How a Nation of Tech Copycats Transformed Into a Hub for Innovation

8/17/2019 How a Nation of Tech Copycats Transformed Into a Hub for Innovation

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How a Nation of Tech Copycats

Transformed Into a Hub for Innovation

AUTHOR: CLI! THO"#$ON% CLI! THO"#$ON &U$IN!$$

'ired( )ecember *+( *,-.

Employees at rising mobile star Xiaomi take a break at their ofce in Beijing

THE YOUNG PROGRAMMERhad an idea( and everyone thou/ht it was nuts%

0ust out of co11e/e( he2d /otten a 3ob writin/ software for 44( a 1ivestreamin/

company based in the massive city of 5uan/6hou( in China2s #ear1 River )e1ta%

"ore than -,, mi11ion users every month stream themse1ves( or tune in to

broadcasts of others( sin/in/( p1ayin/ video/ames( or hostin/ ta17 shows fromtheir &ei3in/ apartments% The audience chats bac7( pro1ifica11y( via voice or

te8t%

The pro/rammer thou/ht 44 shou1d try somethin/ new: use its proven

streamin/ techno1o/y to run a datin/ service( which wou1d operate 7ind of 1i7e



a T datin/ show% A host wou1d set up an on1ine 1oun/e( then invite in some

1one1y sin/1es and coa8 them to as7 each other 9uestions and maybe find a

partner%

Company e8ecutives were dubious% The C!O a1most 7i11ed it(; says !ric Ho(

chief financia1 officer( sittin/ in 442s head9uarters( atop three f1oors of

furious1y codin/ en/ineers and desi/ners% Are you sure you want to do this<

the C!O as7ed the 7id% This is very stupid% I don2t thin7 peop1e wi11 1i7e it= &ut

the pro/rammer was hun/ry and persistent( so they waved him on: 5ive it a

try%

In China( this type of emp1oyee didn2t used to e8ist% Ten years a/o( hi/h techobservers comp1ained that the nation didn2t have enou/h bo1d innovators%

There were( of course( wi1d1y profitab1e hi/h tech firms( but they rare1y too7

creative ris7s and most1y 3ust mimic7ed $i1icon a11ey: &aidu was a rep1ica of

5oo/1e( Tencent a copy of 4ahoo( 0) a version of Ama6on% 4oun/ Chinese

coders had pro/rammin/ chops that were second to none( but they 1ac7ed the

drive of a "ar7 >uc7erber/ or $teve 0obs% The 'est Coast mantra?fai1 fast(

fai1 often( the better to find a hit product?seemed a1ien( even dan/erous( to

youths schoo1ed in an educationa1 system that focused on rote memori6ation

and punished mista7es% 5raduates craved 3obs at bi/( so1id firms% The /oa1 was

stabi1ity: Urban China had on1y recent1y emer/ed from decades of poverty(

and much of the countryside was sti11 waitin/ its turn to do so% &etter to 7eep

your head down and stay safe%

That attitude is vanishin/ now% It2s been swept aside by a sur/e in prosperity(

brin/in/ with it a new 1eve1 of confidence and bo1dness in the country2s youn/urban techies% In *,,,( bare1y @ percent of China was midd1ec1ass?meanin/

with an income ran/in/ from B+(,,, to B@(,,,?but by *,-* fu11y twothirds

had c1imbed into that brac7et% In the same time frame( hi/her education

soared sevenfo1d: D mi11ion /raduated co11e/e this year% The resu1t is a



/eneration both creative and comfortab1e with ris7ta7in/% 'e2re seein/

peop1e in their ear1y twenties startin/ companies?peop1e 3ust out of schoo1(

and there are even some dropouts(; says EaiFu Lee( a Chinese venture

capita1ist and veteran of App1e( "icrosoft( and 5oo/1e( who has spent the pastdecade crisscrossin/ the nation( he1pin/ youths start firms% Now ma3or cities

