How smartphones made Shenzhen China's innovation capital

Everyone knows that smartphones are one of the biggest innovations of the past decade. But the technological implications of smartphone technology go far beyond the smartphone itself.

If you pry open your iPhone or Android device, you’ll see computer chips that provide the phone’s computing power as well as chips that enable the phone to do things like take pictures, do wireless communications, and pinpoint their location with GPS. Over the past decade, companies have invested millions of dollars in figuring out how to make them small, cheap, and light enough to include in smartphones.

And most of these chips have proven useful well beyond the smartphone market. As a result, we're in the midst of a hardware renaissance, in which it's easier than ever to develop and market new gadgets.

The center of this renaissance is Shenzhen, a city in southern China known as the Chinese Silicon Valley. This is where a large fraction of the world’s smartphones are made, and it has emerged as a leading center for new technologies that build on the capabilities of smartphone chips.

In 2013, Chris Anderson coined the phrase "the peace dividends of the smartphone wars" to describe this flowering of innovation. Anderson was mostly focusing on how smartphone technology was powering the nascent market in low-cost drones. Three years later, those dividends are larger — and more broadly distributed — than ever before.

How Shenzhen became the capital of smartphone innovation

Photo by China Photos/Getty Images

Shenzhen wasn't always known for economic vitality. In 1979, it was a fishing village with a population of 300,000 that happened to be adjacent to the British-ruled metropolis of Hong Kong. The following year, the Chinese government began a program of economic liberalization and designated Shenzhen as a "special economic zone," freeing it from China’s more onerous regulations.

The results were astonishing. Shenzhen quickly became a manufacturing hub, then diversified to finance and services. It’s now the headquarters not only of some of China’s most innovative tech companies but also of large insurers, banks, and airlines. The city draws migrants from every region of China. Shenzhen's population is now estimated to be around 12 million. It is already one of the most expensive cities in China, and its housing costs have not stopped rising.

Shenzhen has been the site for homegrown innovation, including from domestic smartphone companies like Xiaomi and Huawei (which focuses on making telecommunications equipment). The city is the headquarters of Tencent, maker of the app WeChat, which has been described as Facebook, Uber, Spotify, PayPal, and Amazon rolled into one. And a recent Wall Street Journal report finds that manufacturers in the region no longer need to import so many high-tech parts from overseas; instead, they can find materials made locally.

Close to the center of Shenzhen is a massive market called Huaqiangbei, which is dedicated to selling electronic parts; it’s where you can purchase wifi devices, sensors, a circuit board, or 100,000 circuit boards. The city is full of incubators and consultants who specialize in hardware production. This cluster of manufacturing expertise is one reason the Economist declared Shenzhen the best place in the world for a hardware innovator to be.

Apple decided that the first iPhone would be manufactured in Shenzhen by a Taiwanese company called Foxconn. Shenzhen is now totally dominant in mobile production, turning out not just iPhones but also Android devices for the whole world. And the spillover effects of these innovations have made it a lot easier to develop new products. Electronic components that used to cost tens of thousands of dollars (if they could be bought at all) may now only cost a few dollars, allowing more inventors to prototype and produce.

The manufacturing boom has come with a tragic side. Factory managers building products with razor-thin margins have often treated workers poorly. The workers in Shenzhen and surrounding cities have usually been migrants from rural areas. They’re far from home, not always adapted to a rapidly growing city, and usually without many social protections. Notoriously, Foxconn put up nets around its plant in 2010 after more than 11 people killed themselves in the span of a year. In spite of government crackdowns and monitoring by international organizations, many workers still suffer abuse.

Hoverboards show the power of Shenzhen’s economic model

Hoverboards might provide the most colorful example of how smartphones have enabled spinoff technologies. Most hoverboards sold in the US have been brandless, because they were made by no-name manufacturers. Planet Money investigated their origins and found out they were made in Shenzhen by managers of factories that were manufacturing circuit boards, wheels, motors, and more.

Planet Money reported that the concept of the hoverboard may have originated from a US-based inventor. But Shenzhen manufacturers independently developed their own version of the hoverboard with a different design. Instead of having a single inventor, the design of the Shenzhen hoverboard seems to have been the result of a collaborative process, in which engineers discussed ideas over drinks and on online forums. As soon as it proved a success, more than 1,000 factories began to produce their own hoverboards, without much care for intellectual property rights.

This had a huge downside: The poorly designed devices had a tendency to catch on fire. But their origin story reveals something interesting about Shenzhen. The hoverboard was helped along by the network effects of a cluster of manufacturers, and the infrastructure was in place to scale up production to meet demand as soon as the product proved a hit.

Many modern gadgets are built on smartphone technology

Photo by Ethan Miller/Getty Images

Hoverboards are just one of many examples where Chinese companies used chips developed for smartphones to build other kinds of innovations.

There has been a lot of innovation in drone technology over the past decade, and much of it has been made possible by smartphone components. Batteries developed to power smartphones for a whole day have increased the length of time that drones can stay in the air. Powerful, but low-power, smartphone processors help too. Sophisticated wifi and Bluetooth wireless chips have allowed drones to stay in touch with their owners over longer distances.

It should be no surprise, then, that Shenzhen has become the center of the world's drone production. The world's largest drone maker, DJI (which produces the Phantom and Inspire series), is based in Shenzhen, amid factories that churn out much of the world's circuits, batteries, and cameras.

That’s not to say that Chinese drone makers are merely assembling smartphone parts. Increasingly, they’re advancing the state of the art in software and hardware. Drone cameras use image stabilization techniques that take sharp pictures even in flight. And companies like DJI are improving the state of computer vision, which allows them to recognize different objects, paving the way for better autonomous navigation.

Virtual reality devices also owe a debt to the smartphone. VR headsets need high-quality sensors to track the precise movement of users. Smartphones are packed with sensors — gyroscopes, accelerometers, and proximity sensors — and it’s been possible to reuse many of those chips in VR headsets.

VR headsets also need small, high-resolution screens to display sharp video. Smartphones have created a huge market for this kind of screen, allowing VR headset companies to piggyback on their innovations.

The low cost and power consumption of smartphone chips has enabled even smaller and cheaper devices like the Fitbit or the Pebble Watch. Wifi chips are getting embedded in more and more “smart” household objects, from light switches to doorbells.

Smartphone technology has been important for self-driving cars. The many types of sensors, wifi chips, and cameras improved by smartphones are now being installed to let cars drive autonomously. Samsung and Qualcomm, two companies that are heavily involved in making smartphone components, have recently announced that they’ll be getting into the business of making chips for self-driving cars.

A final example involves nanosatellites. These are very small satellites (weighing between 1kg and 100kg) that can replicate many of the functions of traditional satellites, but at a fraction of the cost. They cost under $1 million — instead of more than $200 million for a traditional satellite — and can be launched by the dozens at a time. A “phonesat” launched by NASA in 2013 was little more than a Google Nexus One smartphone in a satellite’s frame; NASA has explicitly credited “consumer-grade smartphone technology” for making the nanosatellite revolution possible.

Not all of these devices would have been possible to build without advances in smartphone technologies. Or they would have cost millions each if the world hadn’t manufactured billions of smartphones. And given that smartphones keep getting better, we should continue to expect more innovations, especially from manufacturing hubs like Shenzhen.

You can follow Dan Wang on Twitter.

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