Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

Case Study SWOT Analysis Solution

Case Study Description of Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management

In 2008, more than 750 million cell phones were produced in China. A significant portion (20 percent, or about 150 million units) of these phones were produced by Shanzhai companies. These companies had rapidly taken a significant share (about 10 percent) of the worldwide market. This phenomenal growth was primarily due to nonconventional approaches to the global market in market positioning, rapid product development, and tightly coupled, responsive and efficient supply chain management. Though Shanzhai often has been perceived as a term for counterfeiting, in reality it is more than just copying. Modern cell phones contain sophisticated hardware, software and systems technology, yet Shanzhai companies of only 10 people could leverage a sophisticated (though informal) network of product designers, manufacturers, and distributors to make a successful business. This case describes the Shanzhai phenomenon, and how these companies operate. It also provides an example of one company that successfully transitioned from a Shanzhai culture to become a major mainstream force in the Chinese mobile phone industry. The case also discusses forces that challenge the future of the Shanzhai model.

Authors :: Hau Lee, Mitchell M. Tseng, Power Siu, David W. Hoyt

Topics :: Global Business

Tags :: Intellectual property, Manufacturing, SWOT Analysis, SWOT Matrix, TOWS, Weighted SWOT Analysis

Swot Analysis of "Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management" written by Hau Lee, Mitchell M. Tseng, Power Siu, David W. Hoyt includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Shanzhai Phones facing as an external strategic factors. Some of the topics covered in Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management case study are - Strategic Management Strategies, Intellectual property, Manufacturing and Global Business.

Some of the macro environment factors that can be used to understand the Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management casestudy better are - – technology disruption, increasing commodity prices, increasing government debt because of Covid-19 spendings, cloud computing is disrupting traditional business models, there is backlash against globalization, increasing transportation and logistics costs, increasing household debt because of falling income levels, talent flight as more people leaving formal jobs, there is increasing trade war between United States & China, etc

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Introduction to SWOT Analysis of Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management

SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Shanzhai Phones, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Shanzhai Phones operates in.

According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.

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SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix

SWOT analysis of Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management can be done for the following purposes –
1. Strategic planning using facts provided in Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management case study
2. Improving business portfolio management of Shanzhai Phones
3. Assessing feasibility of the new initiative in Global Business field.
4. Making a Global Business topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Shanzhai Phones

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Strengths Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The strengths of Shanzhai Phones in Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management Harvard Business Review case study are -

Organizational Resilience of Shanzhai Phones

– The covid-19 pandemic has put organizational resilience at the centre of everthing that Shanzhai Phones does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.

Superior customer experience

– The customer experience strategy of Shanzhai Phones in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.

Ability to recruit top talent

– Shanzhai Phones is one of the leading recruiters in the industry. Managers in the Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.

High switching costs

– The high switching costs that Shanzhai Phones has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.

Diverse revenue streams

– Shanzhai Phones is present in almost all the verticals within the industry. This has provided firm in Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.

Operational resilience

– The operational resilience strategy in the Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.

Effective Research and Development (R&D)

– Shanzhai Phones has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.

Ability to lead change in Global Business field

– Shanzhai Phones is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Shanzhai Phones in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.

Strong track record of project management

– Shanzhai Phones is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.

Training and development

– Shanzhai Phones has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.

Cross disciplinary teams

– Horizontal connected teams at the Shanzhai Phones are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.

Digital Transformation in Global Business segment

- digital transformation varies from industry to industry. For Shanzhai Phones digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Shanzhai Phones has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.

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Weaknesses Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The weaknesses of Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management are -

High bargaining power of channel partners

– Because of the regulatory requirements, Hau Lee, Mitchell M. Tseng, Power Siu, David W. Hoyt suggests that, Shanzhai Phones is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.

Products dominated business model

– Even though Shanzhai Phones has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management should strive to include more intangible value offerings along with its core products and services.

Compensation and incentives

– The revenue per employee as mentioned in the HBR case study Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management, is just above the industry average. Shanzhai Phones needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.

Slow to harness new channels of communication

– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Shanzhai Phones is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.

Low market penetration in new markets

– Outside its home market of Shanzhai Phones, firm in the HBR case study Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.