are crowded with ambitious inventors and entrepreneurs( f1oc7in/ into

software acce1erators and hac7erspaces% They no 1on/er want 3obs at 5oo/1e or

App1eG 1i7e their counterparts in $an Francisco( they want to bui1d the ne8t

5oo/1e or App1e%



SLIDE:1/ OF4



!aption:"" programmer #o $engang% &ho pitche' the i'ea o( )sing the company*s

streaming tech (or a 'ating ser+ice

SLIDE:2/ OF4

!aption:"" employees line )p (or a mi',a(ternoon snack



SLIDE:3/ OF4

!aption:-he ofces o( "" in .)angho) ZACHARY BAKO



SLIDE:4/ OF4

-he ofces o( "" in .)angho)

SLIDE:1/ OF4

!aption:"" programmer #o $engang% &ho pitche' the i'ea o( )sing the company*s

streaming tech (or a 'ating ser+ice ZACHARY BAKO

Anyone with a promisin/ idea and some e8perience can find money% enture

capita1ists pumped a record B-.%. bi11ion into Chinese startups 1ast year( so

entrepreneurs are bein/ showered in fundin/( as we11 as crucia1 advice and

mentorin/ from mi11ionaire an/e1s% It2s sti11 a fraction of the U$ venture

capita1 poo1 from *,-@( B@ bi11ion%J !ven the Chinese /overnment?which has

a wary attitude toward on1ine e8pression and runs a vast di/ita1 censorship



apparatus?has 1aunched a BK%. bi11ion fund for startups% 'ith the economy2s

/rowth s1owin/ after two decades of brea7nec7 e8pansion( the party is

worried1y see7in/ new sources of /ood 3obs% Tech fits the bi11%

The new boom encompasses both on1ine services and the hardware arena%

Recent 1oca17idma7es/ood mode1s 1i7e iaomi( the fastrisin/ &ei3in/

mobi1e phone firm( or 'eChat( Tencent2s /1obecon9uerin/ socia1 networ7in/

app( are 1eadin/ the way forward% Home/rown firms have distinct advanta/es(

name1y fami1iarity with 1oca1 tastes( the abi1ity to p1u/ into a firstc1ass

manufacturin/ system bui1t for 'estern companies( and pro8imity to the

wor1d2s fastest/rowin/ mar7ets in India and $outheast Asia% The combination

of factors is puttin/ them in a position to beat the 'est at its own /ame%iaomi( for e8amp1e( was the fourthhi/hest se11er of mobi1e phones

