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Intellectual Property: Shanzhai Phones’ Declining Popularity in China

The word shanzhai has several meanings. Originally it meant a fortified mountain village, but these days it mainly refers to small, illegal factories that churn out copies of famous-brand mobile phones. In the era of relatively simple 2G phones, the industry was huge, but now everyone wants a fancy 3G smartphone, and they’re a bit too hard to fake, leaving an uncertain future for this hidden industry […]

The word shanzhai has several meanings. Originally it meant a fortified mountain village, but these days it mainly refers to small, illegal factories that churn out copies of famous-brand mobile phones. In the era of relatively simple 2G phones, the industry was huge, but now everyone wants a fancy 3G smartphone, and they’re a bit too hard to fake, leaving an uncertain future for this hidden industry. Shanzhai mobile phones started to become popular in 2004, when 2G phones were still standard.

“The most important reason for me to buy a shanzhai mobile phone was the low price compared with the big brands, generally just around 1,000 yuan ($154.61). Shanzhai mobile phones were so popular in the past and many of my friends had them,” Guo Yang, a young office worker in Beijing, told the Global Times.

Statistics from market research firm All View Consulting show that China produced 600 million mobile phones in 2009, of which 145 million were shanzhai models, taking nearly 30 percent of the domestic mobile phone market.

“Every year, mobile phone manufacturers spend millions of dollars researching consumers’ preferences and developing products. But imitation of famous brands in design and function saves a lot of costs for shanzhai mobile phone manufacturers. So they can provide very competitive prices. Also the imitation of famous brands can secure buyers,” said Luo Qijun, an analyst at IT market research company eShip Consulting.

“The boom in the shanzhai mobile phone market was closely related to a Taiwan-based mobile phone chipset company – Mediatek. The company developed a low-cost mobile phone chipset, which allowed for incorporation of different functions, such as Bluetooth, MP4, voice command and cameras, into different designs,” Luo said.

However, new generation mobile phones have not done so well in the 3G era in China.

Mediatek announced in its 2011 first-quarter results that revenue was NT$19.87 billion ($690.69 million), down 39.3 percent year-on-year. Its net profit was NT$3.06 billion, down 72.3 percent year-on-year.

“Most shanzhai mobile phones are produced by small factories. The Ministry of Industry and Information Technology (MIIT) regulates that every mobile phone manufacturer must obtain a telecom network access license before selling a product. In order to obtain that license, every mobile phone manufacturer must send sample products to MIIT’s labs to test their safety, electromagnetic compatibility, radiation and other aspects,” said Mao Jun, an engineer at the China Telecom Testing Lab of the MIIT.

“No one cares whether shanzhai mobile phones have network access licenses,” Li Jiangang, a shanzhai mobile phone retailer in Zhongguancun, Beijing, told the Global Times.

“Shanzhai mobile phones are not as popular as in the past. More and more people like 3G smart phones. Last year, I could sell at least 20 shanzhai mobile phones in one day, but now just 5 or 6, ” said Li, the shanzhai phone retailer.

“In the 2G era, users cared about functions. But now, no one talks about Bluetooth and cameras; consumers are fascinated by software applications, like Angry Birds and Facebook. Shanzhai mobile phones can’t support these applications well,” Li added.

“Most shanzhai mobile phone manufacturers will be eliminated by the market. Those who want to stay in the industry will have to establish their own brand and innovation capability,” Xiang Ligang, a telecom expert, told the Global Times.

“3G has made people’s expectations for mobile phones more diversified. Smart and dazzling phones have become fashionable. And the drop in smart phone prices has squeezed the market for shanzhai mobile phones,” Xiang said.

But there is still a need for cheap mobile phones.

“Shanzhai phone makers can put more emphasis on rural areas, where consumers are more sensitive about prices and care less about applications. But in the long run, they still need to face the ruthless tide of the market,” said telecom engineer Guo.

via Upwardly mobile.

By Itamar Medeiros

Originally from Brazil, Itamar Medeiros currently lives in Germany, where he works as Lead Product Design Strategist at SAP and promotes User Experience Design as visiting lecturer at Köln International School of Design. Working in the Information Technology industry since 1998, Itamar Medeiros has helped truly global companies in several countries (Argentina, Brazil, China, Germany, Hong Kong, India, Mexico, The Netherlands, Poland, United Arab Emirates, United States) create great user experience through advocating Design and Innovation principles. During his 7 years in China, he championed the User Experience Design discipline as User Experience Manager at Autodesk and Local Coordinator of the Interaction Design Association (IxDA) in Shanghai

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