Understanding Shenzhen’s role in the global hardware ecosystem
We went to Shenzhen to explore opportunities for collaboration between European Internet of Things practitioners and the Shenzhen hardware ecosystem — and how to promote the creation of a responsible Internet of Things. The result is available online as a PDF (16MB) as well as a publication on Medium.
- 2) Understanding Shenzhen’s role in the global hardware ecosystem
- A short history of Shenzhen
- Shenzhen: The world’s most mature and integrated hardware ecosystem
- Shenzhen as a hub for innovation & design
- Shenzhen Industrial Design Fair
- Micro innovation: A special Shenzhen strength
- Other examples of innovative or explorative tech in Shenzhen
- This is where the magic happens: Huaqiangbei electronics market
- How to interface with the Shenzhen ecosystem
- Design houses
- Technical solution houses
- Ideation vs shipping
- Real-market A/B testing
- Design vs design for manufacturing
- Trust local talent
- Relationships are key
- What is it you want?
- Openness rules
- Involve local experts
- Organizations that can help you get started in Shenzhen
- Visiting a bike lock manufacturer
- Ethical considerations when designing data-driven products to manufacture in Shenzhen
- What about security?
- Open practices & knowledge sharing
- Shanzhai & Gongban
- “Made in China”
2) Understanding Shenzhen’s role in the global hardware ecosystem
A short history of Shenzhen
Today, Shenzhen is at the very heart of the global production (and increasingly, design) of connected products: If we wanted to point at the origin of most of today’s consumer-facing Internet of Things, it mainly boils down to two places: Silicon Valley for the service/software side. And Shenzhen for the device/hardware side. Naturally there are other influential regions, but these two have the lead in their respective areas, with a large margin.
In order to understand Shenzhen better, a quick look at its short history provides some insight.
Shenzhen is a special place not just for its role in global manufacturing but also for its history: It was one of China’s first Special Economic Zones (SEZ) announced by Deng Xiaoping in 1979. SEZs have been the Chinese government’s way of experimenting with more free market-oriented policies, and to attract foreign investment. As Encyclopædia Britannica puts it: Special Economic Zones are “localities in which foreign and domestic trade and investment are conducted without the authorization of the Chinese central government in Beijing. Special economic zones are intended to function as zones of rapid economic growth by using tax and business incentives to attract foreign investment and technology.”
Shenzhen’s official city motto translates to this: “Time is money, efficiency is life.”
The SEZ of Shenzhen has been an outstanding success at an almost unbelievable scale. As Juan Du, Assistant Professor in the Department of Architecture at the University of Hong Kong, describes: “The scope, speed and scale of transformation both from a social point of view, and from a geographical point of view, is quite unprecedented in human history.” From an estimated population of 30.000 then it grew to the 10–15 million residents (Wikipedia) today — within less than 40 years. That’s the population of 3–5x Berlin and just about 10–12x Amsterdam. Not bad for a city hardly 30 years old — and famous not for being a city but almost more of a city-sized factory.
Population growth only tells part of the story, though. In a profile of Shenzhen, The Economist shares some economic numbers: “Between 1980 and 2016 Shenzhen’s GDP in real terms grew at an average annual rate of 22% and today stands at 2trn yuan. The city’s Nanshan district, home to about 125 listed firms with a combined market value of nearly $400bn.”
What’s more, Shenzhen invests into research. A lot. According to The Economist, Shenzhen spends over 4% of its GDP on R&D (double of mainland China; in Shenzhen’s Nanshan district it’s even 6%). And it shows. From that same Economist profile: “Benjamin Joffe, a partner at [hardware accelerator] Hax, reckons that Silicon Valley’s experience of hardware is ‘six to seven years out of date’.”
We met with Dr. Silvia Lindtner, an assistant professor at the University of Michigan in the School of Information. Dr. Lindtner has been researching the Shenzhen maker and manufacturing ecosystem for years, with a focus on the role of openness as well as societal implications. Over dinner, she helped us understand a little better how this aspect of the ecosystem has evolved as well as how the ecosystem came to be in the first place.
Being announced by Deng Xiaoping, the Shenzhen SEZ was a top down initiative, decreed by government. Yet, that alone likely would not have been enough. The people of China saw an opportunity there and moved to Shenzhen in droves, participating and innovating bottom-up. This wasn’t business as usual in China of the 1980s. The government strategically looked the other way, de facto creating a framework for permission-less innovation (within limits). The entrepreneurial spirit and ever-growing opportunities combined made for a fantastically potent mix, the results of which we see today.
While Shenzhen is the name associated with manufacturing, many of the actual factories are technically outside of Shenzhen’s city borders, just north towards Dongguan. (Dongguan isn’t included in the population estimate above.) Think of it as the industrial areas north of the city. Depending on exact locations and traffic, a ride of 45 minutes to 2 hours will get you there. Most design houses and liaisons you’re likely required to meet are in Shenzhen proper or in the immediate environs.
Shenzhen: The world’s most mature and integrated hardware ecosystem
If you want to learn about how Shenzhen really work — what makes this most integrated hardware manufacturing ecosystem of the world tick — you want to talk to David Li, founder of the Shenzhen Open Innovation Lab (SZOIL).
In a long series of conversations spanning meetings in London, Shanghai, Shenzhen, Berlin and chats across at least four different digital channels, he provided more than just a little background for our understanding of Shenzhen. David knows a thing or two about this: David researches the role of open hardware and open source for innovation, and how the Shenzhen ecosystem is evolving. He has lived both in the US and China, has a strong technical background as well as entrepreneurial experience, and enjoys credibility in the maker scene (he founded China’s first maker space). These days, as head of SZOIL, he helps build bridges between international companies and the local hardware ecosystem. We couldn’t ask for a better guide.