wor1dwide 1ast year( behind $amsun/( App1e( and Huawei%

As for 44( it turns out it was /ood that the e8ecutives indu1/ed their

enterprisin/ pro/rammer% The datin/ show 1aunched 1ast year and became a

hit% It a1so /enerated serious profits% 44 has no advertisin/G it earns revenue

when users for7 over rea1 Chinese currency to buy virtua1 items they /ive as

/ifts to each other or to the broadcasters; streamin/ their own 1ives on1ine%

44 ta7es a K, percent cut of each purchase( with the recipient /ettin/ the rest

as actua1 cash% #opu1ar broadcasters ma7e so much money that they 1ive off

their 44 earnin/s%J At a 1aptop on Ho2s tab1e( I peer at the screen( where a

datin/ event is 1ivestreamin/% "oney is f1yin/ around as ma1e and fema1e

/uests /ive each other?and the host?virtua1 presents: rin/s worth B-%..J(

7isses -K centsJ( and 1ove 1etters . centsJ% $ome items are pricier yetG for

about B-(,,,( you can buy someone a virtua1 Lambor/hini% In its first nine

months( 442s datin/ show brou/ht in about B-K mi11ion( a sum /rowin/ rapid1y

every month% Last year 44 itse1f brou/ht in B., mi11ion( and three years after

/oin/ pub1ic on the Nasda9( its mar7et cap tops B bi11ion( even after the



mar7et /yrations of *,-.% The ne8t $i1icon a11ey has emer/ed?and it2s in the

!ast%

CHINA’S TECH BOOM in the 1ate 2+,s produced its own 'eb -%,: search

en/ines( emai1 and b1o//in/ too1s( news porta1s( and A1ibaba2s spraw1in/

on1ine sa1es mar7et% &ac7 then( China very much needed 1oca1 copies of U$

companies( because U$ firms often cou1dn2t operate easi1y in China% The

/overnment b1oc7ed many forei/n sites by usin/ a comp1e8 system of fi1ters

7nown as the 5reat Firewa11 of China% Loca1 firms had an ed/e anyway: They

understood the particu1ar demands of the Chinese di/erati in the ear1y 2,,s(

when Internet access was sti11 scanty% Ten years a/o( for e8amp1e( e&ay tried to

dominate in China but fai1ed( part1y because many sma11 businesses?thep1aces that mi/ht otherwise have used e&ay to se11 their products to the wor1d

?didn2t yet have computers or a connection to the Internet% At A1ibaba(

however( founder 0ac7 "a understood this( so he assemb1ed a hu/e sa1es force

that fanned out across the country( teachin/ merchants how to /et wired% He

a1so outcompeted e&ay2s #ay#a1 with A1ipay( which ho1ds a buyer2s payment in

escrow unti1 they receive their /oods and pronounce themse1ves happy with

the purchaseG this he1ped bui1d trust in on1ine mar7ets%J Ridin/ that first crest(firms 1i7e &aidu and A1ibaba became the bi/ dra/ons; of Chinese hi/h tech(

mintin/ mi11ionaires much as "icrosoft had in the 2+,s%

The success of copycat firms paved the way for 1itt1e dra/ons;?creative(

upstart 'eb *%, firms that emer/ed in the 1ate 2,,s% The bi/ dra/ons provided

ro1e mode1s( but even more si/nificant1y( they bui1t the infrastructure crucia1

for today2s hi/h tech boom( inc1udin/ the c1oud services that a11ow any

twentysomethin/ to 1aunch a business overni/ht and immediate1y start bi11in/

customers%

One of the most successfu1 in this second wave is "eituan( a firm that has

become an ecommerce /iant by enab1in/ sma11 merchants across the country

to broadcast dea1s to nearby shoppers who have opted in( on the web and



within "eituan2s mobi1e app% 'hen I visit the &ei3in/ head9uarters( it 1oo7s

1i7e a tropica1 forest: There are 1eafy /reen p1ants p1un7ed down between each

wor7station( whi1e humidifiers puff c1ouds of moist air upward% It2s near1y

si1ent( but there2s a 1ot of money f1owin/ throu/h the office% $uspended abovedo6ens of coders is an LC) the si6e of a tab1e for four that reads (,+;: the

number of dea1s "eituan has broadcast so far today% The firm2s revenue has

s7yroc7eted in its five years of operationG in *,-@ it processed more than BD

bi11ion in dea1s for its +,,(,,, partners% It2s aimin/ to reach B-%. bi11ion by

the end of this year%

China’s techies don’t want jobs at Apple or Google—theywant tobuild the next Apple or Google.

"eituan2s C!O( the s1ender and softspo7en 'an/ in/( is a seria1

entrepreneur who trac7s the emer/in/ creative shift in Chinese startups% He

had a1ready made Chinese c1ones of Faceboo7 and Twitter when( in *,,( he

noticed the rise of 5roupon% There2s no doubt that we /ot inf1uenced by

5roupon(; he admits% &ut by then he was seasoned enou/h to spot the f1aws inthe discounter2s business mode1% 5roupon too7 a bi/ cut?up to ., percent?of

