Shanzhai in China refers to Chinese imitation and pirated brands and goods. There are different types of Shanzhai, including copy, parody, and new brands. Parody, in particular, is a work created to mock, comment on, or poke fun at an original work by means of humorous, satiric or ironic imitation. Shanzhai culture in China has led to innovation through copying existing products and business models, improving them, and developing new markets through rapid customization and response to customer needs. While imitation and copying initially occurred, over time true innovation developed, as seen in the cellular phone industry through companies like MediaTek that pioneered new technologies and business models.

1. Shanzhai in China 1

2. Types of Shanzhai Copy Parody Private Lebal (Baipai,) e.g., Kirkland at Costco New Brand 2

3. What Is Parody? 3

4. What is Parody A parody (pronounced /ˈpærədiː/; also called send-up or spoof), in contemporary usage, is a work created to mock, comment on, or poke fun at an original work, its subject, author, style, or some other target, by means of humorous, satiric or ironic imitation. It is known as Shanzhai in China 4

5. Parody Examples in China

6. Parody Examples in China 6

7. Parody Examples in China 7

8. Parody Examples in China 8

9. Parody Examples in China Parody Lamborghini-Ferrari 9

10. What is Shanzhai Shanzhai (simplified Chinese: 山寨; pinyin: shānzhài) refers to Chinese imitation and pirated brands and goods, particularly electronics. Literally "mountain village" or "mountain stronghold", the term refers to the mountain stockades of warlords or thieves, far away from official control. "Shanzhai" can also be stretched to refer to people who are lookalikes, low-quality or improved goods, as well as things done in parody. 10

11. Shanzhai Learning focus is Cellular Phones 11

12. Causes of Shanzhai 12

13. Rancor Opium War 1839 – 1842 Anglo-French Invasion in China (Second Opium War) 1860 Eight-Nation Alliance 1900 Russo-Japanese War 1904 – 5 Sino-Japanese War 1937 – 1945 13

14. Survival of OEM The average OEM profit is less than 4% This number could be even lower if governments had not provided compensations. International brands’ can be 50% and do not want to reduce it. 14

15. Customization &Business Model Innovation Re-package, add-on for individual customers, delivery in 1 hour GSM Quad Band Dual SIM Quick Response Manufacturing 15

16. Quick Response Manufacturing In China’s cellular phone market An ecosystem Center – Media Tek’s Turn-key solution 16

17. Media Tek’s Turn-key solution One IC has Cellular phone, MP3, touch panel, … functions IC + software, all design problems solved at Media Tek Downstream companies (Independent Design House, IDH) only need to put on peripherals such as screens, cases, etc. radio receivers, etc. 17

18. Quick Response Manufacturing Synchronized procurement Product development, material movement, production, logistics, and distribution all achieved simultaneously. 18

19. Quick Response Manufacturing Production time – from one year to 1 months Need only 3 people – one contacting Media Tek, another find OEM, and the other selling products and collecting money 19

20. Blue Ocean & Disruptive Innovation To be discussed when we talk about Blue Ocean Strategy – Strategic canvas & Disruptive Innovation 20

21. Innovation from Imitation? 21

22. Innovation from Imitation Do only Chinese copy? Can innovation come from nowhere? 22

23. Copyright in the USA in 18 Century The first American "pirate“ – Benjamin Franklin A Philadelphia printer who re-published the works of British authors without seeking their permission or offering remuneration. The person who discovered electricity 23

24. Charles Dickens Dickens’ North American reading tours of 1842 and 1867-68 Lobbied the American Congress to recognize the copyright of British authors 24

25. Charles Dickens During his first visit, made him anathema in certain political circles and in the American press 25

26. Webster Dictionary An AMERICAN dictionary of English Language 26

27. Japan and Korea’s Model Toyota's first production car - Model AA was introduced in 1936. It was heavily based on Chrysler Airflow and chassis and electrics were copied from Ford. In late 1930's Toyota and Ford had talked about a joint-venture but war interrupted talks. 27

28. Toyota & Chrysler 28 Toyota Model AA

29. Toyota & Chrysler 29 Chrysler Airflow

30. Scion 30

31. Scion 31

32. Scion 32

33. Scion tC MRSP US$17,000 33

34. Japan and Korea’s Model Almost every model of Hyundai is a copy. 34

35. Japan and Korea’s Model First: 2009 Mercedes Benz CL 550 Second: Hyundai Sonata Revealed New Hyundai YF Sonata and Kia Cadenza are HOT (Report on November 10, 2009 35

36. More on Hyundai 36 Cadillac 2008 CTS 2009 Sonata

37. Taiwan follows US Patent Laws Results? 37

38. Innovation Needs Cash, Market, and Experience! 38

39. Failure of Patents 39

40. Patent Works? Innovation firms benefit from patents? Patents spur innovation? – no evidence But how about cost? How about industries? (cf. Biotech versus IT) 40

41. Cost/Benefit of Patents Profit for the US firms: 1997 $8.4B – 1999 $9.3B 2/3 in chemical and pharmaceutical companies Cost: domestic litigation alone: 1997 $8B – 1999 $16B companies doing the most research and development are sued the most. 41

42. Intellectual MonopolyStory of Watt 1768, Watt ‘repaired’ Newcomen engines ‘with substantial borrowing’ and applied for a patent Nothing much happened then 42

43. Intellectual MonopolyStory of Watt 1775, patent almost expired Industrialist Matthew Boulton with good relationship with the parliament supported him. The patent was extended until 1800 Watt spent more time engaged in legal action to establish and preserve his monopoly than he did in the actual improvement and production of his engine. 43

