A day at the knock-off market

Thanks to an unexpected computer crash, I’ve spent the majority of my day trolling around one of Shanghai’s infamous technology marketplaces, where just about everything you see is a knock-off.From my condo in Shanghai’s Pudong district, it’s about a 15 minute metro ride to “Pacific Digital Plaza,” which ironically is just a stone’s throw from Best Buy.  The building is five floors of wall-to-wall electronics– if it has an on/off switch, you can buy it at Pacific Digital Plaza.

The first thing you notice is the smell… there are no smoking bans in Chinese public areas, and as the government is heavily invested in the tobacco industry through a state-owned monopoly, it’s unlikely that they’ll be rolling out an anti-smoking campaign until an acceptable substitute is found.

The general rule of thumb is, the more ‘Chinese’ a location, the more people you will find smoking indoors. This includes restaurants, and it’s quite shocking to westerners who are accustomed to being able to eat a steak without sucking down someone else’s exhaust fumes.

On the other hand, if you are a smoker and tired of the endless battle against your personal vice, China is probably your paradise.The second thing you notice about the ‘fake’ technology market is the bustle… even in the middle of day during the workweek, the floors are packed with patrons wheeling and dealing their way to a new LCD television, espresso machine, or Macbook Pro.

Like all governments, I’m sure the Chinese lie about their macroeconomic indicators– but when you witness the sheer volume of transactions that take place in black and gray markets like this one, 8% GDP growth does not seem so far-fetched.

Wandering around the maze of vendors (which included several stunning women bearing loads of mobile phone accessories), you can’t help but contemplate the nature of intellectual property rights.

Chinese factories are responsible for a huge chunk of global technology manufacturing, which includes both internal components and finished goods… consequently these ‘knock-offs’ are generally comprised of exactly the same parts and labor as the name brand.

Thus, the general reputation that these products are all of poor quality and design is an inaccurate stereotype. Sure, there are a lot of low quality manufacturers out there– though I would argue that there are poorly manufactured goods in legitimate retail outlets all over the world.

Chinese knock-off producers are, at the end of the day, businessmen trying to turn a profit. After all, the vast majority of their customers are locals (I was one of 3 westerners in the building today out of thousands of other patrons).  Producers who routinely manufacture products of questionable quality develop that reputation and soon go out of business.

On the contrary, many producers have ingeniously reverse-engineered popular electronics and redesigned them to include a host of fantastic features– like the new $90 iPhone look-alike that comes with dual SIM cards and a built-in TV tuner.

For these manufacturers, their approach towards intellectual property rights is similar to the software industry’s “open source” movement, in which source code is freely available for anyone to improve upon.  Google is a strong proponent of open source projects and has released over 1 million lines of code under this free license.

Chinese technology manufacturers know that they must constantly be innovating in order to create value and stay competitive; they view it as rather stodgy for western companies to build a business model around sitting on their existing patents.

Benjamin Franklin, who never patented any of his inventions, said in his autobiography, “… as we enjoy great advantages from the inventions of others, we should be glad of an opportunity to serve others by any invention of ours; and this we should do freely and generously.”

While Franklin’s tone is a bit altruistic, his statement is practical and true; after all, the greatest discoveries and advances of modern science are based upon the works of great minds from the past… and last time I checked, no one is paying any royalties to the estates of Isaac Newton and Pythagoras.

To be clear, I am against outright theft in which a manufacturer or vendor adds no value; I am also (naturally) unopposed to those who profit from their ideas and information. 

I believe, however, that ideas are the greatest endowment of mankind; they should be set free to be improved upon by others, not locked away in a government bureaucracy.

I think these Chinese innovators have the right concept.