According to David, Shenzhen can innovate in the hardware sector at a greater speed than any other region of the world. Shenzhen is the largest, most integrated ecosystem in this space. Openness and knowledge exchange are baked into the system. Combined, this all allows for an almost Darwinian approach, a Cambrian explosion of new products in endless permutations: A truly evolutionary approach to product design.
The direct access to Shenzhen’s supply chain is priceless. And it’s a supply chain with access to top-notch prototyping and production if ever there was one.
As several entrepreneurs pointed out in conversations, you can move from CAD in the morning to finished 3D printed model of your prototype the next day — sometimes even quicker.
A week here is like a month elsewhere
“A week here is like a month elsewhere,” , as Noel Joyce describes it. As Design Director for international hardware accelerator HAX he knows a thing or two about fast prototyping. After all, the startups he works with have mere weeks to go from idea to manufacturing.
Because of quick turnaround and low costs, it’s possible to make products for niches (in China, even a niche can be quite large in absolute numbers). An example he gives at a lecture at NYU Shanghai is a couple of years old, but no less astounding today: a combination of phone, flashlight, speaker, battery pack and camera. The purpose? Camping. It could have been a hit product. Likely, it never was.
Each of these factors would be powerful in isolation. But when combined, their true potential becomes obvious.
With a domestic market of over a billion consumers, Shenzhen could make a living selling just to China. But most of the Western world has their manufacturing of smart watches, phones, chips, and USB ports here as well. If you found it on a retail shelf in the US or Europe, your fitness tracker likely originated in Shenzhen. The global South also depends of Shenzhen for manufacturing and is not small market, either: From ruggedized phones with built-in battery packs to last for a month of standby time, to solar-powered reading lamps for school children to study at night, a great deal of technology for Africa is made in Shenzhen.
The implications of a machinery to make this all possible are staggering. From the tungsten mines of Africa to fabric-covered premium USB cables for Hong-Kong based luxury brands, huge global supply chains are routed through Shenzhen. For better of worse, if there ever was a true manifestation of globalization, this is it.
Shenzhen as a hub for innovation & design
Shenzhen is best known for its manufacturing chops. However, this doesn’t do it justice — not anymore. As the ecosystem here keeps maturing, the services offered move upstream. Increasingly, manufacturing is complemented by engineering, design, and consultancy.
This seems to have several reasons:
- More involvement leads to better results. In order to build better products it helps to be involved earlier on rather than just executing someone else’s design decisions.
- As the ecosystem matures, more skills evolve over time. Design school up their game, more Chinese companies grow their design expertise.
- Self-developed products help diversify the revenue stream. As we learned in conversations with factory owners, the global financial crisis starting in 2008 led to a slump in revenue from manufacturing. Factory owners started looking into diversifying their revenue streams, and developing their own products was one way to do so. This meant also building up design capacities.
Whatever the leading reason might be, increasingly it’s possible (and, one might say, recommended) to involve local talent earlier in the process rather than just dropping a 3D model and a list of specifications onto a local manufacturer.
Shenzhen Industrial Design Fair
Some of the best results of local design can be seen at the Shenzhen Industrial Design Fair. We spent a day at the 2016 fair, an expo aimed to display Shenzhen’s design output. This might easily be one of the most concentrated meetings of maker of IoT products globally. It’s very accessible, easy to navigate. It’s not huge, not very dense, but all the big players in the IoT design world are here. (When we were there, alongside Chinese exhibitors there were a few European guest exhibitors, like a maker of handmade-in-Germany furniture and a Dutch designer of cups, of all things. They could not have looked more out of place in this context.)
Of all the Shenzhen exhibits not everything is brand new or groundbreaking. In fact lots of it is more evolutionary than revolutionary. Some products look all-too-familiar, like a lightweight aluminum laptop that turns out not to run MacOS but Windows. Lots of what is on display is high-end, and most things are solution-oriented. The abstraction level is very high — expect to drop from 10k feet to ground level when you go from here to the Huaqiangbei electronics market.
Among products that stood out to me were drones of all shapes and sizes. An electric folding bike for 135€ — I’m told this isn’t particularly impressive, we’d see more and better options. A smart mirror including skin sensor and diagnostics. Beautiful retro game console prototypes made from polished wood. And beacons, lots of beacons.
Micro innovation: A special Shenzhen strength
Shenzhen’s approach of innovation through evolution — trying out all mutations of and combination of features and shapes — provides an edge for incremental innovation, or “micro innovation” as it’s often referred to in China.
Micro innovation becomes possible when the price and time to market allow to run and test products live in the market rather than in focus groups: Rather than A/B testing a prototype, here you can test with actual products in the market. This means an actual market test rather than a simulated one. In theory this makes all the difference, even if of course that test is restricted mostly to Chinese buyers. If a products shows promise, lots of design houses and manufacturers will start to develop their own versions and iterate, tweaking details in design and features.
As an example, consider the smart phone: You’d find them in different screen sizes and screen brightnesses; in different colors; with or without a front- or back-facing cameras; with dual cameras for 3D imaging; with one, four, or eight speakers; with different USB connectors; with one flash light or several; and so on. Once the market has figured out one or several “ideal” designs, all manufacturers will hone in on that design. This way the risk of product innovation is shared across the ecosystem, and rewards are reaped by all. It’s not a fundamentally different approach than in Western markets, but in some ways a much more pure and collaborative one. And it works in much, much, much quicker iterations.
Consider these two examples of micro innovation from World Maker Group:
A contact microphone speaker for 65rmb (under 10 Euros). No connection needed, you just put the phone on top and it starts amplifying your music or call. It’s easier to use and cheaper than bluetooth speakers.
This medical tablet allows remotely consulting a doctor. It has a physical blocker for the camera. The video camera can be disabled by moving a physical shutter across it. This makes the privacy level easy to read and is very secure.