the revenue from each dea1( which 1eft participatin/ merchants bitter% They2d

routine1y 1ose money by issuin/ 5roupon dea1s( so they2d /rit their teeth and

hope it wou1d attract new permanent customersG usua11y it didn2t% 'an/( in

contrast( wanted to ma7e "eituan the easiest way for sma11 merchants to

char/e their customers and stay in contact with them% $ettin/ "eituan2s cut at

on1y . percent ensured that merchants near1y a1ways made money%

He a1so be/an deve1opin/ proprietary ecommerce tech% 'an/ whips out his

phone to show me a recent e8amp1e% His pro/rammers fanned out to movie

theater chains across the country( 1aborious1y connectin/ "eituan2s app to

their boo7in/ systems% It was a hass1e( but now movie/oers can not on1y buy a



tic7et from the "eituan app( they can pic7 their seats% 'an/ c1ic7s on The

Hobbit to show me% 'hen you /o to the theater you don2t have to wait in 1ine

and ta17 to any peop1e?you can 3ust /o to a vendin/ machine and scan your

passcode; to /et in( he says% It2s s1ic7 and simp1e( and now onethird of a11movie tic7ets in China are bou/ht via "eituan% Last year it was -, percent of

the firm2s annua1 income%

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SLIDE:2/ OF4

!aption:0epp Labs* co(o)n'er Xiao&ei Dai )ses the company*s tech to capt)re his gol(

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It2s an adroit move( because service?and convenience?is what China2s urban

midd1e c1ass increasin/1y craves% $portin/ hi/hend mobi1es and e1ite fashion

from !urope( they pu11 out their phones for near1y every purpose: usin/ A1ipay

to cover a cab ride to a )02d party in the artistic outs7irts of &ei3in/G openin/

'eChat and usin/ its 1ocationsharin/ function so their friends can find themG

postin/ se1fies on "eitu( a picturesharin/ service with bui1tin beautifyin/

fi1ters% The service economy commanded @@ percent of a11 money spent by the

Chinese midd1e c1ass in *,-( a fi/ure that consu1tin/ firm "cEinsey e8pects

wi11 /row to ., percent by *,**( as youn/ urbanites sp1ur/e via their phones

on everythin/ from massa/es to ta7eout food( hairsty1in/( and nai1 sa1ons%



!ven the mar7et me1tdown of this year doesn2t seem to have dented midd1e

c1ass consumption: )urin/ China2s trave1focused 5o1den 'ee7 nationa1

ho1iday in October( bo8 office sa1es were up D, percent over the previous year(

and overseas trips were up K%K percent( accordin/ to &an7 of America"erri11Lynch ana1ysts%

!commerce( a1ready bi/ in China( has an astonishin/ amount yet to /row?a

tremendous number of everyday services are not yet on1ine% For e8amp1e( ,

percent of China2s hote1 rooms are sti11 boo7ed off1ine% And peop1e are ea/er

for ecommerce not 3ust because it2s convenient( but because it2s much 1ess

corrupt and opa9ue than bric7andmortar businesses% As EaiFu Lee points

out( the 1atter are( by American standards( ridd1ed with inefficiencies andhuc7sterism% In the U$( hundreds of years of fair competition made

commerce re1ative1y fair and transparent(; he says% Not so in China% If you

were to se11 rea1 estate( there is no transparency% If you buy a used car( there is

no Consumer Reports or Ra1ph Nader%; &y removin/ midd1emen and creatin/

reputation systems( ecommerce firms are ma7in/ transactions more

transparent and trustworthy( he ar/ues% $o a mobi1e socia1based so1ution

wi11 be dramatica11y better(; Lee says%Corruption is 3ust one of the many cha11en/es China faces% The country2s

1eaders and investors a1so contend with nontransparent ban7s( /overnment

re/u1ators on the ta7e( rampant po11ution( fierce crac7downs on po1itica1

speech( and a rura1 popu1ation yearnin/ for better 3obs in the cities% It2s not

c1ear whether the party can so1ve a11 these messy prob1ems%

In the short run( thou/h( the hi/h tech /o1d rush has produced manic and

fierce competition% 'henever a new cate/ory opens up( it2s immediate1y

swarmed upon by do6ens or even hundreds of entrepreneurs% &y comparison(

competition in the U$ is mi1dG for e8amp1e( there are on1y two ma3or firms?

