4. Analysis and comparison
4.1 Key successful factors of shanzhaiji handset
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4. Analysis and comparison
4.1 Key successful factors of shanzhaiji handset
The shanzhaiji handsets’ advantages are no license fee, no cost of royalty of intellectual property, reducing marketing operation cost as well as after service expenditure
accompanying with low quality of product. With low cost which are saved mentioned
previously , fully functions which are meeting the end users’ needs, individual product design on appearance as well as aiming at the particular end users in second-tier and third-tier cities and rural regions, it is the shanzhaiji handset’s blue sea strategy. The advantages of the shanzhaiji handset aforementioned are difficult and impossible to achieve by Chinese domestic branded phone companies as well as multinational handset companies. Thus, the shanzhaiji handsets can penetrate into the market drastically and dramatically.
Figure 4.1: The Blue Ocean Strategy of Shanzhai Ji: sitemap and coordinate graph
Source: 潘少钦, 杨奕编 (2008) The Blue Ocean Strategy of Shanzhai Ji
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22 Figure 4.2: Shanzhaiji handset SWOP
Source: 潘少钦, 杨奕编 (2008) The Blue Ocean Strategy of Shanzhai Ji
To make the whole story short, the following is a quick summary of the shanzhaiji handset.
Chinese and global markets are multilayered and diversified. Handsets are becoming daily consumables. Nothing impossible, as long as the consumer demands exists. Super large touch screen, multi-loudspeaker, handwriting recognition, digital camera, MP3, MP4, memory card, bluetooth… Almost everything you can imagine. And above all, they are multi-functioned handsets with the most favorable prices. Shanzhai Ji have shorter product development time. TTM for Shanzhai Ji is usually 2 months, while for legitimate handset brands half a year to one year. The Achilles’ heel of Shanzhai Ji lies in its low quality. SOC produced by MTK in Taiwan incorporate handset main board and software. Core
technologies are longer essential for the handset manufacturers. They can produce their handsets by adding faceplates and batteries to semi-finished products provided by MTK.
Processing industry is a traditional, advantageous and highly developed industry in China.
Shanzhai Ji have a mature industry chain. Handsets are becoming daily consumables.
Ultra-low cost guarantees price competitiveness. Shanzhai Ji set rural areas and secondary, tertiary markets as target market and individuality.26
26 潘少钦, 杨奕编 (2008) The Blue Ocean Strategy of Shanzhai Ji
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4.2 Shanzhaiji handset innovationThe shanzhaiji handset developers do not have or little R&D capabilities. Actually, those developers just build the cellular phone as putting the semi-finished products or qualified parts supplied by Taiwanese component companies together. However, they do have their expertise that they can react agilely according to the trend of the phone market in mainland china. When they receive the latest phone information from media, internet and
customer…etc, they can quickly evaluate the market demand and confirm cellular phone developing plan with chip vender, components venders, scheme design houses, assembly factories and channel agents.
The shanzhaiji handset developers are really good at mastering Chinese peoples’ needs especially on tendency and fashion. Normally, when the branded phone companies develop a phone, they have to find a segment of the target market but it is not applied to the shanzhaiji developers. As long as there are very few demands in the market, the shanzhaiji handset developers will go for phone development and production in order to meeting every customer’s needs. Some end users cannot find the phone they really want but they can find the phone in the shanzhaiji segment. There is debut of 3~5 types of the shanzhaiji handsets per day in mainland china.27 Thus, it can be over a thousand new types of handset per year in the Chinese cellular phone market. Copying and duplicating from tier-one handset company’s portfolio is a symbol of the shanzhaiji handset products in the ordinary peoples’ mind.
However, there are a lot of original and brilliant innovations on the shanzhaiji handset products.
The creativity of the shanzhaiji handset is usually represented in a way that is over one’s imagination. The following shows the examples on how creative that the Shanzhaiji handset developers are.
27 夏勇峰 (2008) 山寨机产业链解析
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1. A pack of cigarette? A mobile phone? Or a combination of cigarette pack and phone?
It is the perfect combination of mobile phone and a cigarette pack for those who are addictive smokers.
The most incredible thing is that the phone can be inserted at most 7 cigarettes.
Various cigarette brands such as Chonghwa, Panda, Marlbara and 555 are selling in the market as they are cigarette phone disguising as a cigarette pack.
