would the nation of copycats be transformed into a hub of innovation?

It may not be that easy.

This reminds me of the interview on LeiPhone, with the CEO of Hampoo, a company that provides one-stop service from conceptualization, R&D, product design to manufacturing service for electronic products. Though Hampoo provides manufacturing service, it is not the direct manufacturer: It provides electronics solution for overseas customers, and then to give production orders to the factories in China.

2 years ago, Leap Motion came to Hampoo and wanted to have cooperation with Hampoo. However, Hampoo missed this opportunity because of lack of understanding of the Internet and new hardware battlefields, which is a blow to the team but yet a stimulus at the same time. Chijiang Wang, the CEO of Hampoo, led the team to put more focus in the new hardware startups and trends.

For the past decade, Hampoo is devoted to “Designed in China”, a market segment between “Made in China” and “Innovated in China”. As the era of a more democratic process comes, Hampoo is thinking about how to catch up with the wave of the new hardware age. It is common that product designers do not have any manufacturing experience while they have a practical idea and solution driven by the community. So that is what the traditional companies like Hampoo want to assist the product innovation with the profession in supply chain from conceptualization to commercialization, either 100 or 10,000 pieces. Another thing that Hampoo now is exploring, is to promote Maker Culture inside the company. It is far from easy for a traditional hardware service provider because of the mindset, the thoughts, the logic of operation when they are faced with a new client, whose meaning is far more than just a client or a deal.

ACTION

Hampoo is not the only one looking for a new way out. Many cities in Pearl River Delta actually have great infrastructures in manufacturing industries. However, if you review all the sectors in the industry, manufacturers are at the bottom downstream, which means the profit margin would be close to the lowest. But as the later generations of the factory owners take over the business, with a more open mindset to internet and hardware trend, they begin to ponder: Can we make the change from “Made in China” to “Created in China” with the opportunity of the team-up in the hardware and software ecosystem?

Local Shenzhen manufacturers are well equipped with manufacturing resources and traditional distribution operation. Most of the so-called smart hardware in the market now are single products(compared to product set or product line)or middleware, with focus in online data and service integration on the traditional devices. So under these circumstances, the differentiation will lie more in creativity and design than in development. For those start-ups with a great concept and idea, the manufacturers can provide support in funds, manufacturing experience and offline distribution.

The Future

More and more big players are coming to Shenzhen. Microsoft is going to build an IoT lab in Shenzhen, also as IDF is coming soon, the public is again focusing on Intel’s CTE in Shenzhen, China Technique Ecosystem. CTE includes diversified partners, such as product accessory supply chain, 3rd party software partners, outsourcing design firms, system integrators, ODM, OEM, etc. Falling behind from the mobile arena, Intel tries to get back in the tablet battlefield, which is a less competitive market than phones, a more similar product line to PC which Intel can integrate its resources more easily, also less demanding on the processor communication than phones are.

The reason that Shenzhen gets Intel’s attention, is that this city of copycats gathers so many tablet manufactures and solution providers(such as 51cube, Onda, Chuwi, etc). Though these companies do not have a marketing influence and well-recognized branding as Samsung and Apple, yet they are the real monopolists of the tablets market under $100.

Crowdfunding platforms open another window for those hardware amateurs(not everyone considers building a start-up at first), which activates the long-tail hardware market. For the past 20 years, Internet has fully translated the long tail effect on tertiary industry, such as media, retail and other traditional services. Probably for the following 20 years, the second industry will benefit from the maker movement.

There is so much to talk about Shenzhen. Shenzhen shows vivid decentralization in supply chain, which keeps this city alive and forward.