Strategic transformation of Shanzhai firms: Evidence from the Chinese case

Abstract

Last several years have seen the great growth of the Shanzhai mobile phone firms, and it is more surprising that these firms achieve such performance under the background of the global financial crisis. However, in order to acquire long term competitive advantages, Shanzhai mobile phone firms must make strategic transformation. This research tries to explain the emergence and growth of Shanzhai mobile phone firms from theoretical views of modularity and disruptive innovation. The research results suggest that technological modularity facilitates the evolution of industrial value chain, which greatly lower the threshold for local small firms' entry and promotes disruptive innovations. Shanzhai mobile phone firms start from low-end disruption and by accumulating technology and market knowledge through resource integration, some of these firms can work their way up to eventually achieve independent innovation and their own brands, becoming major players in the market. Based on the Tianyu case study, this paper explores the theoretical model about how Shanzhai mobile phone firms carry out strategic transformation, and then discusses relevant policy implications.