No longer faking it

The end of an era for Chinese ‘shanzhai’ mobile phone manufacturers?

No longer faking it

Knock-off Vertu, called ‘Veptu’

For as little as $6, you will soon be able to turn television-watching into a 3D experience. Even better: those over-sized 3D specs may soon be designated for the dustbin.

At least that is the claim from the makers of a prototype smartphone device unveiling a display function that converts 2D videos into 3D for the naked eye.

The inexpensive chip, containing technology pioneered by Tsinghua University, will soon be integrated into televisions made by Foxconn and Haier, says the Shanghai Daily.

It sounds a little unlikely? Mobile phones are more often at the forefront of China’s shanzhai debate (a phenomenon we wrote about in the very first issue of WiC in February 2009). The argument is well-versed. Chinese companies don’t respect IP like they should. That means less incentive to invest in R&D. And that results are less home grown innovation.

But if some counterfeit handsets are anything to go by, shanzhai endeavour need not always preclude the creative instinct. Their names might sound familiar (how about a HiPhone or a Blockberry?) but China’s shanzhai sometimes deserve more than their copycat reputation. Some have added quirky features such as dual SIM card support (which allows the operation of two phone numbers on a single device). Others have incorporated made-in-China essentials, like built-in cigarette lighters or ultraviolet scanners to detect counterfeit cash.

The shanzhai phone industry found its feet in 2005, after Mediatek, a semiconductor company from Taiwan, developed a turnkey circuit board that could integrate the functions of multiple chips inexpensively. That offered start-ups a new low-cost platform. By 2009, of the 750 million mobile phones in use in China, about one in five were shanzhai, according to industry research.

At the time, forecasts on the spread of shanzhai sales must have made depressing news for genuine brands. But perhaps the fears were excessive. Estimates of domestic sales for counterfeit handsets last year show a huge decline on the year before, falling to 24.2 million from 33.2 million in 2009, says the market research firm iSuppli.

Why? It seems that many consumers may be becoming more discerning as far as counterfeit products are concerned. It helps too that the price gap between shanzhai and the real thing has begun to shrink. Nokia’s basic second-generation phone now costs $20.

Some shanzhai operators have also turned away from their roots, like Tianyu, which has gone much more mainstream under the K-Touch label. It now ranks third in domestic handset sales, behind Nokia and Samsung.

Technology is moving against shanzhai too. “When it comes to 2G, shanzhai makers are no longer competitive in terms of technology or price,” says Kevin Wang, director of iSuppli’s China research. “There is now little room for innovation. So if the prices are similar, consumers would rather buy branded products, which have better quality and come with guarantees.”

And while shanzhai models are still on offer in lower-end smartphones based on the 2G chips, they have struggled in the 3G market, because Mediatek has had less success in developing chips that run on the newer technology, says Global Entrepreneur.

So as more mobile subscribers switch to 3G networks – China added 10 million new 3G subscribers in February, bringing the total to 56 million – the likelihood is that they will also upgrade their shanzhai handsets to brands capable of communicating in a 3G world.

Hence the need for a rethink on strategy, and many shanzhai manufacturers now export their goods overseas to markets such as India, Indonesia, Brazil and Russia. Close to half of shanzhai handsets are now destined for export, analysts think.

There, too, the shanzhai firms have added their innovative touch. In Kenya, for instance, China-made handsets feature images and quotes from the country’s favourite son, Barack Obama.

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