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Monday, January 28, 2013

Rogue Chinese entrepreneurs threaten big brands

In India, we seem to be flooded with Chinese made goods. Everything from cutesy handbags to hair clips with Disney characters on them are available. But what many legitimate businesses are soon realising is that, by copying their products almost identically with only minor differentiation to suit Chinese tastes, is making their businesses suffer. So to succeed in China is a different ballgame and they need to understand the Chinese rules of doing business.  
A Strategy & report called Shan Zhai: A Chinese Phenomenon is good reading on this subject. Here is an excerpt from the report:  

Although each Shan Zhai company is different, they often have common characteristics, such as tendencies to do the following:

Focus on the domestic market (at least initially)
Target mostly mass consumers
Strive for very short cycle time on product introduction
Focus on cost (but often offer lower quality too)
Tailor product features and functions specifically to local requirements.

Successful Shan Zhai companies may begin as counterfeiters or pirates but often evolve into legitimate businesses with their own intellectual property (IP) portfolios. 
 
So the report suggests that while Shan Zhai enterprises start out like rogue ones, they quickly evolve to grab marketshare from legit brands because they understand their consumers better. They then invest in R&D too to finesse their products even more.
So while they make cheap and inferior quality stuff to the branded products, they add enough frills and gimmicks in them to enhance their appeal to their Chinese users. These make them seem like a better deal to shoppers, than the genuine Apple, Nike and Toyota products in the market. 

Read the full interesting report here: Shan Zhai: A Chinese Phenomenon

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