Is Multinational R&D Heading East?Is Multinational R&D Heading East?

--The Case of China The Case of China

Lan Xue, Professor and Executive Dean Lan Xue, Professor and Executive Dean

School of Public Policy and ManagementSchool of Public Policy and Management

Tsinghua UniversityTsinghua University

January 18, 2007January 18, 2007

Outline

� Background

� General Findings-nationwide

� Special case-Beijing

� Discussions

3

Background-the trend

• The trend of R&D globalization and MNC R&D Centers in China:

• Our study in 1999 found over 30 MNC R&D centers by major MNCs;

• Ministry of Commerce’s data for 2001 was less than 200;

• In 2005, government reported that there are over 750 MNC R&D centers in China;

• The most recent estimates put the number of MNC R&D centers at 980 by 2006 (Denis Simon’s presentation).

Background-issues

• Debates and concerns:

• In developing countries such as China, there is a debate about the impact of MNC R&D activities:

• spill-over vs. “suck-in” effects;

• In developed countries such as the US, there is also some concern:

• First manufacturing. now R&D, are they going too far (Business Week, March 2005)?

Background-objectives of our study

• A follow up study of our 1999 study when we

surveyed several hundreds of MNCs in China and

found over 30 major MNC R&D centers in China (Xue

etc.2000,2001,2002);

• Our objectives are:

• improving our understanding of the change in MNCs

R&D activities in China and the reasons behind it;

• Improving our understanding of the impact of MNC

activities on China’s innovation system.

6

Background-Research methods

• The sample:

• 335 MNCs in China out of 483 eligible companies from Business Week Global 1000;

• Research methods:

• Phone interviews with 289 of these companies;

• Questionnaires sent to MNC directors in Beijing and Shanghai;

• In depth interviews were conducted with over a dozen directors of these R&D centers.

General Findings

• Out of the 289 companies we phoned, 117

companies have set up R&D facilities in China;

• 215 R&D centers were set up by them;

• 107 are autonomous R&D labs;

• 59 are R&D units in the local subsidiaries;

• 49 joint centers (with universities and so on)

• Comparison of autonomous labs:

• 1999=32; 2004=107

8

General findings: industrial distribution

Figure 1 The industrial distribution of autonomous R&D labs settled by Business

Week 1000 MNCs in China（（（（2004））））

23%

18%

13%5%

7%

7%

6%

6%5% 4% 3%2%1%

Software TelecommunicationsSemiconductors Industrial Equipments and componentsAutomobiles Commodity Chemicals

Biotechnology&Drags Household ElectronicsOther IT Products ChemicalsFood and beverages Industrial ConglomeratesOthers

9

图1-6 《商业周刊》1000强在华设立独立研发中心的产业分布（1999）

35%

25%

19%

9%

6% 3% 3%软件

通讯技术

半导体设备和产品

汽车

日化

生物医药

工业集团（跨行业）

General findings: industrial distribution (1999)

10

General findings-country distribution

Figure 2 The country distribution of autonomous R&D labs settled by

Business Week 1000 MNCs in China（（（（2004））））

54%

23%

11%

6% 5% 1%

North America Japan UK, France and German

North Europe Other European Countries Other Countries

11

图1-8《商业周刊》1000强在华设立独立研发中心的国别分布（1999）

59%16%

16%

9% 0%0%北美

日本

英法德

北欧国家

其他欧洲国家

其他国家

General findings-country distribution(1999)

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General findings-location choice

Figure 3 The regional distribution of autonomous R&D labs

settled by BusinessWeek 1000 MNCs in China（2004）

47%

33%

2%7%

5% 6%

Beijing Shanghai Tianjin

Guangdong Jiangsu Other regions

13

图1－10 《商业周刊》1000强在华设立独立研发中心的地区分布

（1999）

58%

36%

3% 3% 0%0%

北京市 上海市 天津市 广东省 江苏省 其他城市

General findings-location choice (1999)

General findings-patenting activities

•Patenting activities of the MNCs have been very active in China.

