Shanzhai Rules

Here are the rules the shanzhai live by:

  1. Do nothing from scratch; build on the best of what others have already done.
  2. Innovate process ceaselessly at small scales for speed and cost savings.
  3. Share as much as you can to make it easy for others to see your value and to add value to your process.
  4. Sell it before you make it.
  5. Act responsibly within the supply chain to preserve your reputation.

The shanzhai regularly exchange ideas and have a keen sense of who is good at what. Eric Pan, founder and CEO of Seeed Studio, reports that without concern for intellectual property, the shanzhai have created a set of public, or open, tools and processes, such as an open Bill of Manufacturing, open boards, and open cases for building electronics like phones and tablets, that make their supply networks transparent. Keeping secrets in the supply chain has a cost that shanzhai are not willing to bear. “If sharing my specs with you means I close a deal faster, I will share it with you. Waiting a day to sign an NDA means a day longer I sit on my inventory,” says Bunnie Huang, well-known American hacker and VP of Hardware Engineering and Founder at Chumby.

"The Mi-Obama phone, modeled after the Nokia 5300 XpressMusic, was produced for the Kenyan market in just a few months after Barack Obama’s election as president of the United States, and sells for around $30.00

Since the system relies on outsourcing everything, a set of common processes also helps efficiently circulate work to the most skilled players. Transparency is a form of self-promotion and helps others see where they can add value to your supply chain without you having to search them out yourself. There is also a certain fatalism about trying to keep new inventions secret in a world of knock-offs. “If it’s going to be copied anyway,” says David Li, social gaming consultant and Foreman at China’s first hackerspace, Xinchejian, “it may just as well be open and shared.”

What doesn’t get shared is what lies at the heart of the shanzhai value proposition for the consumer. On top of the hyperspecialized platform of the Chinese industrial clusters, the source of individual value for each shanzhai manufacturer is an eye-popping, never-ending diversity of features and designs that create new consumer experiences. Take a tightly integrated and highly competitive design-to-shelf supply chain, combine it with a lack of IP enforcement, and you get a class of small-scale manufacturers who can respond more flexibly to the emerging whims and desires of the market.

In-depth video tour of shanzhai market, part two 

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