Why Southern China Is The Best Place In The World For A Hardware Innovator



The Economist

OH NO, NOT another accelerator, you may think. But this one is different. On the tables are not just the obligatory laptops and smartphones but circuit boards, cables, screwdrivers and a few items which look only vaguely familiar. One resembles a very old mobile phone with an oddly shaped knob attached to it. Another, a set of small blocks with switches and buttons, calls to mind a disassembled mixer in a recording studio. Yet another might be the microphone of a computer headset, but is mounted on a pair of glasses.


Even more surprisingly, the home of Haxlr8r (pronounced "Hackcelerator") is not some co-working space in London or San Francisco but the 10th floor of an office building in Shenzhen. The city in the Pearl River Delta, close to Hong Kong, is the world capital of electronics: most of the planet's digital devices are assembled in factories in and around the city.

Haxlr8r is living proof that, as Karl Popper once said, history repeats itself, but never in the same way. Just as with software services, new technology makes it ever easier to build new types of devices, most of them connected to the internet. The difference is that making hardware remains, well, hard-which is why Haxlr8r is in Shenzhen. That way its teams may avoid the fate of a first generation of hardware startups, mostly based in America. They put their ideas up on Kickstarter and Indiegogo, the leading crowdfunding services, but then endured months of delay or never got as far as manufacturing their devices.

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The technologies that allowed software services to be developed more cheaply and quickly were cloud computing, social networks and any number of digital services called application programming interfaces (APIs). For hardware the list includes all of the above plus 3D printers, sensors and microcontrollers which bridge the analogue and the digital worlds. The platform for most connected devices is smartphones. All these elements can be combined in countless ways, creating a Cambrian explosion not just in software but in physical electronic devices too.

When the latest batch of founders arrived at Haxlr8r in August, new wireless chips based on a standard called Bluetooth Low Energy (BLE) had just become widely available. These are cheaper and less power-hungry than the previous generation, and startups do not have to ask Apple for permission to use them to tether their devices to the iPhone (and pay for it). Most teams at Haxlr8r went on to use BLE chips in their contraptions.


The old mobile phone with the knob is actually a wireless tuning device called Roadie-and an example of how technology, personal interest and culture can come together in surprising ways. Bassam Jalgha and Hassane Slaibi are the founders of Beirut's first hackerspace, a clubhouse for tinkerers. But they are also musicians and know how difficult it is to tune a lute, a popular instrument in Lebanon. So when they came to Shenzhen, they set out to build something that makes it easy to tune string instruments. A smartphone app listens to the sound and tells the motor in the tuning device whether to tighten or loosen a string.

The blocks, called Palette, are indeed the components for a mixer of sorts and are meant to be assembled by designers and photographers who need a physical interface for repetitive tasks on a computer. The microphone, dubbed Vigo, is a "drowsiness meter": the tip contains a sensor that measures how often a user blinks-a sign of how tired he is, and whether he should stop driving or get a cup of coffee.

Yet most of the value of such devices is not so much in the design but in the software and services that are part of the package. Roadie comes with a smartphone app, Palette, with a program that runs on a PC. Vigo will show the user on a website how his attention fluctuates over time. Such offerings not only make products harder to copy but might allow their makers to earn additional money from subscriptions.

Makers and shakers

When Cyril Ebersweiler and Sean O'Sullivan, two venture capitalists, set up Haxlr8r in September 2011, they chose Shenzhen for a good reason. The district of Futian, the accelerator's home, has dozens of shopping malls for electronics. The biggest is the Seg market. The bottom floor is reserved for screws, cables and chips, and as you go higher up the products become more finished: circuit boards, networking equipment, personal computers. The sixth floor offers LEDs in all shapes and sizes, from super-thin Christmas garlands to super-bright lamps.


Shenzhen is also packed with all kinds of suppliers and service providers that can make life easier for hardware startups. Having a new circuit board made there takes days, not weeks as it does in America, reports Eszter Ozsvald of Notch, another Haxlr8r startup. Her company is developing small motion trackers. And had Wearpoint not gone to China, it would probably never have found the track pad it needs for its remote control for Google Glass, a head-mounted display.

