The latest edition of the Economistfeatures a very thought-provoking overview of innovationin emerging markets such as China and India. This paragraph sums up very neatly its main conclusions (note: the emphasis is mine):
“It is hardly news that the world’s centre of economic gravity is shifting towards emerging markets. Buy a mobile phone and it will almost certainly have been made in China. Use it to phone a customer helpline and your call may well be answered by an Indian. Over the past five years China’s annual growth rate has been more than 10%, and India’s more than 8%. Yet even these figures understate the change that is taking place. Emerging countries are no longer content to be sources of cheap hands and low-cost brains. Instead they too are becoming hotbeds of innovation, producing breakthroughs in everything from telecoms to carmaking to health care. They are redesigning products to reduce costs not just by 10%, but by up to 90%. They are redesigning entire business processes to do things better and faster than their rivals in the West. Forget about flat—the world of business is turning upside down.”
I wish I’d been able to spend my long weekend testing an iPad rather than just reading all the reviews, but then again I don’t think my conclusions about the device would have been any different and I would have been at least $500 poorer.
Judging by the reviews and Saturday’s sales figures, Apple clearly has a huge hit on its hands that will ship in millions of units this year. But the more interesting question to me is whether the iPad will spur the development of the overall tablet segment, driving what some reviewers have described as a new revolution in computing.
When I first started working in the Taiwan hi-tech industry in the early 1990s, local motherboard and other PC component makers were already beginning to build factories in China to drive down labor costs and take advantage of the incentives being offered in the country’s burgeoning industrial zones in places such as Shenzhen and Suzhou.
At the same time, thousands of other multinational companies were also setting up their own manufacturing facilities in China or sourcing product from domestic manufacturers to take advantage of similar incentives and to establish a beachhead in the promising China market.
Although shanzhai phones have probably garnered the most global attention, there are quite a number of other markets that are ripe for a similar process of disruptive innovation. Indeed, some of them are already experiencing it as barriers to entry are lowered by standardized platforms and more and more players enter market.
There are some very valuable lessons to be learned from the success of the shanzhai mobile phone manufacturers – not just in terms of product innovation but also in how to create and develop new market segments.
·The Power of Standardized Platforms: Standardized platforms such as the ones created by MediaTek enable rapid market expansion by lowering the barriers to entry, increasing product diversity, driving down price points, and increasing competition in the market place. As a result of these factors, the shanzhai mobile phone market reached an estimated size of 145 million units in 2008 alone and continues to grow rapidly.
During my trip to Dihua Street I made my first ever visit to the quite delightful Xiahai Chenghuang Temple (大稻埕霞海城隍). This is the home to statues of the Taipei City God Chenghuang and his wife, as well as a legendary Chinese matchmaking deity and 600 other gods. No surprise therefore that it is said to have the highest statue density of any temple in Taiwan (though I am not sure who measures such things).
Built in 1859 on a fengshui-friendly “hen’s cave” location that ensures prosperity for the surrounding areas and people who worship at it, the temple is very small in size but this only serves to heighten the atmosphere as you step inside to view the mysterious incense shrouded statues of the various deities standing on front of the main shrine.
As promised yesterday, here are a few slides charting the evolution of shanzhai phones from blatant copycats through to branded mainstream products from companies that are beginning to challenge the more established brand names.
Most interesting to me, however, are the “ingenious innovations” in between, for it is these products that best illustrate how shanzhai manufacturers have identified unique needs in the market and developed creative solutions to meet them.
The restaurants may not have been particularly fancy on Dihua Street, but the food itself was excellent with all manner of popular dishes such as hand-made shuijiao (Chinese dumplings) on offer at the stalls in the market.
Even if the bench I sat on was pretty basic, it was comfortable enough to allow me to stay there for ages and simply watch the world go by before putting pen to paper and composing a haiku – though sadly I was unable to inject the subject of food into it no matter how hard I tried.
Until Apple launched the iPhone in China last year, barely anyone in the West had noticed that huge market for low cost so-called shanzhai (bandit)phones amounting to well over 100 million units was already thriving in the country.
To be sure a large proportion of these shanzhai phones are clones of brand name devices (just as many “IBM clones” were launched by US companies in the early days of the PC business), but as the market has matured and competition has heated up some truly innovative products have been developed by various manufacturers and a number of companies have gone on to establish strong sales channels and brand names.
