Shanzhai manufacturing – an alternative innovation phenomenon in China: Its value chain and implications for Chinese science and technology policies

The purpose of this paper is to explore an indigenous innovation phenomenon – entitled the Shanzhai phenomenon – which has emerged in the Chinese mobile phone industry, and to understand its value creation network and operational mechanism, as well as to recognize its policy implications in regional and industrial developments.

Although the Shanzhai phenomenon emerged from the end of 2008, detailed understanding of its systems and operational mechanism is still very limited, partly because of its secrecy and dynamics in the value chain operations. Based on characteristics of the Shaizhai phenomenon, the paper focuses on three levels of the phenomenon – regional historical, regional industrial specific, and typical Shanzhai mobile phone project levels – to pursue a comprehensive understanding of the Shanzhai system and its emerging environments. At the regional and industrial level, the combined approaches of interview and secondary data collection is adopted. At the Shanzhai project level, a case study approach is conducted by focusing on the project and its whole value chain, from the idea creation towards detailed product design, production and integration, as well as its distribution.

Chinese government has called for indigenous innovation to upgrade Chinese manufacturing capability and value creation as well as appropriation. Based on the fast growth of the Chinese indigenous mobile phone industry in the last two years, the Shanzhai manufacturing system is recognized as a new positive alternative way for Chinese manufacturing companies to achieve this aim. Behind the Shanzhai phenomenon, there is a strong globally specialized and collaborated network enabling the down‐stream Chinese small‐ and medium‐sized mobile phone companies to very quickly respond to customers' demands or lead the demands. This new type of alternative innovation system is transforming unaffordable luxury goods into affordable for normal consumers. Because of its mass volume and involvement, however, government policies to harness the energy and development direction become essential.

This research is just a very early stage of preliminary observation. From the methodology perspective, it provides background information about Shanzhai phenomenon and an in‐depth case study about a Shanzhai project. Comprehensive understandings of the Shanzhai phenomenon in terms of its behaviours, systems constructs and patterns, trajectories in the future and implications for policies will be achieved only at a much later date.

ShanZhai manufacturing might be one possible alternative innovative paradigm in some sectors of China.

This is the first academic research paper to offer relatively comprehensive and systematic observations about the emerging ShanZhai manufacturing system in the largest developing country.