16934 invention patents were granted to them in 2005;

•Most of the patents filed in China did not originate from China.

There is a time lag between when it is first granted overseas and

when it is granted in China. The Time lag is 27.95 months on

average; it varies for different industries, notably, biotechnology

and pharmaceuticals are long.

•only 924 patents granted to these MNCs in 2005 were filed

initially in China.

Special case-Beijing

� The growth of MNC in Beijing

The growth of these centers (R&D people)

5 8 10 10 11 1524 26

41 44 4550

6070

100 100 101

140

220

0

50

100

150

200

250

7 14 13 35 20 31 1 30 28 10 2 9 11 25 33 34 8 17 21 Sample Number

Scale of R&D Employee

The Scale of R&D Employee (Initial)The Scale of R&D Employee(Till Sep. 2004)

17

Positioning of the R&D Centers

Figure 5 The positioning of MNCs' R&D centers in Beijing

40%

11%

29%

20%Global R&D Centers

Asia-Pacific Region R&D

Centers

China R&D Centers

Supporting Organizations

Figure 4 The importance of different objectives of the R&D centers' work(2004)

3.90

3.74

3.61

3.58

3.48

3.39

3.06

0.000.501.001.502.002.503.003.504.004.50

Explore new products for Chinese market

Modify exsiting products for Chinese Market

Explore new products for world market

Trace the frontier of Chinese technology development

Trace the frontier of international technology development

Explore the unknown science and technology fields

Support the production and operation in China

Mean

Figure 6 The importance of different factors which

have impacts on MNCs' R&D investing decision in China

3.85

3.76

3.56

3.38

3.3

3.21

3.06

2.87

2.74

00.511.522.533.544.5

Acquirement of high quality human resources

Level of Chinese economy development, market scale and chances

Level of science and education development of China

Status of protection of knowledge right of China

Level and resources of technology of Chinese related industries

Chinese favorable policies attracting R&D investment

Level of infrastructures of China

Working efficiency of government departments

Extent of being a native the R&D organization enjoys

Mean

What attracts these R&D centers to Beijing?

Importance of sources of knowledge of MNCs’ R&D Centers

in Beijing (importance from 1-5)

SourcesNumber of

Samples Mean

R&D Headquarter 30 3.77

Literature 30 2.17

Brother R&D Centers 30 2.17

Chinese Uni. Or Inst. 30 1.93

Other R&D Centers 30 1.20

Local brother

factories

30 1.17

Figure 7 The frequence of communications between MNCs' R&D

centers and Chinese university/science research institute(the

number of correspondent R&D centers)

7

34

13

4

0

2

4

6

8

10

12

14

None Seldom Some Frequent Very

Frequent

Figure 8 The frequence of communications between MNCs'

R&D centers and Chinese enterprises(the number of

correspondent centers)

8

10

5

910 10

5

34

00

2

4

6

8

10

12

With Chinese related enterprises With Chinese other enterprises

None Seldom Some Frequent Very Frequent

Discussion

� The number of MNC R&D centers in China has been increasing rapidly over the last few years; a high percentage of these R&D centers are still at the initial stage of their development process; � In the next few years, the growth in numbers may slow down, but

the scale may go up; some early entrants are beginning to consolidate;

� High quality S&T human resources and market opportunities are the most important factors drawing MNC R&D centers to China;� Local market orientation

� Human resource orientation-for the global R&D activities

� Many of these centers behave more like enclaves in China, interacting mostly within the company’s own network; the linkages with local companies are very weak.

� Normal process?

� These centers are just part of the companies’ internal global R&D network;

� Research output of these R&D centers measured by patents are limited. intangible benefits are difficult to measure; suck-in effects are limited.

� integrated at the headquarter?

� IPR protection?

Thank you!