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25 2. My Ferrari consumes no gasoline?
Looking down from top side, it seems like a Ferrari toy car. When the toy car has been turnover, it is a phone with Ferrari appearance.
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26 3. Big Thunder phone
It looks just like a normal shanzhaiji handset with dual SIM cards. That is no difference to any other shanzhai mobile phone.
When turning it over, you may be touched by its unique style which is eight loudspeakers.
When the main loudspeaker is adjusted to the minimal sound volume (level 1), it is quite heart shaking. When coming to level 2, it is a little bit noisy. When coming to level 3, the sound effect is throughout the entire room. When above level 3, people staying in the same area would get very annoyed.
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27 4. Paparazzo mobile phone
It is a phone with cannon lens. The cannon lens is easy to install that just aiming it to the slot closing to camera and then turn the cannon lens clockwise until locking it up to the phone.
This handset built-in 6x optical zoom camera is impressive. With such amazing 6x optical zoom camera, you can zoom in/out to focus distant objects clearly and make a high quality photograph easily.
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To check the ‘telescope’ effect of its 6x optical zoom, a picture was taken in front of clothing store on the street. The left image above was taken without cannon lens that the letters on the signboard and the person cannot be seen clearly. However, the image on the right with
cannon lens, we can see some letters on the signboard as well as the shopkeeper preparing for the store opening. This omnipotent handset is almost equipped with everything over one can imagine. The functions of 3-inch touch screen, Chinese handwriting recognition, dual sim card slot, Micro SD card support, Bluetooth, MP3, 6+1 super-powerful loudspeakers and 1.3 megapixel built-in digital camera...etc are the unique philosophy of the Shanzhaiji handset.
Furthermore, at its back side, there is an ordinary battery lid with an incredible function.
Pressing the rectangular button, the part of the lid is giving off a purple light. It’s neither a flashlight nor a photoflash lamp. It turns out to be a money authentication reader.
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29 5. A phone with surveillance function
This Sangda SD999 can expose one’s secrets to the public easily. Sangda SD999 is built-in a wireless function to connect to its extended surveillance function. Sangda SD999 together with a surveillance video camera, they can exchange the data through the air. The effect distance is around 10-30 meters. For those who want to monitor their house but have no professional equipment such as mothers cooking in the kitchen who worry about their babies playing in the living room, mother can cook and monitor the baby’s movement simultaneously.
No extra transmission fees are charged, Sangda SD999 gives one to monitor on the phone screen within an area of 10 square meters from the surveillance video camera.
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30 6. Handset watch with built-in candid camera
When taking a glance, one may think it is a watch. The handset watch is packed with a piece of sponge in a protective box that it just looks like an ordinary watch. Looking closer again, there is a number keypad on the watch band for dialing out.
The handset watch is equipped with a tiny 0.3 megapixel camera. The candid camera is camouflaged as part of handset that one can hardly tell the difference. One can pretend to check time, but shooting some objects without knowing by others.
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The following are some more various creative designs of handset watch:
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32 6. Orange HiPhone
At the first glance, one may think this is I phone produced by APPLE inc. Actually, this is a shanzhaiji mobile phone which is called Hiphone.
The figures above are I phone at left side and Hi phone at right side. Both of them looking from appearance and user interface are very similar that it is difficult to tell the difference.
HiPhone has plenty of functions, for example, games, calculator, WAP, memorandum, MP3, MP4, scheduler, touch interface, shake sensor playlist, recorder, eBook, Bluetooth etc...
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In addition, the image in the screen can be rotated 90 degree as the different direction of the cell phone due to a gravity sensor support. HiPhone supports 26 different languages. Asia SIM card, Europe SIM card and SIM cards from elsewhere of the world are applicable.
The packaging box and instruction manual are looked high quality which can compete with some famous domestic brands.A HiPhone costs ¼ of an I Phone that one can purchase it for only 999 RMB.
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34 7. A Vertu priced at 800 RMB ?