Other examples of innovative or explorative tech in Shenzhen
“The street finds its own uses for things.”
— William Gibson
This smart lamp was design by a group of three 5th graders. That’s right: 10–11 year olds made this connected lamp. Their curriculum includes the necessary skillsets starting in first grade.
Often you’ll see a lot of attention going to one particular category of product which consequentially seems to explode with a huge variety of permutations. During our April 2017 trip we saw this happen to smart rear view mirrors. This is Shenzhen’s tech evolution in action:
This mirror displays a compass and some other bits of data.
This mirror doesn’t seem to mirror anything. Instead it shows a navigation map.
Rather than mirror anything, this smart rear view “mirror” displays two live HD video feeds, one from a front-facing camera, one from a back-facing camera. They are both displayed picture-in-picture: Front-view in large, rear-view in small. Both feeds are also recorded.
Everybody seemed to be working on a robot or two during our April 2017 visit.
A 360 degree camera at Shenzhen Design Week 2017.
An electronic wine aerator at Shenzhen Design Week 2017.
MP3 speaker lamps at Shenzhen Design Week 2017.
A camera-equipped cleaning bot at Shenzhen Design Week 2017.
A smart anti-snore mat at Shenzhen Design Week 2017.
Not every innovation looks high-tech at first glance. Often things look decidedly low-tech or are retrofitted, like this small electric bike.
There are dozens of example of technology that wouldn’t exist anywhere else, but that can be made in Shenzhen to test, evolve, improve. And this potential attracts talent and entrepreneurs from around the world.
David Li shares the story of the kid from Lagos who came to Shenzhen and built POS machines for vendors at Lagos’ street markets. It’s easy to forget that there are a lot of very, very different markets and approaches within IoT, and that Shenzhen truly manufactures for the whole world.
Part of this is has to do with economics of scale. Today it’s cheaper to build a smart TV that runs Android than building a non-smart TV, David explains. The economics of large scale production can do wonderful, weird, twisted things.
A large shanzhai phone maker started branching out into making an electric car. We look it up: It looks a little like a golf cart. The interior seems cobbled together from medical equipment. It has no doors. But: It’s a fully functional electric car — and costs about USD 1.000.
With Chinese companies like Xiaomi, DJI, Makeblocks and BYC, we already see some big success stories in this space. It’s safe to assume that over the next decade, we’ll see Shenzhen entrepreneurs, designers, and manufacturers increasingly establish themselves as innovators with impact beyond far China’s domestic market.
This is where the magic happens: Huaqiangbei electronics market
Without exception, first-time visitors to Shenzhen have one item on their must-see list: Huaqianbei market, the dense labyrinth of electronics suppliers.
Huaqiangbei market is overwhelming, and hard to navigate due to its sheer size. It isn’t just big, though. It’s also incredibly dense. It’s a large downtown area — each block with several buildings of 5–25 floors — you’ll find floors upon floors of sometimes tiny, crammed market stalls selling anything from full computers or robots down to individual buttons, displays, or even just cables.
In their essay “Silicon Markets: Smart Hardware from the Streets”, Anna Greenspan, Silvia Lindtner and David Li describe the market and its role like this:
“Central to this new urban imaginary are the electronic markets of Huaqiangbei, a 15-by-15 city block area, where an enormous array of electronic components and devices are sold, recycled, and assembled. Though the markets are housed in a cluster of multi-story malls, they come from — and belong to — the streets. The Huaqiangbei markets are part of an open source ecosystem of manufacturing (known as shanzhai) that has emerged in China’s Pearl River Delta in the shadows of large contract manufacturing. This open innovation model of technology production has evolved over the last 30 years, feeding off of low barriers of entry, an outlaw spirit, and a corresponding high-speed mode of copy-and-mutate design and production. In the markets, versions of the products on display at the Shenzhen industrial design fair are available at a fraction of the price. Smart watches, wearable bands, and personal drones all can be found for a few hundred renminbi.”
We learn quickly that in Shenzhen, making a product isn’t necessarily about technology. Technology is a commodity. The only thing that counts is, what do you want to make? As David Li summarizes: “Everything here [in the market] is a component for your creation!”
This is where you find the building blocks for your products (from individual LEDs or buttons to ready-to-use screens or cables), the suppliers, maybe even the partners to make it all happen.
“Quaerendo invenietis”,J.S. Bach famously wrote in the margins of his Musical Offering: by seeking, you will discover. Nowhere is this more true than here. No matter what you’re looking for, at Huaqiangbei you’ll find it.
Huaqiangbei looks like a bazaar. However, looks can be deceiving. In reality, while some stalls are resellers of components, others are a window into a factory, a whole supply chain. It’s acceptable to buy a small sample, but really the order sizes here range in the thousands, tens of thousands, or millions.
Most buildings and most floors are highly specialized. For example, there’s a whole building for security. When you enter you’ll find thousands of cameras staring at you.
We’re told that these days a market stall is about USD 1K per month of rent per sqm in these markets. The stalls generate something to the tune of 3 million RMB (USD 430K) revenue per sqm per year. This is serious business.
Tip: When buying a sample, always take a business card. Without it it’s nearly impossible to find the stall again.
Taken together, Huaqiangbei provides an excellent snapshot of global consumer electronics trends: If it’s here today it’ll be on shelves around the world in a few months.
The market is for components, be they cables or complex electronics. This isn’t a consumer market. Unless you really know what you’re doing, what you’re looking for, and how to assess quality, you need an interface.
Quality management is up to the buyer, not the manufacturer or seller. Again, this isn’t a shopping mall for consumers, but an expo for professional buyers.
