Mitchell Tseng on Shanzai and Open Manufacturing

Mitchell Tseng has published a report on the Chinese Shanzai system as Open Manufacturing using Open Innovation

The “Open Innovation” report is available as a scan at

Here is a commentary from Frank Piller at the Mass Customization blog:

“Before, the term open manufacturing often has been connected to the community of people that develop “open” manufacturing technologies like OS-based 3D-printing (Makerbot et al.) and “Open Hardware”.

But Mitch is not talking about these initiatives that more or less build on the transfer of the principles of open source software idea to hardware. His approach towards open manufacturing is building more on Henry Chesbrough’s understanding of open innovation as a broad collaboration of organizations.

Open manufacturing in Mitch Tseng’s understanding builds on the idea that supply chain networks are getting more open and often are organized around a kind of platform that allows the exchange of resources and capacity between the participants. This allows new and smaller players to enter the market and produce new products (often for niche markets) faster and with high efficiency.

One example of open manufacturing in his understanding is the success of Shanzhai manufacturing in China. Originally, this is the name for the Chinese companies that design and market counterfeit electronic products. According to the Blog,

– “The term dates back several hundred years to Chinese mountain bandits which operated outside the purview of the local government.”

On the website these companies “operate a business without observing the traditional rules or practices, often resulting in innovative and unusual products or business models.”

Today, the Shanzhai represent approximately 20% of the mobile phones sold in China annually! And they go global. With exports, Shanzhai were estimated to represent 10% of worldwide phone sales in 2009. And not all Shanzhai phones depend upon stealing the designs and brands of foreign brands, as writes:

– “Some manufacturers have become so successful that they are leveraging their own brand. For example, Tianyu, which is referred to as the King of the Shanzhai, markets its phones under its own label. Tianyu started off like much of the Shanzhai imitating global brands and evading government licensing requirements. However, the company became so successful that it has adopted a new business model in which it obtains licenses, pays taxes, and sells legitimately on the commercial market. Tianyu now enjoys 8% market share in China, more than Nokia, Samsung or Motorola!”

In his paper, Mitch Tseng describes very well how open collaboration enables these companies to compete with such an efficiency — and his conclusion is that behind the success of Shanzhai is much more than counterfeiting and stealing Western designs: It is the openness of their manufacturing and design network.

I find this case remarking due to two characteristics:

* First, the Shanzhai model shows a great way for robust processes for mass customization. Many of the models are highly individual pieces, created by a Shanzhai company to tap into a makret opportunity it realized. Production runs often are just a few hundred pieces, and often are starting with a special request by a customer or retailer.

* Second, it is a great model of what openess can offer. I have to strongly emphasize that I AM NOT in favor of stealing the IP of other companies or pirating and counterfying products. But the model shows that in a world where existing knowledge can easily being combined to new creations, a lot of creativity resides.”

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