Uber and Lyft?du7in/ it out for car boo7in/s% &ut Lee estimates that in its

ear1y days( "eituan had to fi/ht (,,, competitors dotted across the country%



'hoever is 1eft standin/ is batt1ehardened% That2s 'an/ now% Ha1fway

between the o1d /uard and the new( he has become an an/e1 investor himse1f(

on the 1oo7out for youn/sters with darin/ ideas: the ne8t 1itt1e dra/ons% One

company he2s investin/ in is e)ai3ia( which( rather hi1arious1y( 1ets car ownersfind someone to drive their vehic1e home when they2re drun7% They are tota11y

dominant in China( and 1ast year they went to $eou1(; he 1au/hs( because(

they to1d me( that2s the most drun7 city in the wor1d%;

CHINA’S CREATIVE BOOM in web services is si/nificant enou/h( but ar/uab1y it

has an even bi//er ed/e over the U$ in hardware% The country has spent ,

years becomin/ the manufacturin/ capita1 of the wor1d( so coasta1 cities 1i7e

$hen6hen and 5uan/6hou are now crammed with e1ectronics faci1ities( fromtiny threeperson shops to Fo8conn2s ,(,,,emp1oyee cityfactory comp1e8es

cran7in/ out i#hones% A11 have a deep 7now1ed/e of how to ma7e thin/s( so it

was a1most inevitab1e that home/rown entrepreneurs wou1d /et in on the act%

Livin/ ne8t to the factories or bein/ ab1e to stro11 the e1ectronics mar7ets(

they2re the first to 7now when trends in hardware emer/e: for e8amp1e( when

a cuttin/ed/e sensor arrives that 1ets you co11ect new forms of data?or when

the cost of an e8istin/ one sudden1y drops to a penny( a11owin/ it to besprin71ed anywhere( 1i7e dust%

The high tech gold rush has produced manic and fierce

competition among the swarms of entrepreneurs.

It2s easier in China than in other p1aces(; Robin Han says( because we have

$hen6hen%; Han is the *yearo1d cofounder of >epp Labs( a &ei3in/based

hardware startup that is the dar1in/ of the sports wor1d: It ma7es a s9uare

sensor that trac7s your swin/?of a /o1f c1ub( a baseba11 bat( a tennis rac7et?



then uses an i#hone app to he1p you improve% Han /ot the entrepreneuria1 itch

five years a/o as a #h) student wor7in/ in "icrosoft2s &ei3in/ research office%

&i/company 1ife mi/ht be stab1e( but you cou1d toi1 for years on a pro3ect that

mi/ht never become a rea1 product% $uccess was out of your contro1( he te11sme( sittin/ in the bri/ht1y 1it >epp office( where( behind him( two do6en coders

and desi/ners pi1ot 7eyboards%

Han had noticed /yroscopes bein/ used in HTC and H# phones as we11 as

Nintendo 'ii remotes and fi/ured they wou1d /o down in price as bi/

companies continued to inc1ude them in their products% That had potentia1%

He and a friend( #eter 4e now >epp2s head of RM)J( 1oved sports and hit on

the idea for a swin/ sensor% #1ayers cou1d ana1y6e their motions or comparethem to those of professiona1sG coaches cou1d scrutini6e an entire team2s

