China's iClone

How to Clone Anything

The easiest way to clone a product is to use a "ghost shift": A factory contracted to make legitimate goods moves to 24-hour operation, churning out copies-some made with inferior materials, and others exactly the same, designed to be sold on the black market-from midnight to morning.

The only problem with ghost shifts is that they can't run full time. In the mid-'90s, developers began to build shadow factories-identical plants, often constructed from the same blueprints legitimate manufacturers used to launch their ventures. Sometimes the plans were sold by managers at the genuine facilities. Other times, local officials and organized crime conspired to create a second set of blueprints.

As technology companies became aware of the extent of the cloning problem, many began to use selective outsourcing. Less-secret components would be built in China, while more proprietary items, like circuit boards, might be manufactured domestically. Even so, sometimes a company's products are cloned even if it has no working relationship with China at all. The Thomas G. Faria Corporation, an American company that builds dashboard gauges for boats and military Humvees, discovered an entire plant in China dedicated to cloning its product, even though it had never done any manufacturing overseas, or even outside of Connecticut, where it is based. The clones were found all over the world, and although they worked poorly, they looked the part. "These clones bear our name and address," David Blackburn, the company's CEO, told the U.S. China Economic and Security Review Commission. "The label . . . contains our catalog part number and the initials of a calibrator, as well as a final tester."

Cloners look for opportunity first, and manufacturers often give it to them, often in the form of a hot product that is released in a limited number of markets. Desire spreads worldwide, and the cloners are ready to fill any gaps that emerge in supply or distribution. (That's what's happening now with the iPhone, which for nearly a year will be sold in North America only.)

In November 2005, LG Electronics, a Korean company that is the world's third-largest mobile-phone maker, released a device that in many parts of the world was as anticipated as the iPhone was here. The "Chocolate" features a slide-out keypad, a large color screen and a very Apple-like navigation wheel; it plays music as readily as it makes calls and sends text messages. LG has sold 10 million of them worldwide-the same quantity Steve Jobs has set as the initial iPhone goal.

LG's phone began to sell out as soon as it was released, but it took four months for the Korean electronics giant to release a version for China. By then, it was too late: A doppelgnger Chocolate had hit the market first, and had become the preferred choice for Chinese shoppers. Quality wasn't an issue. The fake phone was "exactly like the real one in design," a company spokesperson told Chosun Ilbo, Korea's largest daily newspaper. "Chinese people think it's LG electronics that manufactures the fakes."

Last year, fed up with a torrent of bootleg cellphones that was costing the company a billion dollars a year, Samsung hired investigators to trace the phones back, through multiple supply channels, to their manufacturers. The results of that investigation, along with analysis done by independent researchers, uncovered some of the technical strategies undertaken by reverse-engineering operations.

The cloners start by deciding what phones would be most profitable to clone. They then learn everything they can about the device. They attend trade shows, furiously snapping photos of not-yet-released products until someone notices and shoos them away. They will be first in line to buy the new product whenever it hits stores. And they will look for shortcuts, such as a patent filed in China that can act as the beginning of an actual production guide.

The cloners hire a team of between 20 and 40 engineers to begin decoding the circuit boards. At the same time, coders start to develop an operating system for the phone with a similar feature set. (The typical cloner either uses off-the-shelf code, writes something entirely new, or modifies a publicly available Linux-based system.) Both processes take about a month. By then, ancillary items-plastic casings, accessories, manuals and packaging-are ready as well. Full production begins at another factory, one that is already building phones, within about eight weeks from the time the engineers are hired. After a run of about 30,000 units, the cloners move the operation to a new facility in order to avoid detection.

Samsung was impressed by the efficiency of the cloners, so much so that the company offered them jobs. The cloners said no. Earning about $1.25 per phone, the cloners said, they found it easier and more profitable to make fakes. The only known result of the investigation? Samsung now takes care to release products in China shortly after they come out in Korea. Its only defense is to give cloners a smaller window of opportunity.