Tip: Please note that filming at the market requires a special permit. On one visit both of our teams had cameras, and both got approached by security within seconds of entering the building. Partially this seems to be to avoid footage of counterfeit goods: The government wants to clean up the market and its image. Several people referenced a British TV crew that came in under false pretense of shooting positive coverage and using the material for an exposé of fake goods. For the time being security seems a little on edge. It’s possible to arrange permits to film in the market, though, through the building management. Your fixer/translator should be able to help arrange them on short notice.
To give you an example, consider the hover board. In the West they frequently made the headlines because the batteries would go up in flames. According to David Li the reason is simple: There were two basic models of hover boards: one “premium” for the Western markets and a slightly cheaper version for more price-sensitive markets, especially in South-East Asia. For these lower-priced models, the hover boards were made without the chip that ensures batteries won’t overload: Scrapping that chip would reduce the bill of materials by 50 US-cents or so, a not-insignificant reduction of the final retail price. In these countries electricity is more expensive and electronics tend to be unplugged whenever they don’t need charging — unlike in Europe and North America, where things frequently stay plugged in. It was bad value judgement of entrepreneurs who started importing the lower-priced models (the ones without the overload-protection) to Europe and the US. When plugged in over time and beyond full charge, they would lack the protection against going up in flames — so they did. Again, it’s the buyer’s responsibility to state exactly what they are looking for, not the seller’s.
Shopping for 2016 ThingsCon lanyards in Shenzhen from ThingsConAMS on Vimeo.
This video gives you an impression of what it’s like to shop at Huaqiangbei market.
As fun as it is to scout for parts at Huaqiangbei market, the better way for most Western entrepreneurs to build products in Shenzhen is to go through a design house who can guide through the whole process, from prototype through design and manufacturing to launch.
How to interface with the Shenzhen ecosystem
It’s common, but not at all recommended, to just drop into Shenzhen with a ready prototype and try to find someone to make 500.000 units from that prototype. This approach is extremely tricky and most likely to cause severe issues.
Instead, for desirable outcomes it helps to talk to local designers, engineers and manufacturers early in the process and involve them, and their tremendously deep understanding of all processes and techniques involved.
A key role in doing this is played by design houses.
Painting in broad strokes, design companies play a slightly different role in this ecosystem than in Europe or the US. Rather than focusing on concept work and refinement of products, the value here is in getting you all ready to ship.
The service offering isn’t just design. Rather, it encompasses the whole process from design to engineering to design for manufacturing; extends to finding the right manufacturing partners; and finally includes quality assurance.
Industrial design houses are also great interfaces for sourcing. They’re one abstraction level up from technical solution houses, and they bring with them the connections to technical solution houses.
Beyond that, design houses might offer to partner with everything, including full partnerships and investments, which increases their stakeholdership and reduces risk for foreign entrepreneurs.
Technical solution houses
Shenzhen is full of so-called technical solution houses. Solution houses build very specific technical solutions, help you solve specific issues, like finding, building, or adapting a certain board. Most customers don’t ask for exclusivity, so these solutions can usually be re-used. There are somewhere between 5–10K of them. They can help you source. How do you find a technical solution house?
Wechat is the platform to find people and connect. You toss your requirements into a dedicated Wechat group and ask: “Who has this?” You get a pretty good hit ratio: Chances are that either someone already has what you need, or they can help adapt it.
A lot of knowledge — technical, design, software — is buried in these technical solution houses. It’s often undocumented. This makes it hard to research: There might be really short roadmaps that aren’t shared. Wechat allows these providers to identify themselves and say: “Oh yes, we’re working on this, it’ll be ready in 4–6 weeks.”
Harm van Beek, partner at The Incredible Machine and technical lead for the Velocracy project, confirms this from his experience: Searching for bike lock companies, the team found one through Wechat and arranged for a meeting to discuss details. It was all arranged within days, if not hours. “We definitively didn’t find what we needed at the market. What we were looking for was too specific.”
Sometimes, we’re told, someone might also get back to you and say: We’ve done this a year ago and couldn’t sell it. Are you sure you want to do this?
Timing matters a great deal: During our last visit 6 months ago, smart bike locks were a fringe offering. Now, due to the big boom in sharing bike companies, there’s a wide range of offerings. If something is in demand, more people will be working on it.
Please note that these channels are strictly for professionals, not hobbyists. David Li of the Shenzhen Open Innovation Lab cautions that wasting anyone’s time is not appreciated.
Asking about consultants, this is joking the response we got from David Li: “There are no consultants in Shenzhen. No shipping, no money.”
Ideation vs shipping
Ideation does not seem to be as big a concept here as it is in the West. “This is business,” we’re told. Why, it seems to be the thinking, hire a design consultancy to run a workshop that defines the minimal viable product or core features if you can just build variations of the product and test them in the market under real-life conditions? It’s a fundamentally different approach to figuring out market fit, one that only works in this ecosystem.
Real-market A/B testing
Having access to cheap and fast manufacturing means you can do real world A/B testing. After 3 months you know what works. This is also a way to hedge your bets. For a product design company, the risk and investment of a new product is high, the model is similar to VC funding. Maybe one in ten products is really successful. Raising the level of experimentation, by lowering the barrier to market testing, the overall risk is lowered.
Design vs design for manufacturing
There’s not really a distinction between “design” and “design for manufacture”. It’s all designed with manufacturing in mind, from the very first moment.
The traditional and dominant model of collaboration is a partnership: Rather than just bringing a big bag of cash and buy the design and manufacturing straight up, revenue share is also common. Manufacturers are often willing to forego their upfront investments in designing a product for a partner in exchange for revenue share. All parties are in it together. Once initiated, this partnership process can move quickly. Be sure to know what you need and are willing to give in exchange.
Trust local talent
It’s possible and highly recommended to tap into the local knowledge and expertise. Folks here know how to build things highly efficiently and cost-effectively. Engineers most likely know how to reverse engineer hardware products, too, and hence can quickly assess how it might be possible to improve them.