practice swin/s( even remote1y% Han and 4e started with /o1f% They fi/ured

duffers wou1d be wi11in/ to spend money on a sensor that promised to improve

their /ame%

They 1ead me to the basement( where they have constructed a hu/e battin/

and/o1fin/ ca/e% 'e spent a 1ot of hours in here perfectin/ the sensors and

wor7in/ on our swin/s(; Han says% The wa11s are studded with mar7s from

errant ba11s% Their prototype wor7ed so we11 it attracted the attention of an

App1e rep who was tourin/ China( 1oo7in/ for products for the App1e $tore%

$atisfyin/ App1e2s precise aesthetics re9uired them to s1ow1y refine the desi/n

throu/h -@ prototypes( but it paid off: $ince the >epp sensor 1aunched in App1e

$tores wor1dwide in *,-*( >epp has activated more than ,,(,,, of them%

Han and 4e /ot >epp Labs off the /round with B-%. mi11ion in seed money

from an/e1 investor iao 'an/ and wor7ed their contacts to find a /ood

factory to he1p prototype and massproduce their device% That 1ast step?

findin/ a ta1ented( Fo8connc1ass factory that has deep e8perience in e1e/ant1y

so1vin/ desi/n cha11en/es?has traditiona11y been the hard part of /ettin/

thin/s made in China% &ut in recent years( that2s /otten easier too% A set of



midd1emen has emer/ed specifica11y to he1p brid/e that /ap( inc1udin/

Hi/hway -( a pro/ram by the manufacturin/ /iant #CH: It pic7s /ad/et

inventors from around the wor1d and finds topf1i/ht factories wi11in/ to ta7e a

ris7 manufacturin/ a product by an un7nown new ta1ent%

There2s a1so been a hac7erspace movement in China% The first one?$han/hai2s

inChe0ian?was cofounded in *,-, by Chinese Internet entrepreneur )avid

Li( when he noticed how cheap prototypin/ too1s were a11owin/ 7itchentab1e

inventors to produce increasin/1y s1ic7 prototypes% Now 1oca1 creators from

across China mi8 with e8patriates who f1oc7 to inChe0ian from around the

wor1d( brainstormin/ ideas with each other and /oin/ on tours of factories

or/ani6ed by Li to he1p them understand how China2s hardware ecosystem wor7s%

"uch 1i7e a /ym( members pay month1y fees to inChe0ian( which /ives them

access to the hac7erspace2s too1s and( 3ust as important( advice and

networ7in/ from fe11ow inventors% I a1ways encoura/e peop1e: 5et to your

prototype fast( try to find manufacturin/ partners( and /et your Eic7starter

campai/n finished(; Li te11s me( sittin/ at the hac7erspace2s main tab1e( in

front of a frid/e emb1a6oned with a stic7er that reads )O !#IC $HIT% The

rooms behind him are fi11ed with meta1 1athes( e1ectric too1s( and rows of )

printers% One successfu1 product that recent1y emer/ed from inChe0ian is

'earhaus headphones( which enab1e one person to stream music from their

phone whi1e friends 1isten in( 1ettin/ them private1y en3oy the same music

whi1e( say( cowor7in/ or studyin/% The first run of (,,, headphones so1d out(

and now a 1ar/er run is in the pipe1ine%

THE ACME OFChina2s innovation boom can be found in four office towers that

1oom over a spraw1 of condos in the suburbs of &ei3in/% These are the

head9uarters of iaomi% Founded in *,-,( the company has become famous

for ma7in/ mobi1e phones comparab1e to the i#hone?fast processors( 1ar/e

screens( and a s1ee7 operatin/ system ca11ed "IUI?but at ha1f the cost% It may



be even more famous for its chief1y on1ine sa1es mode1 and e8p1osive /rowth%

iaomi so1d K- mi11ion phones 1ast year( and for part of *,-. it was the top

se11in/ mobi1e brand in China% Thou/h it2s sti11 private( 1ast year investors said

it was worth B@. bi11ion%iaomi was founded by a seria1 entrepreneur who /ot a chance to ma7e his

