Copy-making vs profit-making
ChinaDaily By Duan Yan 2010-07-26
Lining up to buy a new gadget is nothing new for an Apple fan, but the new hot iPads and iPhones are ringing in a new level of Apple hysteria. On Friday, the stores that sell Apple products in Hong Kong sold out of all their iPads within hours of the first day of their launch. Some stores sold out within 30 minutes.
In Shenzhen, a city in southern China adjacent to Hong Kong, the iPad’s hot popularity was defined by the speed in which low quality knockoff products were manufactured to copycat the iPad. Only 60 days after Apple CEO Steve Jobs introduced the iPad in January, small electronic firms in Shenzhen were developing and producing iPad lookalikes.
But even though mobile phones, mp3 players, GPSs and computers that copy the looks and features of branded goods have flooded the consumer electronics market in China, the iPad clones are slower coming into the market.
Manufacturers in Shenzhen have realized that it is becoming more difficult to cash in on iPad fever no matter how fast they are copying it, when the only thing left for them to copy is the looks of the original gadget. And with rising labor costs and a shrinking demand for cheap low-end products, the space for them to make money has become limited.
Many companies lost the battle of netbook PCs last year, and they’ve discovered that lowering the cost of production is a mission impossible when all the major parts are purchased from other companies.
On the fourth floor of an outdated building in Shenzhen, tablet PC maker Wu Xiaolong brought out a 10.2-inch touch screen PC and photocopy of a patent license. He claims that Apple’s iPad stole the design of his product called the P88. Wu has drawn the attention of many reporters from around the world, wanting to talk to him about his claims. He is not planning to sue Apple at the moment, since the iPad is not yet selling on the mainland, he said.
Although reporters flocked to Wu’s company, Shenzhen Great Long Brother Industrial Co., Ltd, the four assembly lines of his company are not moving very fast. Wu had learned his lesson: business is not as profitable as it once was. Adjacent to Wu’s office, two assembly lines in the production room are empty. The third one is working on products for other companies. And only one line is working on the touch screen PC, with a dozen workers assembling computer parts for the P88.
Wu Xiaolong’s P88 is priced at nearly 4,000 yuan, a higher price than Apple’s iPad. "Designing and developing a new product is expensive and risky. If the engineers can’t come up with a solution for my new product, I will lose money, " Wu Xiaolong said.
Last year, Wu’s netbook business was bleak when the market was flooded with low quality netbooks. So this time, Wu is more cautious. Even though iPad global sales eventually hit three million, Wu still hasn’t started massive production of his P88 – not before he receives a large order.
Wu said his factory is capable of producing 1,000 tablet PCs each day. With no retail business of his own, most of the orders come from foreign countries.
Wu didn’t want to say how many of his tablet PCs have been produced or sold. "It’s a business secret," he said.
Although Wu Xiaolong insisted that his product is not a knockoff of the iPad, other companies in Shenzhen are willing to admit they are iPad followers. Wu Yebin, operating director of Teso Computer Technology Company, claims to have developed the first copycat iPad within 60 days of Apple’s launch.
"The key to making money for us is the speed. Those companies need to get into the market before iPad comes into China," said Wu Yebin, who has no family relations with Wu Xiaolong.
"Right now, no major computer companies have started pushing for tablet PCs yet," Wu Yebin said. "And the price battle hasn’t started yet."
About 500 tablet PCs from Wu’s company have been sold all over the country.
"Most of the buyers are within this industry. There are no big retail sales. The major orders are from overseas companies," Wu said.
Wu Yebin admitted they cannot further lower their price.
"The major parts are not produced by us," Wu Yebin said, pointing to the parts in his product. "The CPU is from Intel, the hard drive is from Toshiba or Samsung, and the touch screen is from Taiwan. The operating system is either Windows or Android."
Wu Yebin’s windows 7 + Intel touch screen tablet cost about 2,200 yuan, and he is willing to accept a small profit margin to ensure that his tablet PCs are more affordable than iPads or other tablets PCs.
"These few months are golden times for the companies that came first into the market," Wu said.
According to Li Yi, founder of discloser.net, an electronics industry chain forum, more than 50 companies have poster ads on the walls at the delivery companies, advertising that they provide iPad lookalikes. The delivery companies act as a sort of middleman in the sales of the knock-off gadgets.