Relationships are key
Shenzhen works through personal relationships. Developing personal relationships and establishing trust is absolutely essential. Introductions through shared acquaintances are priceless. Allow for time to build these relationships as for without them your efforts are likely not going to work out. Especially don’t just try to throw more money at something rather than fostering trust and respect. As we learn in our conversations this is culturally inappropriate and unlikely to yield desirable outcomes.
What is it you want?
Entrepreneurs can ask for anything to be made, in any way they want it made. Chances are Shenzhen can make it work — or so we’re told. It helps to specify exactly what it is you need and why. This empowers partners to make better choices in their customers’ and partners’ interests. It’s also essential to do the research to be aware of the tradeoff these requests might entail. For example, asking for fair wages might up the labor costs, while pushing for lower prices is likely to negatively impact wages. This is not on the manufacturer but on the customer specifying their priorities and putting their money where their mouth is.
This is the theory — how well it works in practice we had no chance of confirming.
There’s a clash between the traditional, restrictive Western model of intellectual property (IP) and the much more open, knowledge sharing-oriented approach of both the open source community and the Shenzhen hardware ecosystem.
Whereas traditional IP protection assumes innovation through limited access, open source assumes innovation through faster exchange of ideas and code. Painting in broad strokes, Shenzhen tends towards a hybrid model where hardware and software isn’t necessarily formally open sourced (i.e. published under open source licenses) but there is a strong, deep exchange of knowledge.
This approach to IP can be distressing to more traditional Western entrepreneurs. If you fall into that category Shenzhen might not be the right place for you. The key, we’re frequently reminded, is not to see Shanzhai and this open sharing as a problem but to embrace it as it enables deep skill sets and an extraordinary talent pool.
Involve local experts
Without local experts with an eye on the ground trouble is unavoidable in a context as fluid and fast-moving as the Shenzhen hardware ecosystem.
As an example, consider the Silicon Valley hardware accelerator HAX that has a permanent operation in Shenzhen where startup teams rotate for a while to prototype and to get ready to ship. HAX has a person on staff full-time just to be part of the local manufacturing backchannels and conversations. His role is to know about what tech is in the pipeline, which chipsets are likely to be manufactured in 3, 6 or 9 months. All too often a chip or some module is produced only for a few months and then never again. If your product relies on a part that’s going to disappear, the delays can be painful and expensive. You need people on the ground who know about these things well in advance.
Organizations like David Li’s Shenzhen Open Innovation Lab can help you identify good local partners to talk to. Also make sure to talk to people onsite you trust. There’s a growing network of people who have experience in Shenzhen, across Europe and in the US. Many of them have been in similar situations and will be happy to share their experiences and contacts, and expect the same from you.
Organizations that can help you get started in Shenzhen
Choosing the right partners to work with can be overwhelming, especially remotely and through a language barrier. However, you might not have to start from scratch: There are organizations in place to help.
Shenzhen Industrial Design Profession Association (SIDA) is a non- profit organization founded in 2008, primarily supported by Shenzhen municipal government as a first-class industry association. Members include institutions that provide services for industrial design chains and the relevant organizations such as design firms, manufacturers, handicrafts and material suppliers, brand planning and marketing institutions, design schools, research institutions and so on.
SIDA is also the organization that operates Shenzhen Open Innovation Lab (SZOIL), co-founded by our Shenzhen host David Li. Established by SIDA and Maker Collider, SZOIL is a space and platform for worldwide makers to communicate and cooperate. SZOIL is also the first Fab Lab in Shenzhen authorized by MIT CBA as a research and development partner of FabLab 2.0. The lab is dedicated to developing solutions to connect the massive production ecosystem of Shenzhen to small hardware startups and to promote the international standing of Shenzhen in the development of digital intelligent hardware and manufacturing, and build a future intelligent hardware Silicon Valley by combining open source methods and current manufacturing systems in Shenzhen.
Both are worth reaching out to and might just help you find the partners you are looking for.
We also found that there is an extensive network of people on the ground that have a massively international footprint, are easy to reach, and willing to help connect to the local ecosystem. As so often, a friendly outreach email or Wechat message goes a long way.
Visiting a bike lock manufacturer
Some first hand impressions from a product meeting with a manufacturer. Please note that details are deliberately vague and names unmentioned. The questions and answers are reflected as best as quick notes allow; some are paraphrased.
Velocracy in a nutshell: Velocracy is a decentralized, open-source bike sharing network built with fair pricing, privacy, and transparency in mind, and designed to stimulate the growth its bike network. As Marcel Schouwenaar describes the project in an interview:
“Velocracy is a system of open-source city bikes expanding itself through use and rental. Every bike has a lock that opens when you check in with your smartphone. You use the bike and pay automatically with a bitcoin-like payment system as soon as you close the lock. The lock saves the payments until the bicycle has earned enough money. They cash the money in order to add a new bike to the network. This way, the system spreads through the city like a virus.”
We figured that Shenzhen is the perfect place to explore this. Shenzhen is one of the hotspots of a war of bike sharing platforms that rages across most of China’s first and second tier cities: National bike sharing services like Mobike, Ofo and BlueGogo compete aggressively for users among each other, but also against dozens of smaller, city-level operators. The Guardian has some impressive statistics: “Hangzhou — an hour west of Shanghai by bullet train — is slightly larger than London by population, but its share system is five times the size.”
In other words, China is the perfect place for a Dutch design studio to work on a bike sharing platform. Velocracy aims to go beyond traditional bike sharing: This connected bike lock would be as open-source as possible, it would be part of a fully decentralized and — as far as possible — “ownerless” structure, and secured by blockchain technology. It would also be the perfect test case to gather first-hand experience with the Shenzhen hardware ecosystem.
