Why Chinese manufacturing wins
An insider’s guide to Shenzhen manufacturing
The Chinese have a saying: “It doesn’t matter if the cat is black or white as long as it can catch mice.” While often attributed to the late Chinese leader and architect of economic reform, Deng Xiaoping, it is older. But it is fitting that people attribute it to Xiaoping because it was his push for a more pragmatic, results-based approach to economics and politics that gave birth to the mutant urban marvel that is Shenzhen, a southern Chinese city that’s become not only a global mass market electronics manufacturing juggernaut, but also a place where tiny startups flock to incubate their products and get them to market as quickly and inexpensively as possible.
“The world’s tech incubator,” “Silicon Valley for hardware,” “the electronics capital of the world,” “mecca for Makers,” “‘easy’ China,” “a sprawling electronics ecosystem,” and “the Digi-Key catalog meets Blade Runner” — these are just some of the ways that Shenzhen has been characterized. If you’ve spent any time in Maker circles, you’ve undoubtedly heard of Shenzhen and how it’s apparently some sort of Shangri-La for hardware startups. So what actually makes it such a unique and valuable location, prone to such breathless labels?
Shenzhen is a relatively new Chinese city purpose-built to cater to electronics manufacturing. If you’re serious about taking any type of consumer electronics product to market — robots, microcontroller-based projects, mobile phones, laptops, internet appliances, 3D printers, etc. — there is only one city where you need to be, and that’s Shenzhen.
Thirty years ago, Shenzhen was a relatively small fishing village and border town. But then it was designated as the first of China’s Special Economic Zones, a “reform and opening” policy that prescribed little interference from the communist government, allowing Shenzhen to practice market capitalism “guided by the ideals of Chinese socialism.” Over the decades, this experiment in special economics has allowed Xiaoping’s pragmatic cats to take up residence there. And they’ve bred. The result is a booming, modern south China city unlike any other — an international port, a marketplace and manufacturing center targeted at the electronics industry, and increasingly, a magnet for Makers, innovators, and startups. Shenzhen’s proximity to Hong Kong (a major source of the city’s investment capital), right across the Shenzhen River, also makes it an ideal location for making things happen.
At nearly 800 square miles, Shenzhen is more than double the geographic size of New York City. That real estate hosts a sprawling ecosystem that has grown up to support the city’s electronics industry. At the heart of this ecosystem beats the world-renowned Huaqiangbei electronics marketplace, a hacker’s wonderplanet where you can buy just about any type of electronic component, tool, or equipment that you desire, in any size lot, at wholesale prices. Got a bill of materials for your product with prices spec’d from U.S. factories or suppliers? Chris Wang, (aka Akiba), founder of Freaklabs, which makes Freakduino boards, says if you take that BOM to Huaqiangbei and spend a day in the market, you will likely cut that bill by half or more. The close proximity to the supply chain and component marketplace, manufacturing facilities, plentiful and fast international shipping, and the willingness of all of these concerns to cater to small startups, has proven an irresistible cocktail for professional Makers.
So, how do you get started exploring manufacturing opportunities in Shenzhen? “You buy a ticket,” says Bunnie Huang, matter-of-factly. Huang, the engineer and Maker’s Maker behind such products as the open-source laptop Novena and Chumby, the enigmatic internet appliance, has been helping others break into business with Shenzhen for years. “So, you go and you look around,” he says. “And you look around some more. You make calls, establish connections. You take like a week, and essentially, you speed date the factories of Shenzhen. Going to the factories gives you a good sense of what’s going on, the conditions there, the media that you have to work with, the manufacturing processes.” He adds: “It also gives you new ideas. You see things you didn’t know were possible in the manufacturing process and that gives you ideas for what you can do with your product that you hadn’t considered before.”
It might be tempting to work long-distance with the factories in Shenzhen, rather than traveling there in real life. But if you’re undertaking a serious endeavor and you’re looking to make mission-critical parts, you have to visit to really know the situation at your suppliers, to establish relationships with factory owners and staff, and to get a sense of their quality control standards. (If you can’t make the trip, you may be better off working with local manufacturers.) “It’s not about ‘outsourcing,’” says Huang, dismissively. “I hate that word — like you’re just going to ship CAD files to China and magic elves are going to make Christmas happen for you. You’re really building a relationship,” he says, “A partnership.” And that relationship needs to be built in person.
