Shenzhen and Hardware (Startup) Manufacturing

Written by Greg Fisher

Shenzhen is truly the manufacturing capital of the world. In fact, according to Inc.com, Shenzhen is responsible for 90 percent of the world’s electronics. I’ve been visiting Shenzhen since 2003 and living there a third of my time since 2005.  It is dynamic!  It moves, it changes.  Silicon Valley feels like a homage to Amish tradition, by contrast. 

Fifteen years ago, Shenzhen had a lot of catching up to do. There were few areas of first world benefits, non-Nescafe coffee was hard to come by, and finding decent Internet was akin to discovering a long lost loved one.  In these last fifteen years, Shenzhen has caught up and, I’m sorry my California brethren, but also surpassed us in many areas.

Wechat, their social media platform, does it all. Everybody’s on it. Most Shenzhenites no longer carry cash, you pay through Wechat.  You can post, chat, host events, unlock your Mobike, order food…you’ll be hard pressed to find anything you can’t do on Wechat these days. The subways are clean, fast, and run every few minutes. Line 11 under my building takes me downtown in 15 minutes, a trip that takes 35 minutes by car.

In that time, Shenzhen has also become the home for hardware startups. With a focus from the national and local government, hundreds of maker spaces have been set up all over town. There is an electronics market at Hua Qiang Bei with seven stories of resisters, chipsets, OLEDs, and just about any electronic component you could want to build out your working prototype. Very unique to Shenzhen is the access to prototyping houses and endless factories that start from the less dense areas and span out into the suburbs and neighboring cities. 

If you’re in the hardware startup space, probably none of this is very new to you. So, does it make sense to make the big move and build your startup dreams in Shenzhen? I think it is worth consideration, depending on your situation. But, there is a lot left out in these types of articles that I’d like to add some color to.

The language and cultural barrier are significant. If you don’t speak Chinese, then you won’t be able to have meaningful conversation with the majority of the people, like the vendors in Hua Qiang Bei. It’s often possible to get to your goal with the help of friends and translation apps, but you’re never quite sure the whole story has been communicated and the process can be slow.  And all those great Wechat apps…they’re in Chinese. 

The cultural barrier is not to be dismissed lightly. Chinese typically don’t say “no”, so if you’re unable to read between the lines and understand that something can’t be done, you may not figure out the problem for a long time. The strategy is also much more focused on short-term goals, so if you’re playing the long game of partnership strategy, you may give away too much in the beginning to a partner who isn’t looking for the same thing. 

There’s a third barrier, and that’s the Great Firewall of China. You can get through the firewall with the VPN shuffle, but it slows down your Internet speeds, sometimes to a frustratingly debilitating snail’s pace that forces you to adjust your tech or workplace around it. 

If you’re a hardware startup, you need four key elements to succeed. Money, access to tools and resources for quick-turn prototypes, mentors that can help guide you through the business, and a strong supply chain.  Let’s look at how Shenzhen fares in each of these categories.

  • Money – 75 percent of worldwide traditional investment in hardware came from the San Francisco Bay Area in 2017 (CB Insights Article), but Shenzhen still has resources.  Factories are becoming more and more willing to put investment in and the government has programs that provide up to $200k RMB.  
  • Rapid Prototyping – The access to the prototyping houses and the electronics market can help speed things up, but Digi-key and McMaster Carr are fast as well. Shenzhen becomes an advantage if you need more specialized processes or a significant amount of labor. The language and cultural barriers put a bit of a drag on the process, combined with the fact that many of the components you get from the electronics market, or otherwise, may not be “authentic.”  
  • Mentors – The hardware scene is definitely picking up in Shenzhen. We often get more than 100 people attending our Hardware Massive events there each month, so it’s obvious that innovators are coming together. Still, mentors that speak English are very hard to find outside of the main hubs.  
  • Strong Supply Chain – This element is probably the most complex.  To most outsiders, it would seem obvious that Shenzhen would be the place for building a strong supply chain. The problem is, solving all of the manufacturing issues and getting the product right takes a lot of time, especially if it’s not something you’ve done before.  Many startups spend that time trying to learn the process and then telling the factories what to do, but the end results are usually a lot of wasted time.  

The most important aspects of setting up your manufacturing are in specifying your product and in your design. If you do those well, then factories will have what they need and you can focus on measuring the results and providing feedback. Having a trusted team that knows these details in Shenzhen definitely helps the process go more smoothly, but being a founder on the ground in Shenzhen, where you can’t be raising money, getting advice, or building sales channels, can yield more loss than gain. I’d argue that manufacturing takes at least as much effort and experience as it does to learn how to practice law, yet for some reason, many founders choose to try to become their own manufacturing experts, when they would act as their own lawyer.   

All in all, like the rest of your business details, the decision of where to establish your team must match your total vision. There are most definitely reasons to be in Shenzhen, but they may not be the same reasons that seem so appealing from the outside. My suggestion would be to go for a week or two at a time to understand what it’s truly like and what you really can get out of it before making the big plunge. Remember, as a hardware startup founder, you should only be doing six things: forming your vision, raising money, doing what you’re experienced at, building your team, understanding the market, and fighting fires.  

About The Author

Greg Fisher

Greg Fisher

Founder & CEO of BSG

Since 2005, Fisher has worked with over 900 startups to analyze their products for manufacturing, help them through the DFM process and, for those that got that far, bring their products to domestic and international markets from the operations side.

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