ear1y mista7es?and fortune?-, years a/o: C!O Lei 0un founded the on1ine

boo7se11er 0oyo( which he 1ater so1d to Ama6on% He 9uic71y became an an/e1

investor( pourin/ money into the ne8t /eneration of innovators( 1i7e 44( and

ma7in/ connections with the country2s bri/htest youn/ desi/ners and

en/ineers% &y *,-,( a new vision had ta7en ho1d: to bui1d an operatin/ system

and a new business mode1 for se11in/ mobi1e phones% Lei formed iaomi and

hired a team of crac7 ta1ent to 9uic71y produce a /or/eous mobi1e phone O$

and put it on1ine in Au/ust of that year%

China2s techies 1oved it% &ut on1y the most nerdy were wi11in/ to endure the

hass1e of down1oadin/ an O$ to their e8istin/ phones% If iaomi wanted to /et

the system into the hands of mi11ions( it wou1d need to ma7e?and se11?

handsets% Fo8conn became one of iaomi2s primary manufacturers%

"eanwhi1e( the startup hit upon a hu/e1y effective sa1es system% !ach newmode1 wou1d initia11y be so1d in a 1imited 9uantity?perhaps .,(,,,?via a

wee71y f1ash sa1e on its website% The e8c1usivity drove fans wi1d% The 1uc7y few

who scored phones wou1d f1aunt them to their envious hipster friends?and

1ater( iaomi wou1d open up a 1ar/er run to satisfy pentup demand%



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!aption:Da+i' Li% co(o)n'er o( hackerspace Xin!he4ian ZACHARY BAKO



SLIDE:2/ OF5

!aption:Xin!he4ian*s 5rst 6,D printer% an open,so)rce machine calle' 7rintrbot ZACHARY

BAKO



SLIDE:3/ OF5

!aption:3 +intage oscilloscope at Xin!he4ian in Shanghai ZACHARY BAKO





SLIDE:4/ OF5

!aption:-he So(aBike at Xin!he4ian ZACHARY BAKO

E+ery $e'ne'ay e+ening% Xin!he4ian hosts an open ho)se &here makers present theiri'eas to the p)blic

!aption:Da+i' Li% co(o)n'er o( hackerspace Xin!he4ian













iaomi2s office is bri/ht1y 1it and decorated with hu/e paintin/s% A mutt that

wor7ers adopted off the street s1eeps in his do/house on the first f1oor% One

f1i/ht up( a spraw1in/ room is fi11ed with customerservice reps chatterin/ into

phones( attemptin/ to so1ve users2 issues around the wor1d% Thou/h China isiaomi2s 1ar/est mar7et( in *,- the firm hired Hu/o &arra( previous1y

5oo/1e2s product mana/er for Android( to oversee /1oba1 e8pansion% These

are phones for the /eneration that wi11 never have access to a computer(; &arra

says% They2re discoverin/ the Internet from their phones%; iaomi2s ed/e( he

says( is that it continuous1y produces new up/rades% 'e bui1d hardware( but

we ta7e a very software way of doin/ it% 'e do a software update every wee7=;

These updates often incorporate the vo1uminous feedbac7 that iaomi /ets

from its deep1y invo1ved fans: A sin/1e post by iaomi2s team on the

company2s customer forums can receive -,,(,,, rep1ies discussin/ the 1atest

twea7 to the operatin/ system%

Indeed( iaomi2s wi11in/ness to ta17 on1ine with its customers has been a 7ey

part of both understandin/ the demands of youn/ consumers and cu1tivatin/

their manic devotion% iaomi se11s its phones at c1ose to costG much of the

company2s revenue comes from its 1ine of accessories( 1i7e headphones andsteptrac7er wristbands( as we11 as from app store purchases of thin/s 1i7e new