For those smaller manufacturers, developing a copycat iPad is not a cheap investment. In order to save money, some smaller companies are chipping in to share the mold making and purchasing for the plastic casings and electronic parts together.
Wang Wei, sales manager of Houfengda Hardware Products Co. Ltd, said that eight companies are buying casings from him.
With all the netbook PC products similar in their features, and with the same components, the price battle for low-cost knockoff producing companies was furious, said Li Yi from discloser.net. "The situation was similar to last year when many factories were producing netbook PCs."
Sales slow for iPad clones
Just 25 kilometers away, Lin Sheng, a retailer at Shenzhen’s Hua Qiangbei district, is selling iPad lookalikes both on his small counter and in his online store.
The business is not as good as selling the real thing, Lin Sheng said. Apple’s iPad is selling well even though the price of the copycats is more affordable. In the gray market in Shenzhen, a $499 Apple’s iPad smuggled from the US is priced at 4,500 yuan ($660). The price of the pirated iPad ranges from 600 to 3,000 yuan.
On July 23, Apple started selling iPads in Hong Kong at HK$3,800 (3,388 yuan, or $499), much lower than the current smuggled-in iPads.
"The look-alike iPads don’t really look like an iPad. The best you can say is they are big MP4s or small netbooks with a touch screen," Zhang Yifei,a 21-year-old college student said as he was checking out the iPad look-alikes at the counter.
Even though the iPad hasn’t started officially selling in Chinese mainland, lots of consumers are purchasing from Hong Kong through friends and online stores. On taobao.com, one of the largest e-commerce websites in China, the preorders for Hong Kong iPads started running well before the official launch on July 23. At the ports of Shenzhen, passengers’ bags were being checked for smuggled iPads from Hong Kong.
"iPad is just a toy," Wu Xiaolong said when he demonstrated how well his tablet PC P88 can make Excel tables. In fact, many tablet PC manufacturers share the same view even as they use iPad fever to promote their own products.
On May 18, Liu Yingjian, president of Hanwang Technology based in Beijing, an e-book reader vendor, smashed an apple-shaped ice block at a launch ceremony for their tablet PC: Touchpad.
"There is no breakthrough of the iPad. What surprised the PC makers was the price Apple is offering," Li Yi said. But still, its success made the manufacturers realize that devices with mobile technology is what people want.
Need for unique content
As one of the organizers of an industry summit for Chinese tablet PC makers, Li said one of the reasons they rescheduled the conference and moved it from Shenzhen to Beijing is because "there is no future for simply producing knock-off devices. We need to provide consumers with unique content and added values, such as applications, e-books and other contents."
Li said more than 30 publishers signed up for the conference in August. Companies will have to learn how to come up with original products and exclusive content, Li said.
The protection of intellectual property has been a problem for Chinese companies. Wu Xiaolong, who developed the P88, admitted that even though he holds the design patent, he can’t stop other companies from copying its looks and design. "I can’t deal with them one after another if they wanted to steal the design."
For him, his patent licenses are more of a proof to his foreign clients that his company is an original design manufacturer. Wu said he is thinking about having a national commercial on CCTV to promote his tablet PC. He hopes that with the patent and big commercials, he can get more business that can make his assembly lines run at full speed again.
"Many companies have just started to become aware of intellectual property protection, but don’t know much about the details," said Ai Hong, an intellectual property lawyer at ZY Partners in Beijing. "To apply for a design patent is very easy because it doesn’t need a substantive examination. But it could be nullified later on."
The selling points of Apple’s products are its features and technology, Ai said.
"Although the design of the product is important, it is not the core of its intellectual property package," Ai explained. Companies in China can prove they have their own patent for the design, but in court, they would still need to prove it doesn’t infringe upon the technologies of other companies.
"Even if he holds a patent of a product design, he cannot simply just accuse another of stealing his patent. According to the law, scientific analysis and comparison are needed to determine whether the accusation is valid," said Jiang Zhipei, professor of intellectual property studies at Renmin University of China in Beijing. He told China Daily that if one company accuses the other company of stealing its intellectual property and loses the lawsuit, that company might get sued for libel or defamation later.