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Shanzhai in China
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Types of Shanzhai
• Copy• Parody• Private Lebal (Baipai,) e.g.,
Kirkland at Costco• New Brand
What Is Parody?
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What is Parody
• A parody (pronounced /ˈpærədiː/; also called send-up or spoof), in contemporary usage, is a work created to mock, comment on, or poke fun at an original work, its subject, author, style, or some other target, by means of humorous, satiric or ironic imitation.
• It is known as Shanzhai in China4
Parody Examples in China
Parody Examples in China
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Parody Examples in China
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Parody Examples in China
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Parody Examples in China
• Parody Lamborghini-Ferrari
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What is Shanzhai
• Shanzhai (simplified Chinese: 山寨 ; pinyin: shānzhài) refers to Chinese imitation and pirated brands and goods, particularly electronics. Literally "mountain village" or "mountain stronghold", the term refers to the mountain stockades of warlords or thieves, far away from official control. "Shanzhai" can also be stretched to refer to people who are lookalikes, low-quality or improved goods, as well as things done in parody.
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Shanzhai
• Learning focus is Cellular Phones
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Causes of Shanzhai
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Rancor• Opium War 1839 – 1842 • Anglo-French Invasion in China
(Second Opium War) 1860• Eight-Nation Alliance 1900• Russo-Japanese War 1904 – 5• Sino-Japanese War 1937 – 1945
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Survival of OEM• The average OEM profit is less than
4%• This number could be even lower if
governments had not provided compensations.
• International brands’ can be 50% and do not want to reduce it.
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Customization &Business Model
Innovation• Re-package, add-on for
individual customers, delivery in 1 hour
• GSM Quad Band Dual SIM• Quick Response
Manufacturing
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Quick Response Manufacturing
• In China’s cellular phone market
• An ecosystem• Center – Media Tek’s Turn-key
solution
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Media Tek’s Turn-key solution• One IC has Cellular phone,
MP3, touch panel, … functions
• IC + software, all design problems solved at Media Tek
• Downstream companies (Independent Design House, IDH) only need to put on peripherals such as screens, cases, etc. radio receivers, etc.
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Quick Response Manufacturing
• Synchronized procurement• Product development,
material movement, production, logistics, and distribution all achieved simultaneously.
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Quick Response Manufacturing
• Production time – from one year to 1 months
• Need only 3 people – one contacting Media Tek, another find OEM, and the other selling products and collecting money
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Blue Ocean & Disruptive Innovation
• To be discussed when we talk about Blue Ocean Strategy – Strategic canvas & Disruptive Innovation
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Innovation from Imitation?
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Innovation from Imitation
• Do only Chinese copy?• Can innovation come from
nowhere?
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Copyright in the USA in 18 Century
• The first American "pirate“ – Benjamin Franklin
• A Philadelphia printer who re-published the works of British authors without seeking their permission or offering remuneration.
• The person who discovered electricity 23
Charles Dickens
• Dickens’ North American reading tours of 1842 and 1867-68
–Lobbied the American Congress to recognize the copyright of British authors
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Charles Dickens
–During his first visit, made him anathema in certain political circles and in the American press
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Webster Dictionary
• An AMERICAN dictionary of English Language
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Japan and Korea’s Model
• Toyota's first production car - Model AA was introduced in 1936. It was heavily based on Chrysler Airflow and chassis and electrics were copied from Ford.
• In late 1930's Toyota and Ford had talked about a joint-venture but war interrupted talks.
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Toyota & Chrysler
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Toyo
ta M
odel
AA
Toyota & Chrysler
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Chr
ysle
r Airf
low
Scion
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Scion
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Scion
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Scion tC• MRSP US$17,000
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Japan and Korea’s Model
• Almost every model of Hyundai is a copy.
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Japan and Korea’s Model
• First: 2009 Mercedes Benz CL 550
• Second: Hyundai Sonata Revealed
• New Hyundai YF Sonata and Kia Cadenza are HOT (Report on November 10, 2009
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More on Hyundai
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2009 Sonata
Cadillac 2008 CTS
Taiwan follows US Patent Laws• Results?
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Innovation Needs Cash, Market, and Experience!
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Failure of Patents
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Patent Works?
• Innovation firms benefit from patents?
• Patents spur innovation? – no evidence
• But how about cost?• How about industries? (cf. Biotech
versus IT)
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Cost/Benefit of Patents
• Profit for the US firms:– 1997 $8.4B – 1999 $9.3B– 2/3 in chemical and pharmaceutical
companies• Cost: domestic litigation alone:
– 1997 $8B – 1999 $16B– companies doing the most research and
development are sued the most.
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Intellectual MonopolyStory of Watt
• 1768, Watt ‘repaired’ Newcomen engines ‘with substantial borrowing’ and applied for a patent
• Nothing much happened then
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Intellectual MonopolyStory of Watt
• 1775, patent almost expired• Industrialist Matthew Boulton
with good relationship with the parliament supported him.
• The patent was extended until 1800
• Watt spent more time engaged in legal action to establish and preserve his monopoly than he did in the actual improvement and production of his engine.
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Intellectual MonopolyStory of Watt
• 1790, the superior Hornblower engine was in production, Boulton and Watt went after him with the full force of the legal system.
