A couple of fascinating posts on Shenzen small manufacturing.
Significantly, they do not just produce copycat phones. They make original design phones as well, as documented in this PDF (it is in Chinese, but the pictures are cool; the collage above is ganked from the PDF). These original phones integrate wacky features like 7.1 stereo sound, dual SIM cards, a functional cigarette holder, a high-zoom lens, or a built-in UV LED for counterfeit money detection. Their ability to not just copy, but to innovate and riff off of designs is very significant. They are doing to hardware what the web did for rip/mix/burn or mashup compilations. The Ferrari toy car meets mobile phone, or the watch mixed with a phone (complete with camera!) are good examples of mashup: they are not a copies of any single idea but they mix IP from multiple sources to create a new heterogeneous composition, such that the original source material is still distinctly recognizable in the final product. Also, like many web mashups, the final result might seem nonsensical to a mass-market (like the Ferrari phone) but extremely relevant to a select long-tail market. Interestingly, the shanzhai employ a concept called the â€œopen BOMâ€ â€” they share their bill of materials and other design materials with each other, and they share any improvements made; these rules are policed by community word-of-mouth, to the extent that if someone is found cheating they are ostracized by the shanzhai ecosystem.
More here where an excellent point is made about the Emilia-Romagna area in Italy. One of many things that drives me to despair about economists is that their impoverished model of how things work cannot distinguish between $x for investment in a computer system designer in a place like Austin where you can get someone to make you a small run of boards in a week, and the same dollar investment in a place where you cannot.
Also see the Strategy+Business article
Ms. Yang, a Beijing office worker, shows off her new mobile phone to her co-workers. It boasts all the features of a typical handset â€” touch screen, camera, MP3 and video players â€” but it offers a lot more besides. Shake it, and its wallpaper changes automatically. Dial it, and lights on the sides flash in sync with the most popular ringtones. This phone is not a Nokia, a Motorola, or a Samsung. In fact, it has no brand name at all, and it costs just US$70 (480 yuan), less than a fifth the price of similar branded products. This is what is called a shan zhai model in China.