Doing business in China, or, God forbid, moving to China to be closer to your factories and suppliers (which many of the people we talked to ended up doing) can open Makers to severe criticism. Makers inevitably get asked pointed questions about taking work out of the U.S., and about labor and environmental concerns. “I get asked why I don’t promote ‘Made in the USA’ a lot,” says Akiba. “I think that corporate America created this problem about two decades ago when ‘management gurus’ and Harvard Business Review writers started telling companies to focus on their core competencies and outsource everything else to low-wage countries like China. One thing those managers didn’t understand was that the employees in their companies, with a detailed understanding of their manufacturing process and its quirks, were some of their core competencies. It’s sad that most corporations in the U.S. — especially in the Bay Area — gave all of that up, and in the process, depleted the manufacturing ecosystem there, as suppliers, equipment Makers, and the like either disappeared or moved to where that manufacturing was still happening.”
Huang also emphasizes the often-overlooked importance of this support infrastructure that surrounds any world manufacturing center. “Manufacturing implies an entire ecosystem of suppliers, repair technicians, jobbers, shipping and delivery services, etc.,” he says. To illustrate what makes Shenzhen so unique, he shared a story at the 2013 Shanghai Maker Carnival: “I’m in my apartment, in Huaqiangbei, and I get a call early in the morning. My factory is short of transistors. So I get up, walk downstairs, buy 3,000 transistors on the street, walk over to the factory, thread it into the reel on the line, and two hours later, the line’s up and running again.” In another city or situation, he says, your factory would be down for maybe 24 hours. Those 24-hour delays begin to mount and seriously slow delivery of your product.
Matt Mets, former MakerBot engineer and Make: blogger who now lives in Shenzhen and runs Blinkinlabs, offers a colorful analogy that also speaks to Shenzhen’s unique ecosystem: “All of the things we’re building are super-small compared to what the giant companies are making, so we’re sort of clinging to the fur of a much larger animal that is big manufacturing, and that animal lives in southern China.”
Labor practices are still a concern, but Makers from Shenzhen pointed out that things are different there than they are in other parts of China. Wages are much higher in general, doubling in the last few years. The labor market in Shenzhen has become competitive as a result, and that gives workers leverage in insisting on better meals, better dormitories, and better working conditions. If they don’t get these things, they leave for other companies offering them.
If you travel to Shenzhen to establish your relationships with suppliers and manufacturers, you can visit the factories and see conditions for yourself. While Shenzhen is home to electro-giants like Foxconn — mainly known for being the birthplace of your iPhone and for widely reported ill treatment of workers — you’ll want to work with smaller factories. In scoping out factories, Huang offers a great rule of thumb: “If you go to a factory and you can’t meet and have dinner with the boss, that factory is too big for you. You want a company that has that level of access and personability. You want to be able to talk to the boss, explain your agenda, look around, sit in the tooling shop. You want them to believe in you (and you in them), as a partnership, as a co-investor.”
Several Maker pros living in Shenzhen said that, while environmental issues are still a major concern, there are hopeful signs there, too — at least in Shenzhen. The government-controlled South China Post is now talking openly, and often, about heavy metals in the food supply (a significant issue with the massive-scale rare earths processing happening in China). For the government to implicitly acknowledge the problem via the state-run news is usually a sign that it’s being taken seriously and will be officially addressed. Huang says that many of the factories he works with are committed to being “green,” and emphasize energy savings and recycling. And because Shenzhen has become something of a model for other Special Economic Zones (there are now six), and thanks to its international high profile, it’s in China’s best interests to keep the labor and environmental concerns of the city in check.
So, what’s it actually like to take up residence in Shenzhen? Ian Lesnet from Dangerous Prototypes, who also runs Hacker Camp Shenzhen, paints a very enticing picture. “It’s a very young, vibrant city,” he says. “There are many outdoor barbecue places, street food, markets, and an active street life. People are super friendly, like the way everyone tells you when they go somewhere new, except here, it’s for real. Walking down the street, people yell ‘Hello, how are you?’ in their best English, and I give my best ‘Hen hao! Ni ne?’ in return. Most shops stay open until midnight. Clubs and street barbecue go all night. You can kick back at a barbecue joint and play Liar’s Dice with the locals, many of whom are part of the supply chain that feeds Huaqiangbei.”
Lesnet started out commuting from Amsterdam every month, spending a week in China at a time, but after staying there for three weeks in a row, 10 minutes from the Huaqiangbei markets, he was hooked. Now he has an apartment in Shenzhen and spends most of his time there. But he’s quick to point out, there’s no path to permanent residency or Chinese citizenship.
“Shenzhen is a place to be right now,” Lesnet says. “We’re here while it’s all happening, while it matters. It’s not a fading star trying to win back its luster. It’s not a city trying to break through to ‘be something.’ Shenzhen is that place right now. It won’t be forever, but for the moment, it is.”