• Many new improvements to the steam engine became available by 1804, but
• these innovations were kept idle until the Boulton and Watt patent expired
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Intellectual MonopolyStory of Watt
• An important limitation of the original Newcomen engine could be fixed by a method patented by James Pickard, which prevented Watt from using it.
• The existence of a patent forced Watt to contrive an alternative less efficient mechanical device to fixed the problem. 45
Intellectual MonopolyStory of Watt
• It was only in 1794, after the expiration of Pickard’s patent that Boulton and Watt adopted the economically and technically superior device to fix the problem.
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Intellectual MonopolyStory of Watt – without patent
• When the patents expired many establishments for making steam-engines of Watt's principle were then commenced.
• However, Watt’s competitors principally aimed at cheapness rather than excellence.
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Intellectual MonopolyStory of Watt – without patent
• As a result, far from being driven out of business, Boulton and Watt for many years afterwards kept up their price and had increased orders.
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Intellectual MonopolyStory of Watt – without patent
• After getting one step ahead, Watt remained ahead not by superior innovation, but by superior exploitation of the legal system.
• The fact that his business partner Boulton was a wealthy man with strong connections in parliament, was not a minor help.
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Why Hornblower Is Superior?
• It was a substantial improvement over Watt’s
• It introduced the new concept of the “compound engine” with more than one cylinder.
• This was the basis for further steam engine development after Watt’s patents expired. 50
Why Hornblower Is Superior?
• Hornblower built on the earlier work of Watt, making use of his “separate condenser.”
• The monopoly over the “separate condenser,” blocked the development of “compound engine,”
• Retarding economic growth.
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Intellectual MonopolyStory of Watt
• During Watt’s patents, the UK added about 750 horsepower of steam engines per year
• In the thirty years following Watt’s patents, additional horsepower was added at a
• rate of more than 4,000 per year.
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Intellectual MonopolyStory of Watt
• The fuel efficiency of steam engines changed little during the period of Watt’s patent;
• while between 1810 and 1835 it is estimated to have increased by a
• factor of five.
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Jerome Lemelson
• 1923 – 1997• Over 600 patents – used as
submarine patents• Worth US$1.3B• So, how did he do?
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Jerome Lemelson’s Strategies
• Knew the critical technologies for market demand– Cordless telephone, fax machine,
camcorders, etc.
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Jerome Lemelson’s Strategies
• Continuation applications– a patent application filed by an
applicant who wants to pursue additional claims to an invention disclosed in an earlier application of the applicant (the "parent" application) that has not yet been issued or abandoned.
– This type of application is useful when a patent examiner has allowed some but rejected other claims in an application, or
– where an applicant may not have exhausted all useful ways of claiming different embodiments of the invention.
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Results of Jerome Lemelson’s Strategies
• Lemelson’s patents occupied the top thirteen positions for the longest prosecutions from 1914 to 2001.
• Served as “Submarines”• In 2004, his estate was defeated in
Symbol and Cognex case – plaintiff sought (and received) a ruling that 76 claims under Lemelson's machine vision patents were unenforceable.
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Is Parody an Enemy?
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Experiment of Fictionwise.com
• We might expect that the sale of unencrypted electronic books results in relatively few sales since they will immediately appear for free on peer-to-peer networks,
• Strikingly, the data shows exactly the opposite. 60
Experiment of Fictionwise.com
• Owned by Barnes & Noble• eBooks in in encrypted or non-
encrypted formats.• The encrypted books tend to be
by the best known authors and highly rated.
• Both types of books sell for a similar price – about $5 for a novel.
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Experiment of Fictionwise.com
• Fictionwide.com lists the top 25 recent best-sellers and the top 25 best-sellers for the last 6 months.
• On the randomly chosen date of September 1, 2002 no encrypted ebooks appeared on either list.
• Almost five years later, the situation has changed somewhat in favor of encrypted books, but not dramatically so.
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Copycat or Innovation?
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Schumpeter’s Innovation
The Theory of Economic Development, 1934, Harvard University Press, Boston
• The introduction of a new good or of a new quality of a good.
• The introduction of a new method of production.
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Schumpeter’s Innovation
• The opening of a new market, whether or not this market has existed before.
• The conquest of a new source of supply of raw materials or half-manufactured goods.
• The carrying out of the new organization.
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The introduction of a new good or of a new quality of
a good.• Quad Band (GSM & CDMA) • Dual SIM• Media Tek’s turn-key solution• Receiving TV signals• Longer idle time• Anti-theft tracking
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The introduction of a new method of production.
• New supply chain – cluster• Media Tek with independent
design houses• Swift reactions to market
changes
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The opening of a new market, whether or not this market has existed before.
• The bottom of the pyramid• Disruptive innovation – avoid
overshooting• Highly customized
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The conquest of a new source of supply of raw materials or
half-manufactured goods.• Media-Tek’s processors• Abundant suppliers• Control distribution channels
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The carrying out of the new organization.
• Media-Tek’s open source business model
• Cluster – Taiwan’s scientific park model
• Close to customers (fewer middlemen from 5 – 8 to at most 3 levels for cellular phones)
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Disruptive Innovation!
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Compromise
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Compromise between Submarines and R&D
Houses• iPod• P&G’s Connect + Develop• Media Tek & Motorola• Media Tek joined TD-SCDMA
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