by Michael O'Neill
September 10th, 2013

China has been known for its pirated luxury goods – the LVs, Diors, Polo and even iPhone have their “faked cousins” in China, available at a fraction of the original item’s price. There is a term used in China for this – Shan Zhai (aka fake). This underground industry has been flourishing with the growing Chinese appetite for luxury goods in the past few years.

Among Shan Zhai as a category, Shan Zhai smartphones have been widely popular with Chinese consumers, especially those who cannot afford brand name phones in tier-two, tier three and tier-four cities. These phones have just as many features as branded ones, if not more. Their quality is as good as the branded one, and the price level is really affordable. The only thing these Shan Zhai lack is a brand name. Most of the Shan Zhai phone manufacturers were OEMs of branded phones; they may have copied the technologies and created similar yet cheaper versions for the local market.

A recent Weibo post states that Shan Zhai phone makers are suffering from a loss of sales and interest. The reasons? Brands like Huawei, Lenovo and even Nokia are introducing inexpensive smartphones in China, cannibalizing the Shan Zhai market. One manufacturer in Shenzhen expressed worries that the “good days are gone.”  Another reason is that consumers are becoming more affluent, and the ability to buy branded smartphones is on the rise. Plus having a Shan Zhai is not something to be proud of.

With the fading of fake smartphones, does this mean that brands like Nokia and others have a chance for additional growth in China? Given that there are over 260 million smartphones in China today and Apple and Samsung combined command 50% of the smartphone market share, there is still room for growth.  Who will take advantage of the fading Shan Zhai category is not yet clear.

Lydia Lee, is senior vice-president, China, at Weber Shandwick

This article first appeared on the Weber Shandwick Technology Practice blog

Image courtesy of Mike Lau


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