Dubbed the Silicon Valley of hardware, Shenzhen has built its success on far more than nuts, bolts and circuit boards
While Silicon Valley is still ground zero for tech titans and the most ambitious start-ups, it is in the Chinese city of Shenzhen that things actually get made. And now, says David Baker, the city’s quick-fire manufacturing is pulling in a new generation of designers and developers.
Silicon Valley likes to say that it moves fast and breaks things, but now it faces being broken itself by a technology hub that is moving even faster. Welcome to Shenzhen, a sprawling city just north of Hong Kong, which in barely 40 years has established itself as the world capital of hardware innovation.
Shenzhen was once a fishing village of some 30,000 people. In 1980, however, it gained became a Special Economic Zone under Chinese premier Deng Xiaoping’s cautious attempts to introduce aspects of the free market into the communist economy. The government allowed people to set up their own businesses (or at least turned a blind eye when they did) and encouraged workers to come to the city from other parts of China.
The result was growth that even Deng could not have imagined. Shenzhen’s population soared to an estimated 18 million today. And between 1986 and 2016 its real gross domestic product (GDP) grew an average of 22 per cent every year, turning it into one of China’s five richest cities. Shenzhen now has a GDP of 2 trillion yuan ($290 billion), bigger than that of Portugal.
Initially home to high-tech, low-cost factories dedicated to building smartphones, computers and games consoles designed in the West (Foxconn, Apple’s manufacturing partner, has its largest facility here), Shenzhen quickly grew a reputation for copying those items – and, in the eyes of many, making them better. Today, in the city’s bustling Huaqiangbei electronics market you can find row upon row of fully functioning modified products, such a Frankenstein “iPhone 7” – with a perfect Apple logo – selling for a fifth of the price of the real thing and with the added advantage of two SIM-card slots, a memory card and a replaceable battery.
Shenzhen now has a GDP of 2 trillion yuan ($290 billion), bigger than that of Portugal.
A small fishing town in 1980, Shenzhen is now a megacity with glittering architecture, including the Poly Theatre, to match.
Anybody who is going through research and development, they’re better off doing it here because they can get things made so much quicker and so much cheaper.
Shenzhen’s culture of innovation is helped by formidable access to components and to prototyping and manufacturing facilities. Among the 800-or-so stalls of the Huaqiangbei market, inventors can browse piles of electronic components, from microswitches to computer logic boards, at rock-bottom prices and available for delivery in bulk the following day. That leads to ultrafast prototyping and product development. Almost nowhere else in the world can compete with Shenzhen’s turnaround times, a fact that explains the high number of non-Chinese entrepreneurs in the city.
“Anybody who is going through research and development”, says Duncan Turner, a Brit who runs Hax, a hardware accelerator that gives early-stage start-ups mentoring and capital in return for a slice of the company, “they’re better off doing it here because they can get things made so much quicker and so much cheaper. You try doing something like that in the UK and it will take you around a month to make something specialist from an engineering firm. Here, you can do it in a couple of days.”
The city is home to hundreds of start-ups, many developing products for the internet of things (which finally seems as if it is on its way). But big companies are also tapping into the power of Shenzhen’s innovative culture.
Among them is Huawei, once known as a boring but reliable telecommunications-systems supplier but now a big player in smartphones and cloud computing. Huawei posted revenues this year of $75.1 billion, up 32 per cent from 2016, and is poised to lead the world in 5G mobile technology. Its protocol for connecting internet-of-things devices has been adopted as a global standard.
Meanwhile Foxconn has expanded its facilities to provide prototyping to Apple’s new R&D centre in the city and formed an alliance with Sharp to develop industrial robots. Foreign investment is pouring in.
This growth, however, is changing the flavour of the city. Just as Silicon Valley transformed itself from orange groves to a place where innovation happened in garages to the gleaming wonderland it is today, so Shenzhen is moving on from its down-and-dirty roots. Property prices in the city are rising fast, new skyscrapers seem to appear every day and even the warren-like Huaqiangbei market may have to make way for a new condominium-and-office-block complex, complete with Brooklyn-style coffee shops for Shenzhen’s well-heeled middle class.
Labour costs are rising, too, which, according to economist Pippa Malmgren, who watches the sector, means that Shenzhen will have to continue to up its game. “Silicon Valley has yet to notice that wages in Mexico are now 30 per cent cheaper than in China”, she says. “And quality control in China is not as good as in Mexico. So China is no longer a reliable low-cost producer. That means Shenzhen will have to innovate harder and faster.”
For the moment, though, Shenzhen is doing anything but sitting on its laurels. For every new gleaming skyscraper, there are still dozens of “urban villages” in the city – clusters of shacks and dirty alleys where Shenzhen’s latest arrivals live. On many corners in these villages you’ll find groups of incomers rummaging through piles of electronic rubbish – the innards of old phones and desktop computers discarded by users in the West. These are the city’s scavengers. Wielding pliers and soldering irons, they pick out anything that can be resold in the city’s components markets. But, this being Shenzhen, they’ve also got an eye for innovation. In a city where the journey from new arrival to technology superstar can be astonishingly short, one of these scavengers could easily be China’s next Steve Jobs.
With offices in Shenzhen and San Francisco, Hax bills itself as the world’s first and largest hardware accelerator.
This growth, however, is changing the flavour of the city. Just as Silicon Valley transformed itself from orange groves to a place where innovation happened in garages to the gleaming wonderland it is today, so Shenzhen is moving on from its down-and-dirty roots.
(All credit for this piece goes to Barclays Wealth where this has been re-posted from)