The following is my latest post on Digital East Asia.
QQ.com reports (link in Chinese) that Chinese Shanzhai mobile phone manufacturers — Shanzhai denotes low price knockoffs of trendy products — are considering building factories in India to regain access to the massive and rapidly growing mobile market. Last December India banned phones without International Mobile Equipment Identity (IMEI) codes — the unique identification number per mobile device globally; unfortunately,many Shanzhai manufacturers aggressively manage costs by sharing IMEI codes or not having them at all. These manufacturers, primarily based in Shenzhen, hope that by establishing local manufacturing in India, they would gain some goodwill with Indian authorities and perhaps regain access to the market.
According to the article, the Shenzhen Mobile Communications Association (SMCA), a trade group, plans to organize a business trip to India this month for 12 of its members. The group will negotiate an agreement with the Federation of Indian Chambers of Commerce and Industry (FICCI) to grant Shanzhai products legitimate access to the Indian market so it can regain its substantial market share:
“…the goal is to set up several production lines, with annual capacity of 10 million units… Chinese brands achieved 40% market share in India last year, but we are now blocked out of this market. We must leverage Shenzhen’s manufacturing strengths, to build the image of producing Indian phones.”
– Tang Ruijin, Chairman, SMCA
Some interesting mobile phone statistics from 2009 include:
- Global handset production volume was 1.13 billion last year, with an estimated 20% to beChinese Shanzhai phones,
- In 2009 Shanzhai manufacturers produced 235 million units, of which 140 million units were for export (sweeping across emerging markets globally, especially in Southeast Asia and South Asia). (Source: BDA, a telecommunications, media and technology consultancy based in Beijing), and
- Exports could grow as much as 50% this year to 211 million units, with India being the largest foreign market.
I think this could be a very interesting development, with implications beyond just the return of Chinese Shanzhai brands to India. Essentially, these export facing manufacturers are forced to tackle global marketing issues, and could be pioneers for how Chinese brands expand internationally; most Chinese brands these days have the luxury of being able to only focus on the domestic market. To a large extent, these low price manufacturers have enjoyed success so far; now their ambition is to make their business sustainable – to do so they will need to shift to real innovation, either in product, market distribution or customer segmentation.