Shan Zhai: How Cultural and Economic Conditions Can Signal Future Product Counterfeiting Hot Spots

• In Event: Situational Attributes and Crime Prevention

Abstract

The term “Shan Zhai” is used in China to refer to businesses that manufacture, market and sell counterfeit or pirated products. These businesses typically use stolen intellectual property to create products for niche markets, or to create knock-off or counterfeit goods with features that appeal to a certain sub-set of the market. Most Shan Zhai businesses do not pursue a business model based solely on product counterfeiting, choosing instead to use counterfeiting as a way to overcome barriers to market entry and roadblocks that imped entrepreneurial growth. In China, strict economic controls, controls on access to capital, and the prevalence of state-sponsored business entities make entrepreneurial growth difficult. This paper explores the social, economic, and political factors that impede entrepreneurial development and help to create conditions where product counterfeiting is likely to flourish. It is argued that the Shan Zhai model of entrepreneurship is an adaptation to resource and market constraints that is likely to be seen in other developing economies as the global manufacturing footprint shifts away from China. Accordingly, principles learned from current Shan Zhai practices in China can be used to mitigate opportunities for product counterfeiting that are likely to develop in other nations in the future.

Author

• Jay P Kennedy, Michigan State University