In Latin, Vertu means high quality and unique. Vertu is a manufacturer and retailer of luxury mobile phones based in British. The company is a wholly-owned subsidiary of Nokia. The concept of the company is to make mobile phones in the same vein as luxury watch manufacturers such as Rolex. The most expensive model is the Signature Cobra at
US$310,000 (~€217,000). The most expensive regular model is the Signature Diamond at US$88,000 (~€62,000). Each Vertu phone is handmade with precious gems and noble metals by high-skilled craftsmen. Prices start at $4,350 for the Vertu Constellation model as above picture at left side. Nonetheless, A Vertu at right side costs only 800 RMB with unique appearance. It is a Shanzhai version Vertu looks exactly the same with a real Vertu.
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35 8. PSP handset
Before Sony Ericsson announces PSP mobile phone which is a rumor in the market for a long time, the shanzhaiji PSP handset has already been launched.
PSP handset of shanzhai version has over 90% appearance comparing with an original Sony PSP. PSP handset of shanzhai version is also much smaller and lighter. PSP handset of shanzhai version is incorporated with Nintendo Entertainment System and several classical Nintendo games such as Super Mario, Contra, Bomber man and Solaris etc...
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9. The Olympic FUWA handset of shanzhaiji handset
There are five mascots of the FUWA with different colors in the 2008 Summer Olympics Games in Beijing. This Olympic FUWA handset in red with the Chinese tie is really of traditional Chinese style.
The atmosphere of Beijing Olympic has influenced broadly. Thus, a new handset inspired by Fuwa came out. The FUWA handset is aiming at children as the target market.
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37 10. Buddha handset.
This Buddha handset, blessed by eminent monks accompanying with a certificated proof, is a perfect combination of religion and high-tech. This Buddha mobile is made of metal body with 24k golden plating and dedicated pattern. The Buddha handset can even support Micro SD, MP4, camera, and touch functions...etc.
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4.3 Shanzhaiji handset Time to Market (TTM) comparison
A standard phone development process takes plenty steps from product concept, design, verification, manufacture, production, certification and delivery that those steps are time consuming. However, as the shanzhaiji industry supply chain in terms of design-wise, component-wise, manufacturing-wise, and channel-wise is well-developed in Shenzhen and especially under technical supports from MTK’s turnkey solution, to launch a shanzhaiji phone to market, the entire developing time is only around 2 to 4 months that it is having the advantage comparing with regular developing process from Chinese domestic brand
companies and multinational brand companies. Normally to develop a phone with full processes by Chinese domestic companies is around 6 to 8 months. Multinational brand companies take around 10 to 14 months. The following figure shows the TTM comparison among the shanzhaiji handset, Chinese domestic brand phone and multinational brand phone.
Figure 4.3: TTM Comparison among the shanzhaji handset, Chinese domestic brand handset and foreign brand handset
Source: 杜舟 (2008) 山寨机疯狂内幕调查 and handset industry standard.
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4.4 Shanzhaiji handset cost effectivenessThe shanzhaiji developers can deliver a handset in a period of 2 to 4 months due to not only the shanzhaiji industry supply chain is highly-developed and fully technical supports from MTK’s turnkey solution but also the shanzhaiji developers ignore some government
regulations and some developing experiments. By reducing those items to save the cost, the sale price of the shanzhaiji handset can be attractive. Thus, the shanzhaiji developers can offer very low cost shanzhaiji handset to the market domestically and internationally. A ordinary shanzhaiji handset is around 150 to 200 RMB per phone due to the shanzhaiji handsets having the shorter developing time saved from experiment time of prototype which is around 4 to 6 months and time of Centre Testing International Corporation (CTI) or Type Approval (TA) which takes around 30 days to 45 days, avoiding 17% value-added tax, no experiment of prototype expenditures about 400 to 500 thousand RMB, no CTI certification fee of 200 to 300 thousand RMB, no sales tax cost and no after service cost.
Table 4.1: Cost efficiency and TTM comparison
Shanzhaiji handset Branded handset
17% value-added tax No Yes
Experiment fee of prototype No 400 to 500 thousand RMB
Experiment Time of prototype No 4 to 6 months
Cost of CTI / 入網認證費 No 200 to 300 thousand RMB
Time of CTI / 入網認證時間 No 30 days to 45 days
Sales tax No Yes
After service No Yes
Source: Lee Hong-tao (李宏韜), general manager of KONKA (康佳), made a speech in CCTV (央視)
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Furthermore, there are more reasons why the price of the shanzhaiji handsets can be very low.
