The New York Times has a fascinating article today about “shanzai phones” in China.  These are knockoffs of existing brands but often come with interesting enhancements, such as support for multiple phone numbers and better cameras.  Now one might think of a cell phone as something that is very costly to build and not an area in which one would find knockoffs (unlike, say, designer bags).  What makes this possible is the network of parts suppliers that exists in China.  Almost all of the global brands have the bulk of their manufacturing in China and the division of labor today has suppliers delivering assembly-ready components (instead of tiny individual parts).

There is a lesson in this for how to deal with the crisis of the car industry in the US.  Automotive parts suppliers too have developed extensive systems capabilities over the last two decades.  While there once was a time where car companies would literally buy leather to make seats (wonder whether anyone had their own herds?), they now get complete seat assemblies from suppliers such as Recaro.  The same is true for more other components such as breaks or headlights.  As a result it would be possible for startup car companies without any legacy to come to market fairly quickly with innovative models.  Sadly, much more of that seems to be happening in other countries than in the US.  I am afraid that in our efforts to save GM and Chrysler we are wasting an opportunity to help get new companies off the ground.   It would be great to see some cheap loans made available specifically for startup car companies to help attract equity to this opportunity.

The New York Times has a fascinating article today about “shanzai phones” in China.  These are knockoffs of existing brands but often come with interesting enhancements, such as support for multiple phone numbers and better cameras.  Now one might think of a cell phone as something that is very costly to build and not an area in which one would find knockoffs (unlike, say, designer bags).  What makes this possible is the network of parts suppliers that exists in China.  Almost all of the global brands have the bulk of their manufacturing in China and the division of labor today has suppliers delivering assembly-ready components (instead of tiny individual parts).

There is a lesson in this for how to deal with the crisis of the car industry in the US.  Automotive parts suppliers too have developed extensive systems capabilities over the last two decades.  While there once was a time where car companies would literally buy leather to make seats (wonder whether anyone had their own herds?), they now get complete seat assemblies from suppliers such as Recaro.  The same is true for more other components such as breaks or headlights.  As a result it would be possible for startup car companies without any legacy to come to market fairly quickly with innovative models.  Sadly, much more of that seems to be happening in other countries than in the US.  I am afraid that in our efforts to save GM and Chrysler we are wasting an opportunity to help get new companies off the ground.   It would be great to see some cheap loans made available specifically for startup car companies to help attract equity to this opportunity.