Made in Shenzhen: Inside The Silicon Valley of Hardware
„It is the hottest scene in the world. I mean there are nowhere more startups registered per hour than in Shenzhen„, says Henk Werner, who founded his company in the heart of Shenzhen. 40 years ago, the city was a small fishing village in the Pearl River Delta at the border to Hong Kong with approximately 30.000 inhabitants. There was no industry, almost no infrastructure. In 1980 the Chinese government established Shenzhen as China’s first special economic zone and that changed everything. It attracted talent and investment from all over the world and businesses with investments – A technology hub was created.
Today, Shenzhen is home to at least 12.5 million people – all burying their heads in their smartphones. Estimations go as high as 25 million people. Not only major electronics companies use Shenzhen and its infrastructure for creating new technologies. According to studies, around 60% of the university graduates in Shenzhen born after 1990 want to start their own business. A figure 4 times higher than in Peking for example. The result: Shenzhen’s startup scene is booming like crazy.
The world’s largest electronics market
„Chinese people are very entrepreneurial. Especially in Shenzhen the cooperation is really extreme. Much more than in some other older cities in China. Shenzhen is very young. Almost everybody is from other cities. So everybody is a stranger in some way. That’s one of the reasons, why the cooperation is very strong. Everybody needs each other“, says Werner, who opened Troublemaker, a Maker-Space with labs for helping people to produce their products safe and fast.
It is situated in the heart of Shenzhen: Huaqiangbei, home of the world’s largest electronics market. 6.5 million square meters fully cramped with smartphones, robotics, drones and all the electronics components you can think of. But it is only one of the dozens of markets, you can find in the Huaqiangbei area. A perfect place for hardware startups to grow their business.
„it’s a good time to start a company“
Linda and Marvin are two of many startup founders, that use the infrastructure of Troublemaker to develop their product. „We have all the resources here and can get all the components 5 minutes downstairs and then we can do our prototype much faster just because we are in Huaqiangbei particularly“, says Linda, co-founder of Robotics Masters. Marvin, who is founder of Seenwater Technology, shares that opinion: „I think Shenzhen is our first and best choice when considering manufacturing. I not only mean Shenzhen itself, but also the surrounding cities, they are very close in the bay area. There are plenty startups. I think it’s a good time for young people like me to start a new career, to start a new company“.
While Linda is developing an education hardware platform for university students, Marvin dedicated himself to a hardware gadget named “Baymini”, which can be used to prevent people from drowning. For both, Shenzhen is the perfect place to start their business. But there are also downsides. Linda shares her experience: „We still have the things that I shouldn’t talk about. The internet is still blocked and this is hard for us, because we want to attract many international people to work here. For them, this is a difficulty, because the internet is cut off. It is a little bit hard for them to reconnect with their families and friends. Sometimes this can be very frustrating“.
The big companies: ZTE, DJI or Huawei
In the markets at Huaqiangbei you find all the hardware you can think of. A local took us to one of the markets, selling refurbished electronics. Each little booth is like a little factory. Some people tear phones apart, others are making new phones out of five old ones. But Shenzhen is not only home to a lot of markets, hardware components and startups. Shenzhen is the headquarter for a lot of big electronic companies such as ZTE, DJI or Huawei. The latter is the market leader in China’s Smartphone market and is claiming 2nd place in Austria’s smartphone market as well.
Joe Kelly is Vice President of Corporate Communications at Huawei and is convinced that China is leaving the time of copying behind and now counts among the innovation leaders: „You know, 20-30 years ago, there was a copying culture, then we went through a phase of copying and then improving upon it and now there’s an awful lot of original innovation coming out of China, being shared across the rest of the world. Huawei is at the forefront of that. Last year we invested 14.8 billion USD, we have 80.000 R&D Engineers, creating new and innovative technology. So it’s been a journey, but there’s been a significant change“.