O$ s7ins% The hope is that eventua11y even more revenue wi11 come from the

many ecommerce transactions that iaomi owners wi11 en/a/e in( buyin/

everythin/ from mea1s to p1ane tic7ets to c1othin/%

&ut to see the company2s broader vision for the future( you need to head

downstairs to a spare and e1e/ant showroom% It2s fi11ed with Internet of Thin/s

devices that the company is brin/in/ to mar7et( a11 of which can be operatedremote1y via the mobi1e O$% There2s a smart 1i/htbu1b( a connected webcam( a

bathroom sca1e( a T( a power strip?and an air purifier( a crucia1 app1iance

for the Chinese( who must contend with the country2s outofcontro1 air

po11ution% Once you buy one product( you211 very 9uic71y buy the others(



because they a11 wor7 so we11 to/ether( &arra boasts% The /ame in China is

bui1din/ wa11ed /ardens and /ettin/ them to stay in your /arden%;

iaomi didn2t desi/n and manufacture this hardware itse1f% The e8ecutives

went on a hunt for the country2s hun/riest cuttin/ed/e startups( then invested

in them and demanded they produce App1e9ua1ity desi/n% It is astonishin/ to

see the ecosystem 1aid out% It ma7es 5oo/1e2s toedip into the Internet of

Thin/s?its Nest smart thermostat and security camera?1oo7 severa1 years

behind the curve%

Western entrepreneurs now flock to hardware and

software accelerators in China’s coastal cities.

China2s creative /eneration( in other words( has proven it is ready to compete

headon with the wor1d2s top hi/h tech brands% App1e and $amsun/ are ri/ht

to be worried(; says &unnie Huan/( a we117nown hardware hac7er% Indeed(

$amsun/2s /1oba1 share of the smartphone mar7et dropped to *-%@ percent in

the second 9uarter of *,-.( from *%* percent in the same period of *,-*%J

'hen it comes to hardware( Chinese inventors benefit from pro8imity to the

wor1d2s 1ar/est base of consumers( which is /rowin/ fast% iaomi2s first ma3or

forei/n e8pansion wasn2t to the U$ but to the much hu/er?if poorer?India(

where it so1d - mi11ion phones in the third 9uarter of this year% $ew up China

and India( it rea1i6ed( and that2s a third of the p1anet% In conte8t( the U$( where

many consumers a1ready own smartphones( isn2t a particu1ar1y bi/ mar7et%

4et whi1e Chinese firms 1i7e iaomi are cha11en/in/ the bi/ tech firms( the f1ow

of opportunity /oes both ways: It2s /ettin/ easier and easier for 'estern

entrepreneurs to /o wor7 in China% They now re/u1ar1y f1oc7 to hardware and

software acce1erators in the coasta1 cities so they can meet 1oca1 co11aborators



or find factories% One French woman arrived in $han/hai 1ast year to team up

with Chinese coders and create an on1ine mar7et for French wine( tar/etin/

the chic restaurants where urbanites dine% 4oun/ American inventors

con/re/ate at H81rr in $hen6hen( where they prototype everythin/ fromretro animated5IF cameras to customi6edpi11creation robots% China is

essentia11y becomin/ a mecca( a destination for peop1e with ideas?much as

$i1icon a11ey did a /eneration a/o%

I saw that one day toward the end of my visit% I dropped by )avid Li2s

inChe0ian hac7erspace( where Li was meetin/ with a startup team he2d been

mentorin/( inc1udin/ a )utchIta1ian man named Lione11o Lunesu( who has

1ived in China for ei/ht years( and a Latino man named &erni 'ar% They were

1oo7in/ over their 1atest prototype( which had been sent by courier from a

nearby factory% It was a 1itt1e device that /ives you a1erts from your computer

or phone( a1most 1i7e an App1e 'atch that sits on your des7 instead of on your

wrist% For )avid( we2re not /oin/ near1y fast enou/h(; Lunesu says%

Li pic7ed up the /ad/et and stro7ed its s1ee7 white sides% That2s the same

p1astic they use for the i#hone .c(; he says% The entrepreneurs /rin% A 1ot of

this opportunity is not avai1ab1e in the U$% That2s why they2re here%

Documents

How a Nation of Tech Copycats Transformed Into a Hub for Innovation