The Disintegration of Production

The Disintegration of Production

Firm Strategy and Industrial Development in China

Edited by Mariko Watanabe

In the past two decades, China has experienced rapid industrial and economic growth. This fascinating book explores the unique Chinese business strategy of vigorous market entry and low prices, which has been the key feature of this accelerated industrial growth.

Chapter 4: The shanzhai cell phone: platforms and small business dynamics

Ke Ding and Jiutang Pan

Subjects: asian studies, asian development, asian economics, development studies, asian development, development economics, economics and finance, asian economics, development economics, industrial organisation, institutional economics

Extract

Two worlds of cell phone production coexist in the Pearl River Delta of China. The first is the cell phone production world built by the top brand makers. Foxconn, the Taiwanese EMS maker located in Shenzhen, is known as the subcontractor for Apple’s iPhone. Furthermore, of China’s top three (in terms of shipments) local cell phone makers, ZTE Communications (No. 1) and Huawei Technology (No. 3) have established head offices in Shenzhen, and TCL/Alcatel has established a head office in Huizhou. However, there is another cell phone production world here known as shanzhai. In Chinese, shanzhai literally refers to “the mountain stockades of regional warlords or bandits, far away from official control,” and currently its meaning has been converted to refer to “Chinese imitation and pirated brands and goods, particularly electronics.” Shanzhai cell phones are also referred to as black cell phones, non-brand cell phones, or gray cell phones. At the peak in 2010, there were 2000 system integrators engaged in the production of shanzhai cell phones in Shenzhen. Most of these firms are small and medium enterprises (SMEs) that operate without production permission from the government. The shanzhai cell phone industry is thus characterized by some scholars as “the informal economy in the era of information revolution and globalization” (Gao 2011). In recent years, however, shanzhai cell phones have begun to show strong performance in emerging markets, gradually threatening the market share of top brand cell phones.

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