For Velocracy, we visit a manufacturer of smart bike locks that seems to have worked with domestic bike sharing companies. Our appointment is based on minimal context, yet we’re welcomed with open arms.
Besides the core Velocracy team (Harm, Anh, Jan-Geert), we bring along a few extra people for research and documentation purposes, bringing our headcount to a whopping 6–7 people. Our somewhat baffled contact handles our group gracefully. “You brought the whole company!” He laughs, friendly. We pile into a bare, smoky, neon-lit conference room. The office was brand new, the company had just moved in.
We learn that the founder — they refer to him by full name, or just as “the boss” — first started building bike lock solutions around 9 months ago, during the first share bike boom.
A recent report predicts around 30 million so-called smart bikes to be shipped by the end of the year. Smart bikes can be unlocked via a smartphone app — a requirement to allow for a bike sharing service. Currently the share bike market is roughly split 50/50 between the big players (Mobike & co) and smaller, often more local players.
This company, our contact states, provides the whole solution around smart bike locks, which includes an Android app, cloud backend, locking system: The locks work via an industrial (M2M) data SIM card from one of the big telcos, and is based on an ARM chipset (MT61/62, with GPS, GPRS, BLE support). The chipset name is one of the first things our host mentions: Clearly for everyone working in bike locks this seems to be a well-known core building block. Our faces may have looked blank.
As a matter of establishing credibility, we learn some statistics, and some general background about the bike sharing market: Of the 50K locks they ship, about 50% use their default cloud solution, the other 50% develop their own. The biggest bike sharing services are Mobike and BlueGoGo. This tracks with what we’ve seen in Shenzhen. Mobike’s presence seems to tower over all the others, followed by the BlueGoGo bikes. Many smaller cities have their own, local bike sharing services. All in all, this makes for a very colorful cityscape full of rows upon rows of orange, yellow and blue bikes. If I heard right, he mentions there are about 2.000 “smaller cities” in China. Since they work with lots of smaller providers in this space, this clearly offers an exciting outlook for his company.
Throughout the conversation, questions come up, and are quickly answered:
Q: Can it be modified as per our specs? A: “I guess.”
Q: Would this work abroad? Does it use the same bands and frequencies? A: “It depends. But the next generation lock is going to.” They are working on a version for another country. This next generation will be ready in mid-May. This is four weeks from our visit. He makes it sounds as if this was a long way off.
The casing is 3D modeled in-house, manufacturing is outsourced. The PCB comes from one of their shareholders. “The most important components are designed in-house.”
Harm explains Velocracy: Blockchain, decentralization, crypto, the whole spiel. How different an approach this is in terms of cloud integration and all. Our guy puts on his poker face and listens intently. He seems unfazed.
Q: Will this be possible, you think? A: “Technically it’s not very hard. It’s a business thing.” Meaning: Special requirements cost extra. “They’re not ready-made. We need to start a new project to work with these requirements.”
Q: Is this PCB your own intellectual property? A: Yes, it’s their own design, via their shareholder. The software comes from an industry partner.
Harm takes the next leap: Open source. Reaction: Some chipsets etc. are probably not available under open source license. It might be possible to switch to an open source platform. an “Arduino-like platform” is potentially possible. “Arduino-like” in this context seemed to refer to open source hardware, but I’m not 100% sure. In other words, open source seems to be a potential issue, at least with the current components.
Samples would run about RMB260 (€35) per lock. The battery runs about 1 month without solar panels. In Europe this might be better as — for legal reasons, technical, or network traffic-related ones? I’m not sure — less frequent network pings are required and this saves lots of energy. In Europe, as far as I understood, a ping is required every 30 minutes or so, in China much, more more frequently.
Q: What do you do to prevent tampering with the locks? A: The front requires a special screwdriver. The locks have alarm capability, but it’s quite sensitive and currently disabled by default. Occasionally the system checks for GPS location.
Q: Is a test with 20 bikes possible? A: Currently not, because of the different bands. This requires the next generation lock and software. Remeber, these are scheduled to be ready in a month. Here it’s considered so slow it almost sounds like a deal breaker.
Q: Which frequency bands are used in China v Europe? A: They call an expert on the phone to get detailed answers.
While our contact talks on the phone, the boss joined. He’s super young, maybe 25. He demos the lock by unlocking it via his phone app: The metal bar snaps back without prior warning. Lying there on the conference table this is super loud; his colleague on the phone doesn’t seem to mind and keeps on talking to their engineer.
Q: The lock seems much lighter than expected. Why is this lock so much lighter than the competition? A: Aluminum casing, and the most lean design.
Q: We want to build our own cloud backend for testing. What would we have to do? A: API calls. Http, MQTT. The usual.
The source code as is can’t be shared. Everything else can be. It’s also possible to get custom firmware made for this project. The cloud part can also be deployed in Europe if the team choses to stick with the default cloud solution.
Harm goes for the moment of truth: Can we take home a sample lock? (We all take a deep breath.) A: “Sure, sure.” But: “What would an agreement look like?” We assume he means a business arrangement, financial deal or the like. We learn he’s referring to contractual questions regarding doing business with a non-Chinese company. There’s paperwork to take care of. We pledge to get learn what’s necessary and report back.
Harm: “Let’s connect on Wechat.” Contact: “I’m surprised! We can have a group!” Still, many Western companies show up without Wechat, which slows everything down. A few seconds of scanning later, we’re in a group with our contact and the CEO.
Ethical considerations when designing data-driven products to manufacture in Shenzhen
Building connected products and services comes with its own set of particular challenges. This holds especially true when working with sensitive data — like in the case of many connected products — and when designing for manufacture in China.
The questions and challenges around data layer and data practices — especially privacy — are highly technical, complex, and defined by these long-term, data-driven implications. These implications are significant but often hard to understand, and even harder to discuss. Especially privacy is complex, contextual, cultural, fuzzy. It is hard to get right, which is essential in the context of IoT.
