Tuesday, April 28, 2009

What is Shanzhai?

山寨, shanzhai, is translated literally as "mountain stronghold" and
colloquially (by Jinshan and Google) as "copycatting".

The NYTimes, on April 27, 2009, published an article by the infamous
China "journalist" David Barboza on "Knockoff Cellphones" (two words
that were, or should be, hyphenated).

Translating ideas from China can be called journalism. In fact, explaining
shanzhai to a rapt audience should make good paper (ironically). But the
DIY list (entitled "The Cost of a Fake") for a non-branded mobile phone
(let's coin "NBMP" for this) caught my attention. Very much like a DIY
PC list, it details the components and their parts by price. Of course,
the assembler (the DIY-er) is making an intermediary fee. $40 for a NBMP
rather than $200 + contract for an innovative, corporate original.

“Legal cellphone makers should pay 17 percent of their revenue as
value-added tax, but shanzhai makers, of course, won’t pay it.”

Really? Add 17% to $40 and you don't get a 2-year contract. The U.S.
cellular phone market is a monopsony -- with hundreds of millions of
buyers but only 4 sellers (AT&T, Sprint, Verizon, and T-Mobile).

Just FYI, the China cell market is dominated by two carriers -- China
Mobile and China Unicom, both state-owned and run, and they are
monopolies. However, the structure of data plans, the delivery of service,
the network coverage, and the cost are far and away better and more
competitive than the U.S. How can this be? Does socialism work for
mobile phones?

In fact, while there are only two carriers for China, there are literally
"a million" phone providers. You or I could produce a mobile phone with
a little capital and an idea. That is a threat to companies who rely on
contracts to ensconce users in expensive plans, bad coverage, and poor
service. And really it is inexcusable. The "free market" and "capitalism"
belies the reality of carriers dictating to the market.

Imagine if mobile minutes were like gasoline. When you are running low,
you stop at the 7-11, the gas station, the post office, the newspaper
stand -- or even the Internet -- to add minutes. Adding one item to your
list, you gain a freedom from contracts, a market in phones, and leverage
with your carrier.

Kudos to shanzhai. Kudos to DIY computer installers. You are the salt of
the earth, and yet in you we find the ultimate check and balance on
corporate domination of markets.

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