The following table shows the summarized 10 major reasons of low cost on the Shanzhaiji handset in detail.
Table 4.2: 10 major reasons of low cost on the Shanzhaiji handset
1 By directly coping or duplicating from branded phone
2 By using none-brand or similar brand logo to confuse the end users 3 Manufacturing the product in bad production environments
4 By adopting low cost and quality components 5 No verification on prototype handsets
6 Phone is not sent to authorized department for TA 7 Shorter channel layers
8 Industry cluster density is high to lower transportation cost
9 Utilizing a variety of way legally or illegally to lower cost of after service 10 Underground production and trading leading to avoid tax burden
Source: 杜舟 (2008) 山寨机疯狂内幕调查
4.5 The comparison of handset channel patterns in mainland china
In the handset business competition, the channel is the most crucial element to gain the market share. A good channel strategy was the one of the reasons that the Chinese domestic branded companies succeeded during 1999 to 2003 when competing with foreign branded companies.28 Actually, those Chinese domestic branded companies had experience in
channel of white goods businesses rooted in tier-one cities to tier three cities for a long period of time assessing those markets easily.29 On the contrary, the international branded handset companies did not have such kind of advantage during that time. Thus, Chinese domestic
28 程平芳 (2004) 渠道在國產手機成長中的作用
29 杨志伟 (2005) 我國手機市場營銷渠道模式比較研究
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branded companies took the advantages on building up the channel into tier-two and tier-three cities gaining market share from 3% to 56%.30
Any handset companies who engages in channel campaigns have to consider three aspects at least which are building and managing channel cost, operation efficiency of channel and dominance of channel. In mainland china, the channels models are various. Thus, the
following samples are taken as the examples due to they are running good business and they have brand recognition in mainland china. There are 4 kinds of model of market channel.
First, the Motorola is adopting the distribution channel of multiple regional agents (區域多家 總代理制). Second, Ningbo Bird Corporation (波導) is aiming at the distribution channel of direct sale (直銷為主的分銷模式). Third, TCL Corporation is applying the distribution channel of deeply sale involvement (深度營銷導入渠道模式). Fourth, the shanzhaiji handset developers are doing its special distribution ways. Finally, comparison of channel strategy of respective models is summarized.
The distribution channel of multiple regional agents is that it is the best way to get into a market when the international branded handset companies want to enter the market which they don't have good understanding on a particular region.31 The structure of distribution channel of multiple regional agents is discussed as following. First, the phone producers sell the products to some regional agents. Second, the regional agents distribute the goods to province agents. Third, province agents allocate the handsets to local wholesale agents.
Fourth, local wholesale agents deliver the handsets to the terminal retailers. Fifth, the terminal retailers sell the phone to the end users. Most of the international branded companies are adopting such distribution channel in mainland china due to they are not
30 程平芳 (2004) 渠道在國產手機成長中的作用
31 曾昊 (2005) 國內手機市場分銷渠道模式探析
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familiar with the Chinese handset market. Therefore, they need the Chinese local agents’
channel expertise.
Nonetheless, the distribution channel of multiple regional agents was an excellent strategy for the international branded companies to dominate the entire Chinese handset market before 1998. The distribution channel of multiple regional agents offered the lowest cost of channel build up and the highest distribution speed in Chinese handset market assisting from Chinese channel distributors. In 2001, the distribution channel of multiple regional agents was
transformed due to competition was becoming drastically from Chinese domestic branded companies. Thus, the international branded companies were losing competitive advantages.
The following diagram shows the structure of the distribution channel of multiple regional agents before 2001.
Figure 4.4: The distribution channel of multiple regional agents before 2001
Source: 杨志伟 (2005) 我國手機市場營銷渠道模式比較研究
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The international branded companies have started to reform their distribution channel pattern by extending more channel functions to deal with fierce marketing competitions from
Chinese domestic branded companies. They have established some branches and offices in the mainland china to promote the handset directly to regional agents, telecomm operators as well as terminal retailers. Those extending functions do not mean the self-established channel.
Those international branded companies are still relying on the Chinese distribution channel they previously cooperate with. Thus, by adopting this pattern, the efficiency has increased.
The following is the figure of the distribution channel of multiple regional agents after 2001.
The following is the figure of the distribution channel of multiple regional agents after 2001.