Getting it right starts at the source, with design and manufacturing.
There are ethical and business implications around manufacturing and labor with which I have very limited experience and about which cannot talk knowledgeably, so I won’t. During our visits we mostly saw very well-run operations; we are in no position to extrapolate from these selected visits.
When it comes to embedding values in products and manufacturing as well as design processes, the Shenzhen infrastructure seemed neither moral nor immoral. Instead, it’s best described as indifferent: What happens and how only depends on the entrepreneurs who orders the goods. What do they want, what do they ask for, what are they willing to pay for?
It often seems that Western entrepreneurs complaining about Chinese manufacturing standards might not have done their own homework in terms of planning, establishing ground rules, and quality assurance.
There is, however, a stark systemic contrast in terms of business incentives to the West. Where especially in the Silicon Valley model value is assumed to reside in data, Shenzhen sees value primarily in hardware. Silicon Valley’s business models (and hence funding structures) aim to generate and extract value from data of all sorts. Shenzhen makes money on selling physical products, preferably in huge volumes. This has significant implications. For one, business incentives in Shenzhen aren’t stacked towards capturing and monetizing user data but at making hardware and selling it (with as high a margin as possible).
Inherently this means a lot less interest in capturing any data whatsoever: In many conversations user data was considered a liability rather than an asset. To some degree, this is a boon to privacy and data protection. It also means that Shenzhen companies have less of a history (and hence less deep experience) designing services as compared to stand-alone products. Something to keep in mind and adjust expectations accordingly.
That said, there are tremendously successful, large digital services in China that build heavily on data mining. Wechat comes to mind, Tencent’s ubiquitous chat-plus-payment-plus-everything-else app.
What about security?
Security and the internet of things are not, historically, on good footing. Most of the time when IoT makes the headlines it is because of a security breach.
Just within a half-year before writing this, significant breaches included: — Mirai botnet, a massive DDoS attack that used unsecured IoT devices (mostly security cameras) as an attack vector. — Connected doll Cayla that could record and play voice. Alas, it was also easily hackable through an unsecured Bluetooth connection to spy on, or spook, kids. — More than 2.000 computers running San Franciscos’s public transport system MUNI were hacked and held ransom for 100 bitcoin.
These are just three high-profile examples. There were many, many more.
For IoT, especially price-sensitive consumer IoT products, security is an externalized cost: consumers aren’t (yet) willing to pay premium for security, so sellers don’t secure these devices. Consumers and the larger network bear the costs. Every time a high-profile security breach happens, the whole field of IoT suffers as consumer trust erodes.
Needless to say, this has to change. And likely, this change requires a joint effort by all parties involved, from consumers to product designers to policy makers.
For those readers who are involved in making connected products, keep this in mind. Security cannot be “added later”. Security has to be an integral part of the design process from day one, and it has to be part of all practices and processes.
Open practices & knowledge sharing
The Shenzhen ecosystem is characterized by integration and openness.
You’ll find a deep integration both internally (design houses and manufacturers work hand in hand) and into global supply chains of all sorts: From the raw materials out of African mines to the final product on a shelf in an American consumer store, everything goes through Shenzhen at some point.
This integration goes hand in hand with an embedded openness as it means that talent moves from company to company and from project to projects easily and fluidly. A get-things-done attitude drives a largely informal knowledge exchange. The preference for partnerships in which all partners have skin in the game requires inherently intense sharing.
This openness is worth exploring at some more depth as it is something that many Western entrepreneurs and designers struggle to understand.
On one hand it leads to a deep and broad expertise in all things related to hardware design and manufacturing. This expertise, it could be argued, is deeper here than just about anywhere else in the world — at least in this broad, systemic sense. Knowledge and best practices also tend to be shared fairly openly. Designs are frequently shared or reverse-engineered. This allows for best practices and de facto standards to emerge organically and quickly. This, in turn, leads to ever-quicker prototyping and product development.
On the other hand this approach isn’t always compatible with the more restrictive Western understanding of intellectual property. However, it leads to fantastic skills and speed of development. Nowhere else can you build something anywhere as quickly, and often as cheaply, as in Shenzhen. These two aspects are two sides of the same coin and cannot meaningfully be separated. You can’t get one without the other.
As we learned throughout many conversations, this openness to share has its limits even in Shenzhen: Especially newly developed early stage prototypes out of R&D departments are kept under wraps even in Shenzhen. However, as far as already developed hardware, skills, techniques and best practices are concerned, we found a much higher willingness to share than in most commercial contexts in the West. Maybe the best comparison would be with a maker/hacker space in New York, London, or Berlin, where people will share all there is to share about their tinker projects and document them publicly — but as far as their own new commercial hardware company is concerned, they might not be as forthcoming.
Silvia Lindtner is an assistant professor at the University of Michigan’s School of Information where she researches transnational networks of innovation and entrepreneurship culture, DIY making and hacking, as well as science and technology studies in China. She has been doing research of Shenzhen’s open innovation ecosystem for years. When we spoke to her she mentioned the enormous scale of devices and production in a variety unlike anywhere else, and explained: “At the heart of this ecosystem (…) is an open culture applied to manufacturing. [It is] a kind of open source out of necessity. People came to Shenzhen to make a better living.” The entrepreneurs each ran comparatively small manufacturing operations. They teamed up to be able to compete with giants like Apple, Samsung, or Huawei.
Right now it’s only in the West that we haven’t seen a open source hardware ecosystem working.
It’s worth noting that there spectrum of hobbyist makers on one side and commercial hardware operation on the other is much more fluid than it tends to be in the West. David Li explains: “Here there is very little differentiation between ‘I want to make this for fun’ and ‘I want to make this for profit.’ There’s no binary distinction of the mindset of makers and startups.” This makes a big difference in how to approach openness. Often in the US and Europe makers would share openly what they do. But once they set up companies and prepare to raise money, IP protection becomes a priority. This isn’t the case as much in Shenzhen.