„90% crap“: How an Austrian company sees Shenzhen
Shenzhen seems like a paradise for hardware producers and startups from all around the world. Even Austrian Startups come to Shenzhen to make their prototype or go to industrial production. One of these companies is Emporia, that produces mobile phones for elderly people. Harry Obereder, the General Manager and CTO, came to Shenzhen already more than 12 years ago. He has a different view on Shenzhen: „Huaqiangbei, for me – I don’t like it. You find 90% crap. The 90% is what we know from before, like the cheap China copy stuff, the things you buy and through away immediately. To find the 10%, you actually need to have already knowledge about how to find those“.
Finding a good supplier is, in his experience, hard work: „There is no real good supplier for you, so you have to build them up. If I choose a new factory or new supplier or new partner, I would at least invest a year to build up the quality to a stage, that I can build products with then. And then you have to control it on a regular base that they don’t fall back, because that’s how it usually is. If you just come here and think you find a supplier and make your product – it’s not gonna work“.
One thing that startups coming to China have to be aware of is the golden sample. Even if a factory produces a perfect sample, or 10 perfect samples, once you move forward to industrial production, the quality can drop. Another thing to be aware of: Don’t fall for the red carpet. Problems, that Fabian Gems of Advantage Austria situated close to Shenzhen has heard of a lot: „If something is not true or seems odd to you in Europe, it certainly is odd in China. We had a lot of Austrian companies, who came here and said “oh but we met the mayor, we had high level visits to companies, we were greeted by hand, why should we think about insurance policies.” Don’t fall for the red carpet. Be aware, that although it’s a great place to do business, it’s not an easy market to do business“.
In the Pearl River Delta there are tens of thousands of factories offering different services and qualities. A big variety for companies coming here to choose from. „I was talking to some startup companies, which came here couple of months ago. They said, for them in order to produce a prototype in Austria, it would take them 4-6 weeks. In Shenzhen they could do it in 3 days. So yes, the availability of resources, electronics, all the different production lines that you have around Shenzhen. There you have a lot of production sites, where you can easily get the sources that you need“, says Fabian.
The influence of the communist government
A big concern for international companies coming to China is the Chinese communist government. If you walk down the street – surveillance cameras left and right, security guards and police officers in the metro, on the street, in the markets. But it’s not only the surveillance, that foreigners are skeptical about – It’s pretty unpredictable, how much influence the communist party has on a company’s daily business.
Harry Obereder for example doesn’t feel the influence on a macro level, but at least on a micro level: „The government is pushing economy and in Guangdong, in this Pearl River Delta, which will be later the Greater bay area, they are subsidizing a lot. Those are all hidden subsidies. I can feel it every day, because I’m paying the full range of taxes. For the employees, for the housing fund, for everything. None of my suppliers would do that. It seems the government turns a blind eye to that. But if you do that as a foreigner, better not. If our suppliers all would do that, they probably could not offer for these prices. And then this position as manufacturing hub would not be that attractive“.
Recent discussions show, that big Chinese companies like Huawei are not getting a warm welcome all around the world. The US is accusing Huawei of spying for the Chinese government. They have been banned from the American market and further sanctions have already been imposed. So companies coming to China for production are getting more and more skeptical. According to Gems, this is not only a Chinese issue: „If you are relying on technology, just go through the regular Due-Diligence Checks, that you as a company or you as a government have to do, to enable that a system is safe. But that does not mean that that’s Chinese phenomenon, that’s also not an American phenomenon, that’s an international phenomenon, which should not be now emotionalized through the discussions we tapped in recently“.
The bigger Bay Area
Whether you like it or not, Shenzhen and the Pearl River Delta will play an even bigger role in the future of technology. For hardware businesses there seems no way around Shenzhen. There are many upsides, but there are definitely a lot of downsides too. Our prediction: for the last ten years, the Silicon Valley has been the place every technology enthusiast has come to – for the next ten years this place will be Shenzhen.