SHANZHAI (“BANDIT”) MOBILE PHONE
COMPANIES:
The Guerilla Warfare of Product Development and
Supply Chain Management
Presented By:
Ricardo Garcia
Presentation Outline
• What is Shanzhai?
• Chinese Shanzhai Companies and characteristics
• Shanzhai Mobile Phone Companies and their
Phones
• Product development processes
• Technology, Production
• Government approvals
• Challenges facing Shanzhai
• Pictures
What is Shanzhai?
• In Chinese, means a bandit’s mountain
stronghold outside of government control
• Refers to companies that operate outside
traditional rules and practices
• Chinese imitation and pirated brands of
goods, particularly electronics
Chinese Shanzhai Companies
• Produce many types of low end products used
in daily lives of Chinese consumers
– Computers, televisions, cars, hand bags, skin
cream, mobile phones, and other products
• Initially Shanzhai targeted lower income
consumers, over time has gained popularity
among a broader range of users
Common Characteristics of Shanzhai
Companies
•
•
•
•
•
Initially focuses on domestic market
Target mostly mass customers
Strive for short cycle time
Focus on cost
Tailor product features and functions to local
requirements
Shanzhai Mobile Phone Companies
• Produce low end phones imitating known
brands
• Do not use branding as marketing strategy
• Known for their flexibility of design to meet
specific market needs
• Do not obtain NAL (Network Access License)
and IMEI (Mobile Equipment Identity)
Shanzhai Mobile Phones
• Designed and manufactured in China
• Other Markets: Asia, Africa, and Latin America
• Some are knockoff products, copying or
mimicking the functionality and appearance of
well known models from established brands
Shanzhai Mobile Phones
• Counterfeit handsets bearing names similar to
known branded companies
• Sometimes hard to distinguish between genuine
and counterfeit products
• Many Shanzhai models have intentionally
misspelled brand names
– Examples:
• Nckia instead of Nokia
• Sumsung instead of Samsung
Ways to Identify a Fake Mobile Phone
• Brand name misspelled
• Phone does not support English
• Phones of same model are different sizes and
shapes
• A logo upside down or back to front
• Price too good to be true
Product Development Process of a
Traditional Company
•
•
•
•
•
•
Concept design
Determine availability
Prototype developed and tested
Negotiation with suppliers
Launch product
Manufacturer applied for the approvals
needed to sell handset in China
• Development time, 4 to 6 months
Shanzhai Product Development
Process
•
•
•
•
Simple conceptual design
Research relies on input from distributors
Design often imitates popular existing designs
Testing and quality inspection usually omitted
or performed in a superficial manner
• Selling without proper branding
• Found ways to bypass the required
government approvals
Technology in Shanzhai Mobil Phones
• A mobile phone is basically a radio that
communicates with a base station using
sophisticated electronics
– Enable large number of phones to simultaneously
communicate to the same base station
– Provide sufficient data transfer speed to enable
voice and data to be sent and received from
handsets and base stations
Technology in Shanzhai Mobil Phones
• Mobile phone chipsets- provide
communications functionality and a computer
for the interface and other applications
• MediaTek is a chipset supplier for Shanzhai
mobile phone industry
– Introduction of turnkey solution
– Was used by both mainstream and Shanzhai
mobile phone companies
Shanzhai Handset Production
• Production time required from conceptual design
to mass production could be as short as 45 days
• 8 days to analyze and copy a new model,
including circuit board, software, and structure
• Shanzhai companies did not get NAL (Network
Access License) resulting in faster rate and lower
prices
Government Approvals
Between 1999-2007, two government approvals
were required to legally produce handsets in
China
1. Handset production license- for
manufacturing of handsets in China
2. Network Access License (NAL)- required for
every model of telecommunications product
sold in the country
Government Approvals
In 2007, The Production License System was terminated
• Any company could now legally produce mobile handsets in
China
• Some Shanzhai handset makers became mainstream
suppliers
• Companies still needed the Network Access License (NAL)
in order to legally sell handsets in China
• Mainstream mobile phones had a unique International
Mobile Equipment Identity (IMEI) number
Challenges Facing Shanzhai Mobile
Phone Makers
• Established brand companies pressuring the
Chinese government to crack down on
Shanzhai mobile phone companies
• Product quality, tax evasion, property rights
• Security concerns, Shanzhai phones did not
have International Mobile Equipment Identity
( IMEI) codes and can not be tracked
Shanzhai Phones
Shanzhai Phones
BUS 550 CASE QUESTIONS
Shanzhai (“Bandit”) Mobile Phone Companies
1.
a)
b)
c)
d)
Which is NOT a common characteristic of a Shanzhai company:
Focus on cost
Strive for short cycle time
Initially focused on domestic market
Invest in R&D for quality improvements
2.
a)
b)
c)
d)
Shanzhai Product Development Process includes:
Selling without proper branding
Research relies on input from distributors
Simple conceptual design
All of the above
3.
a)
b)
c)
d)
What license system was terminated in 2007:
International Mobile Equipment Identity (IMEI) system
The production license system
Network access license (NAL)
None of the above