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Shenzhen’s gadget makers come of age

Huaqiangbei electronics market in downtown Shenzhen is a gadget geek’s paradise, selling everything from individual semiconductor chips to roll-up drum kits to hoverboards. For some, it is also the culprit for the declining fortunes of US wearable tech companies such as GoPro and Fitbit.

“[Their] problem essentially is Shenzhen,” says Richard Windsor, founder of independent research company Radio Free Mobile. “It makes much cheaper cameras that are just as good and drones that are better.”

At Huaqiangbei, the stall opposite GoPro is selling no-name Rmb200 ($29) action cameras; three steps away the original is going for Rmb3,395. “People will buy [those] for fun,” shrugs the GoPro assistant. “But ours have quality.”

Quality, however, is no longer missing in Shenzhen, the fishing village turned tech metropolis across the border from Hong Kong. Innovation continues to lag, but shoals of companies are making their mark, turning out handsets (Xiaomi and Huawei), robots and drones (DJI and Ehang) — all targeting global markets.

Perhaps the clearest sign that the new breed of Shenzhen lookalikes are coming of age is that they themselves are plagued by knock-offs.

Lei Jun, who founded Xiaomi, the once highly valued handset maker that is now grappling with slowing growth and rising competition, last month griped that 30 per cent to 40 per cent of Xiaomi phones sold in the market were fake.

“The shells are the same as the real ones, but their functions are really bad. The cost is only one-third of ours,” he said at the National People’s Congress meeting, according to local media reports. “Not to mention the effects on our revenue, most importantly it affects our brand image and quality.”

Anker, which makes mid-priced chargers that compete with Belkin and Logitech, concurs. “We are being copied a lot,” says co-founder Dongping Zhao. “We are a victim of the copycat culture. Companies are copying our packaging, design, colour, image.” There is even an imitator that goes by the name Vnker, he says.

Also focusing on quality, SJCam and iWOWN took their cues from the US — GoPro and Fitbit, respectively. Zhang Hongbing founded SJCam on the straightforward premise that “everyone can afford a $100 camera”. But now, he says: “Our big goal is to surpass GoPro. It’s a simple goal.”

Glen Zhu started iWOWN in 2012 after watching the rise of Fitbit. The Chinese company began by making products for other brands before launching its own brand in 2014, selling online.

It now sells 80 per cent of its wristbands overseas, primarily to Europe and Japan. Sales virtually doubled to Rmb160m last year from 2015, and Mr Zhu claims a net profit margin of 10 per cent. Fitbit, meanwhile, lost a net $102.8m on revenues of $2.2bn last year.

Mr Zhu says his advantage is value for money. He admits his app lags well behind Fitbit — “I’ve got 15 engineers on my app team, they’ve got hundreds” — but still has been able to double the price of iWOWN’s latest bestseller, which has more functions than its predecessor and will sell for Rmb200.

“Some of the copycats have the capability to be serious threats to the big brands,” says Andrew “Bunnie” Huang, an independent consultant on electronic manufacturing. Others, he says, are fly-by-nights that disappear the minute there is a problem.

The players intent on building their own brands — the ones themselves now being copied — are striving to stay ahead of the pack with new products and specs that can even beat the US brands they began by aping. In line with their global ambitions, they are establishing support centres around the globe to provide after-sales service.

Thus research and development absorbs half of Anker’s 600-strong workforce and 3 per cent of sales. SJCam claims a massive 10 per cent of its revenues goes to R&D.

Anker, whose products consistently rank among Amazon’s bestsellers, is pushing into smart home products under its Alexa-enabled Eufy brand, which has been launched in the US and Japan and will soon sell in the UK. Engineers are also working on a dashtop computer for cars.

SJCam is now moving beyond action cameras into developing dashcams, a panoramic camera and a body cam — like those used by police, but for civilian use. There may even be, the company says, a doggie cam.

Companies moving the other way have had less success. GoPro briefly tried to compete with the cheaper copycats with its $200 Hero+ in early 2016, but last year scrapped its low-end line to refocus on the high end at double that price.

But the winds buffeting wearables overseas are also being felt in China. iWOWN, which sells 2m wristbands or around one-fifth of those sold by rival Xiaomi last year, according to NPD data, points to a shortening product cycle and growing competition from Chinese peers.

Dented by copycats, SJCam’s sales last year fell by one-sixth to 1m. “Intellectual property [is] good and bad,” says Tony Sosanya, general manager at SJCam. “China now needs to start enforcing IP” or risk eroding the incentive to innovate.

Mr Huang says the manufacturers of knock-offs themselves “are tired of looking over their shoulder because they’re operating in a grey market”, and factories are frustrated at the tiny share of revenues they capture compared to brand owners.

“The guys in China are acutely aware if they don’t have brands they cannot market to customers overseas, and that they are chasing a losing game.”

For their part, the US brands that pioneered these gadgets missed out, says Mr Windsor, by failing to create an ecosystem to tie users in and stop them going elsewhere.

“They didn’t do that, so what happened was the Chinese bought a lot of GoPros and took them to bits and worked out how to make them,” he says.

Additional reporting by Tim Bradshaw

Via FT