Here you don’t necessarily have to choose between open and proprietary as you move into a more commercial space. In this context, open source and business are perfectly compatible. Or as David puts it: “Right now it’s only in the West that we haven’t seen a open source hardware ecosystem working.”
Shanzhai & Gongban
Two key concepts you need to know about in order to navigate Shenzhen and that we highly recommend you embrace if you ever want to do any business here:
Shanzhai used to be the name for counterfeit consumer goods. These days its use expanded to also include the reverse engineering practice that leads to cheaper or improved goods of a very similar nature: It’s the basis for Shenzhen’s evolution-like approach hardware.
As Wikipedia describes it: “Although ‘Shanzhai’ companies do not use branding as a marketing strategy, they are known for their flexibility of design to meet specific market needs.” As such it’s an essential part of how the Shenzhen market works.The Atlantic summarizes Shanzhai’s impact on innovation as follows: “the Shanzhai ecology has moved beyond cloning and enabled a wealth of iterative innovations including dual-SIM for frequent travelers to avoid roaming charges, seven-speaker phones for workers to listen to music at construction sites, and custom-designed phones for migrant populations unable to afford the latest smartphone.”
Gongban and Gongmo are reference hardware building blocks. Gongban refers to public/open boards, Gongmo to public/open casing. Think de facto standards for building blocks like circuit boards that organically emerge because they work well and developers can easily re-use and re-purpose them.
Once there is a community of developers who know a board inside and out, it’s adopted by the market, which attracts more developers, and so on. It’s a self-reinforcing circle. It’s kind of like open source hardware, only nobody takes the extra step of officially open-sourcing and documenting it. Gongban and Gongmo pieces can be used to make smart phones, smart watches or smart homes more cheaply and more quickly. This reduces the development process to almost plug & play. The designs for Gongban and Gongmo hardware are distributed for free. Manufacturing companies make money by manufacturing and selling the components.
Noel Joyce, design director of the international hardware startup accelerator HAX, explains the de facto open source approach of Shenzhen like this: “The market is an open book that anyone can learn from. Even the Shanzhai movement, regardless of what the product is: To utilize [non-malicious copying] to help you to understand more is a very powerful and enabling thing to do.”
Between Shanzhai, Gongban, Gongmo and regular white labeling it’s possible to get to working prototypes or even final products made from (nearly) ready-to-go components and modules in astonishing speed. As Noel Joyce puts it: “One month here is like a week anywhere else. The speed, the iteration cycle becomes so much faster.”
Clearly this mode of operation isn’t for everyone. But it’s important to remember that not every IoT startup needs to start from scratch when building the hardware of their connected service: In many cases, using existing building blocks might be a way to speed up the process, reduce costs, and lower the chance of massive development delays.
“Made in China”
China is trying to shed the image that had for decades been associated with the Made in China label.
In her 2010 book Brand New China: Advertising, Media, and Commercial Culture, Professor of Chinese media and Cultural Studies at MIT Jing Wang (p.135–36) explains how there’s a major rebranding effort going on, and has been for a while. She specifically mentions advertising agency Saatchi & Saatchi’s efforts starting around 2000 to make Made in China a premium global brand.
Wang elaborates (p.136): “No one disagrees that China is the ‘perpetual market of tomorrow’ and the world’s largest selling and buying country, but as a brand, the country’s name is a negative factor for many and anathema for some.”
So the idea was that if Made in Japan had been able to shed its earlier “cheap and chunky” image, so could China shed it’s negative image for cheap, low-quality manufacturing too.
David Li first pointed me to the history of the label Made in Germany. It’s a fascinating history (Wikipedia): “The label was originally introduced in Britain [in 1887] to mark foreign produce more obviously, as foreign manufactures had been falsely marking inferior goods with the marks of renowned British manufacturing companies and importing them into the United Kingdom. Most of these were found to be originating from Germany…”
In other words, Made in Germany was a consumer protection measure, a warning against inferior goods imported from Germany. That was a long time ago, and the image associated with that label has changed profoundly.
How wrong and outdated might our current conception of the quality of “Made in China” be? From what we’ve seen so far in Shenzhen, there is a lot of high-quality design work done locally. We know that the manufacturing can be done here in all levels of quality. After all, cheap USB cables are made in Shenzhen alongside premium products like iPhones.
Purely anecdotally, when we tried out an immersive VR simulation inside a Huaqiangbei showroom for high-end technology, we experienced that all that glitters is not gold, even in high-end showrooms. The VR experience consisted of a suspension bridge flanked by two green walls. Equipped with headphones and VR headset you’d cross the physical suspension bridge; within the simulation there would be a dramatic setting of a suspension bridge breaking, with lots of rocks and fire all around flying through the air, maybe from a volcano eruption. Once I was two thirds across the bridge I crashed through it. I was confused for a split second: Had this been such an intense simulation that my mind successfully tricked me into this experience? It hadn’t: One of the wooden planks of the bridge hadn’t been fastened and I had fallen through the actual, physical bridge.
Half laughing, half in shock I stood their and watched the attendant quickly take a look at the situation and then retreat. I got away with a bit of a shock, a slightly bloody shin, and a good story to tell. This, too, is Made in China — and a good reminder that quality control is up to the buyer.
Certainly the government is very aware of its image, and of the impact soft powers like image and branding can have. That’s presumably part of why filming in Huaqiangbei market is restricted — to limit the visibility of knock-offs and other Shanzhai products. It’s one step on the way to cleaning up the image of Made in China.
What is “Made in China” going to mean in 5, 10, 50 years?