The "Shanzhai" business model

Remember Shanzhai? What used to be the celebration of imitation bordering on a cultural movement is now becoming a business model.

Tianyu, a contract-manufacturer-turned-handset-maker, is slowly but surely grabbing market shares from more established companies like Nokia or Samsung. In a few years, it has become the biggest local handset maker in China, shipping 55 millions units in the first quarter of 2010.

Its secret? First, a good knowledge of Chinese users’ needs. Their phones have small function-oriented designs and features, including ultraviolet light for counterfeit bills, dual SIM cards to take advantage of the best pricing schemes or loudspeaker for farmers. Second, the capacity to turn around quickly. Thanks to modular production, manufacturers like Tianyu are able to produce small batches (1000 handsets) and send them to the market. Within a fortnight production can be adjusted, keeping the full product life cycle below 6 months.

As usual, the question is whether such firms can survive in the long run. Previoulsy leading Chinese handset manufacturers (like Bird or TCL) were not really able to hold on to their competitive advantage as their established foreign rivals …imitated them.