44. Intellectual MonopolyStory of Watt 1790, the superior Hornblower engine was in production, Boulton and Watt went after him with the full force of the legal system. Many new improvements to the steam engine became available by 1804, but these innovations were kept idle until the Boulton and Watt patent expired 44

45. Intellectual MonopolyStory of Watt An important limitation of the original Newcomen engine could be fixed by a method patented by James Pickard, which prevented Watt from using it. The existence of a patent forced Watt to contrive an alternative less efficient mechanical device to fixed the problem. 45

46. Intellectual MonopolyStory of Watt It was only in 1794, after the expiration of Pickard’s patent that Boulton and Watt adopted the economically and technically superior device to fix the problem. 46

47. Intellectual MonopolyStory of Watt – without patent When the patents expired many establishments for making steam-engines of Watt's principle were then commenced. However, Watt’s competitors principally aimed at cheapness rather than excellence. 47

48. Intellectual MonopolyStory of Watt – without patent As a result, far from being driven out of business, Boulton and Watt for many years afterwards kept up their price and had increased orders. 48

49. Intellectual MonopolyStory of Watt – without patent After getting one step ahead, Watt remained ahead not by superior innovation, but by superior exploitation of the legal system. The fact that his business partner Boulton was a wealthy man with strong connections in parliament, was not a minor help. 49

50. Why Hornblower Is Superior? It was a substantial improvement over Watt’s It introduced the new concept of the “compound engine” with more than one cylinder. This was the basis for further steam engine development after Watt’s patents expired. 50

51. Why Hornblower Is Superior? Hornblower built on the earlier work of Watt, making use of his “separate condenser.” The monopoly over the “separate condenser,” blocked the development of “compound engine,” Retarding economic growth. 51

52. Intellectual MonopolyStory of Watt During Watt’s patents, the UK added about 750 horsepower of steam engines per year In the thirty years following Watt’s patents, additional horsepower was added at a rate of more than 4,000 per year. 52

53. Intellectual MonopolyStory of Watt The fuel efficiency of steam engines changed little during the period of Watt’s patent; while between 1810 and 1835 it is estimated to have increased by a factor of five. 53

54. Jerome Lemelson 1923 – 1997 Over 600 patents – used as submarine patents Worth US$1.3B So, how did he do? 54

55. Jerome Lemelson’s Strategies Knew the critical technologies for market demand Cordless telephone, fax machine, camcorders, etc. 55

56. Jerome Lemelson’s Strategies Continuation applications a patent application filed by an applicant who wants to pursue additional claims to an invention disclosed in an earlier application of the applicant (the "parent" application) that has not yet been issued or abandoned. This type of application is useful when a patent examiner has allowed some but rejected other claims in an application, or where an applicant may not have exhausted all useful ways of claiming different embodiments of the invention. 56

57. Results of Jerome Lemelson’s Strategies Lemelson’s patents occupied the top thirteen positions for the longest prosecutions from 1914 to 2001. Served as “Submarines” In 2004, his estate was defeated in Symbol and Cognex case – plaintiff sought (and received) a ruling that 76 claims under Lemelson's machine vision patents were unenforceable. 57

58. 58

59. Is Parody an Enemy? 59

60. Experiment of Fictionwise.com We might expect that the sale of unencrypted electronic books results in relatively few sales since they will immediately appear for free on peer-to-peer networks, Strikingly, the data shows exactly the opposite. 60

61. Experiment of Fictionwise.com Owned by Barnes & Noble eBooks in in encrypted or non-encrypted formats. The encrypted books tend to be by the best known authors and highly rated. Both types of books sell for a similar price – about $5 for a novel. 61

62. Experiment of Fictionwise.com Fictionwide.com lists the top 25 recent best-sellers and the top 25 best-sellers for the last 6 months. On the randomly chosen date of September 1, 2002 no encrypted ebooks appeared on either list. Almost five years later, the situation has changed somewhat in favor of encrypted books, but not dramatically so. 62

63. 63

64. Copycat or Innovation? 64

65. Schumpeter’s Innovation The Theory of Economic Development, 1934, Harvard University Press, Boston The introduction of a new good or of a new quality of a good. The introduction of a new method of production. 65

66. Schumpeter’s Innovation The opening of a new market, whether or not this market has existed before. The conquest of a new source of supply of raw materials or half-manufactured goods. The carrying out of the new organization. 66

67. The introduction of a new good or of a new quality of a good. Quad Band (GSM & CDMA) Dual SIM Media Tek’s turn-key solution Receiving TV signals Longer idle time Anti-theft tracking 67

68. The introduction of a new method of production. New supply chain – cluster Media Tek with independent design houses Swift reactions to market changes 68

69. The opening of a new market, whether or not this market has existed before. The bottom of the pyramid Disruptive innovation – avoid overshooting Highly customized 69

70. The conquest of a new source of supply of raw materials or half-manufactured goods. Media-Tek’s processors Abundant suppliers Control distribution channels 70

71. The carrying out of the new organization. Media-Tek’s open source business model Cluster – Taiwan’s scientific park model Close to customers (fewer middlemen from 5 – 8 to at most 3 levels for cellular phones) 71

72. Disruptive Innovation! 72

73. Compromise 73

74. Compromise between Submarines and R&D Houses iPod P&G’s Connect + Develop Media Tek & Motorola Media Tek joined TD-SCDMA 74