Employees’ incomplete understanding of strategy

– From the instances in the HBR case study Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management, it seems that the employees of Shanzhai Phones don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.

Interest costs

– Compare to the competition, Shanzhai Phones has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.

High dependence on star products

– The top 2 products and services of the firm as mentioned in the Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Shanzhai Phones has relatively successful track record of launching new products.

No frontier risks strategy

– After analyzing the HBR case study Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management, it seems that company is thinking about the frontier risks that can impact Global Business strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.

Skills based hiring

– The stress on hiring functional specialists at Shanzhai Phones has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.

High dependence on existing supply chain

– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Shanzhai Phones supply chain. Even after few cautionary changes mentioned in the HBR case study - Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Shanzhai Phones vulnerable to further global disruptions in South East Asia.

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Opportunities Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The opportunities highlighted in the Harvard Business Review case study Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management are -

Increase in government spending

– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Shanzhai Phones can use these opportunities to build new business models that can help the communities that Shanzhai Phones operates in. Secondly it can use opportunities from government spending in Global Business sector.

Better consumer reach

– The expansion of the 5G network will help Shanzhai Phones to increase its market reach. Shanzhai Phones will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.

Finding new ways to collaborate

– Covid-19 has not only transformed business models of companies in Global Business industry, but it has also influenced the consumer preferences. Shanzhai Phones can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.

Redefining models of collaboration and team work

– As explained in the weaknesses section, Shanzhai Phones is facing challenges because of the dominance of functional experts in the organization. Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.

Changes in consumer behavior post Covid-19

– Consumer behavior has changed in the Global Business industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Shanzhai Phones can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Shanzhai Phones can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.

Low interest rates

– Even though inflation is raising its head in most developed economies, Shanzhai Phones can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.

Reconfiguring business model

– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Shanzhai Phones to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.

Building a culture of innovation

– managers at Shanzhai Phones can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Global Business segment.

Reforming the budgeting process

- By establishing new metrics that will be used to evaluate both existing and potential projects Shanzhai Phones can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.

Leveraging digital technologies

– Shanzhai Phones can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.

Remote work and new talent hiring opportunities

– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Shanzhai Phones to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Shanzhai Phones to hire the very best people irrespective of their geographical location.

Using analytics as competitive advantage

– Shanzhai Phones has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Shanzhai Phones to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.

Identify volunteer opportunities

– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Shanzhai Phones can explore opportunities that can attract volunteers and are consistent with its mission and vision.

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Threats Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The threats mentioned in the HBR case study Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management are -

Technology acceleration in Forth Industrial Revolution

– Shanzhai Phones has witnessed rapid integration of technology during Covid-19 in the Global Business industry. As one of the leading players in the industry, Shanzhai Phones needs to keep up with the evolution of technology in the Global Business sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.

High dependence on third party suppliers

– Shanzhai Phones high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.

Increasing international competition and downward pressure on margins

– Apart from technology driven competitive advantage dilution, Shanzhai Phones can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management .

Backlash against dominant players

– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Shanzhai Phones business can come under increasing regulations regarding data privacy, data security, etc.

Technology disruption because of hacks, piracy etc

– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.

Consumer confidence and its impact on Shanzhai Phones demand

– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.

Regulatory challenges

– Shanzhai Phones needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Global Business industry regulations.

Shortening product life cycle

– it is one of the major threat that Shanzhai Phones is facing in Global Business sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.

Barriers of entry lowering

– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Shanzhai Phones with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.

Aging population

– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.

Environmental challenges

– Shanzhai Phones needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Shanzhai Phones can take advantage of this fund but it will also bring new competitors in the Global Business industry.

New competition

– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Shanzhai Phones in the Global Business sector and impact the bottomline of the organization.

Instability in the European markets

– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Shanzhai Phones will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.

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Weighted SWOT Analysis of Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management Template, Example

Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants. We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –

First stage for doing weighted SWOT analysis of the case study Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.

Second stage for conducting weighted SWOT analysis of the Harvard case study Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.

Third stage of constructing weighted SWOT analysis of Shanzhai ("Bandit") Mobile Phone Companies: The Guerrilla Warfare of Product Development and Supply Chain Management is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Shanzhai Phones needs to make to build a sustainable competitive advantage.

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