Being in Shenzhen also allows founders to look at lots of factories, which proved handy forEverpurse, a company that sells fancy handbags with a built-in smartphone charger. "If the workers are not happy, they may leak your intellectual property," says Dan Salcedo, the firm's co-founder.

If a factory passes muster, other Haxlr8r startups often go on to use it too. Howard Hunt, the boss of DustCloud, had scouted out a factory to make casings for prototypes of his Dusters, gun-shaped devices for playing open-air laser tag. When he went to pick them up and pay (cash) in early October, the founders of Notch and Wearpoint came along to see whether the factory could also work for them. The meeting showed that people from different cultural backgrounds can communicate perfectly well with a minimum of translation. Each time the Western founders asked a question, the Chinese owner of the factory fetched another plastic sample that met with approval.

Silvia Lindtner of the University of California, Irvine, and Fudan University in Shanghai, who follows the startup scene in China, is not surprised. The two sides complement each other, she says. The founders of hardware startups, often steeped in the open-source culture, partner with factories rooted in the Chinese culture of shanzhai, which translates as "mountain stronghold". It used to mean pirated electronic goods but now stands for open-source manufacturing.

Haxlr8r is not the only model for plugging into Shenzhen's extraordinary manufacturing platform. Another is Seeed Studio, a contract manufacturer for makers, as the world's ever-growing crowd of tinkerers is called. "Haxlr8r is for backpackers who want to do things themselves," explains Eric Pan, who founded Seeed in 2008. "We on the other hand offer guided tours. And you don't even have to come here."


Having worked for about 200 makers last year, Seeed is now one of the world's biggest manufacturers of open-source hardware. When a maker asks Seeed to build a circuit board, the firm keeps a copy of the design which can then be used without charge by other customers. Most factories in Shenzhen work for big customers and have long assembly lines where workers perform only one task. But makers typically want just a few items and are willing to pay more, so Mr Pan has split his employees into self-organizing teams.

Whereas Seeed is a Chinese creation,PCH International is a Western take on Shenzhen. Also based in the city, it started out as a sourcing company with a reputation for being the fastest supplier of parts to electronics makers. Liam Casey, who founded the company in 1996, had criss-crossed the Pearl River Delta, gathering knowledge about supply lines. PCH later added packaging, logistics and manufacturing to its portfolio. Today the firm, which had revenues of $1 billion in 2013, is an "end-to-end platform, a sort of Amazon Web Services for electronics manufacturing", in the words of Mr Casey. He has even started an accelerator, Highway1, which is based in San Francisco, to generate more things to make for his platform.

Some firms prefer to go it alone, like Zound Industries, a Swedish maker of fashionable headphones, including brands such as Urbanears and Molami. Back in 2008, when production in Shenzhen did not get off the ground because factories failed to deliver, Zound sent one of the founders, who hired a couple of experienced hands to work with manufacturers. Today the firm has 18 employees in the Chinese city and uses five factories which have so far produced nearly 8m headphones.

For the moment Haxlr8r's latest batch of startups can only dream of such success. In November they had their demo day, held in San Francisco and marking the beginning of their "Kickstarter" campaigns, which essentially consist of a video presenting the project and asking for money. Investors can be surprisingly generous, even for rather odd projects.Petcube managed to raise more than $250,000 for a small, internet-connected metal box with a video camera, microphone and laser pointer inside that lets owners watch their pets from afar and play with them by controlling the laser pointer.

The Kickstarter campaign is only the beginning of a long journey. Founders must get their products certified, find distributors, organize production and avoid getting sued for infringing other people's intellectual property. "Hardware is really hard," says Amanda Williams, whose company,Fabule, was part of Haxlr8r's previous batch. She is back in Shenzhen dealing with manufacturers of the firm's first product, a programmable lamp.


Some of the contraptions may seem a shade frivolous, but Haxlr8r's startups also includedBabybe, an "emotional prosthetic" designed to help prematurely born babies to catch up. It transmits the mother's heartbeat, breathing pattern and even her voice to a mattress in the infant's incubator.

With startups you never know what you will get. But the platforms, the accelerators and the ecosystems that allow them to develop are already emerging in other industries, too.