mnc r&d ecosystem in china
DESCRIPTION
China has emerged as a key location for outsourced R&D operations especially in Telecom, Software and Electronics. The offshoring wave in China started nearly a decade later than in India. However, today, the country is competing with India and already being considered as an established offshore destination.TRANSCRIPT
MNC R&D Landscape: A China Perspective
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Media Release
Zinnov Confidential
Overview 1
SCOPE This report is intended to provide an overview of the MNC R&D landscape in China More specifically, the report maps the evolution of R&D in China, how it compares with India
and the following key trends in the local R&D ecosystem: Continuous growth of MNC R&D centers in China Emergence of Tier-2 locations as new centers of growth Rising competition for MNCs from domestic Chinese firms Change in innovation philosophy of MNCs in emerging geographies Expansion of work portfolio by MNCs in China Diminishing cost arbitrage advantage for MNCs in China
In addition the report looks at the role of the government for the rising R&D investment in the region
CONTENTS The current document is a preview to the complete study and covers the evolution history of
R&D in China with focus on 2 key trends: Growth of MNC R&D centers & Emergence of new locations for R&D in China
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China has evolved as a premier destination for R&D offshoring in the last few decades 2
Pre-Historic Era Reforms Era Exploratory Era Expansion Era
1949 – 1965: • China adopts Soviet S&T System
and signs Sino-Soviet Treaty of Friendship, Alliance & Mutual Assistance
• R&D initiatives in Defense & Heavy Industries begin
1966 – 1976: • Sino-Soviet Split in 1960s
• Over dependency on Soviet aid &
technology gives major setbacks to Chinese R&D
• Cold War limits technological aid & trade sanctions
• Political Instability & radical steps by Mao disrupt growth of R&D
1977 – 1988: • Reforms in Economic, Legal and
Education fields, foreign trade and import of Science & Technology (S&T) from West
• In 1979, Deng Xiaoping signs a bilateral agreement on S&T cooperation with US, which is renewed every 5 years henceforth
• 1979, Special Economic Zones introduced in Fujian & Guangdong – entry of low-tech & light industry
• Program 863 launched in 1986 concentrating on basic & applied research in 8 key areas
• Torch program launched in 1988, 53 High Tech Development Zones launched
Early – Mid 1990s: • MNCs setup China centers as a test
case for R&D off-shoring
• Most of these centers involve local partners in technology transfer for leveraging tax & other financial benefits
Mid – Late 1990s: • Booming IT sector and Inter firm
competition for R&D forces MNCs to look for market expansion
• Number of Joint Venture firms in China for R&D gradually increase
• Work profile is localization of products than creation of new – More ‘D’ (development) than ‘R’ (research)
Late 1990s – 2000: • Mature stage for MNCs with
successful test cases
• Growing global competition for international R&D
2001 – Current: • In 2006, Introduction of National
Medium & Long term program for S&T Development
• China plans to invest 2.5 percent of its GDP in R&D by 2020 from 1.45 percent in 2006
• By the end of 2008 multinational corporations had established over 1,100 R&D centers in China from all the industries
• Despite downtime, China added 200 new centers between 2009 to March 2011
Evolution of R&D Globalization in China
Source: Ministry of Commerce (MOFCOM), China; Ministry of Science & Technology (MOST), China; National Bureau of Statistics (NBS); Zinnov Analysi
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Though offshoring of R&D to China started way back in’90s, recent trends indicate that the landscape is currently undergoing a paradigm shift 3
Source: Primary interviews with stakeholders, News aticles, Zinnov Analysis
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Key Trends
Continuous growth of MNC R&D centers
Diminishing cost arbitrage advantage
Expansion to secondary locations
to perform R&D
Rising MNC competition with domestic Chinese
firms
Transformation & innovation in R&D
a
f
e
b
c
d
Government Influence
Government Influence
Maturity and expansion of work
portfolio
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One of the key contributors to the rapidly evolving R&D landscape in China is the phenomenal growth of MNC R&D centers in the last decade
199
363
629
904
1,100
1,300
138
163
266 275
196 200
0
50
100
150
200
250
300
0
200
400
600
800
1,000
1,200
1,400
Before '00 01-'02 03-'04 05-'06 07-'08 09-'11
Total Number of MNC R&D Centers (till March 2011) Number of New MNC R&D Centers (till March 2011)
Note: *A company can have more than one R&D centers Source: Economist Intelligence Unit (EIU); Ministry of Commerce (MOFCOM), China, Newspaper Articles; Zinnov Analysis
4
Of the Fortune 500 companies worldwide, over 400 already have R&D centers in China
MNC R&D Centers* in China (Till 2011)
Microsoft, Fujitsu,
Ericsson, Intel, Nortel
Samsung, Motorola, Panasonic, Toshiba, TI
Cisco, Broadcom,
IBM, Electrolux,
Logitech
nVidia, EMC, Nokia,
Kronos, McAfee
ARM, British Telecom, SanDisk,
Avaya
Yahoo, BMW,
Eli Lilly, Foxconn, Esri
a
2011 1046 MNCs
1300 R&D Centers
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Growth in MNC R&D centers is being significantly driven by Global top 1000 R&D spenders who have shown increased interest in extending their presence in China
5
World’s Top 1,000 R&D Spenders
658
342
China
704
300
China
620
World’s Top 1,000 R&D Spenders
700
Distribution of MNCs Having R&D Centres in China in Comparison to World’s Top 1,000 MNC R&D Spenders, 2008
Number of MNCs: 920 Number of MNCs: 1046 2008 2011
• There is an increasing interest of the top global R&D spenders in the China domestic market opportunities, abundant talent pool, quality infrastructure and government support
• These companies are working on an “in China for China” strategy along with a global focus of their R&D centers
• Some of the recent entrants include Yahoo, Toyota, Eli Lilly, Volvo etc.
Source: EIU; Ministry of Commerce (MOFCOM), China, Zinnov Analysis
a
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MNCs in China have increased their R&D presence not just through opening new centers but by also increasing the headcount in existing setups 6
0
20
40
60
80
100
120
0 - 30 31 - 60 61 - 100 101 - 200 201 - 300 301 - 400 401 - 500 501 - 600 601 - 1000 1001 - 2000 2000+
Distribution of MNC R&D Centers in China by Headcount Range
Headcount Range
Nu
mb
er
of
Cen
ters
2011
2008
The R&D centers are gaining in head count growth over the years and are slowly building up a mature talent
pool. Ex. UTStarcom, Infineon Technologies, NEC etc.
This group represents firms who have over the years have accumulated the best of the talent
from China and have increasingly grown with a fast pace in headcount year over year. Eg. EMC,
Microsoft, IBM, Bosch, Nortel etc.
Source: Primary Interviews, Company web sites and press releases, News Articles, Zinnov Analysis
a
Average Headcount Per Center (2008) = 105
Average Headcount Per Center (2008) = 117
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China is witnessing rapid expansion of secondary locations as these are increasingly becoming viable for MNCs to set up their R&D centers 7
Shanghai
Dalian Beijing
Guangzhou
Shenzhen
Chengdu
China Suzhou
Xi’an Nanjing
Hangzhou
Xiamen Fuzhou
Tianjin
Wuxi
Chongqing
Wuhan
Tier-1 locations
20-30% saving in total cost
Suzhou and Chengdu have one of the largest high tech parks in China
China has the world’s longest HSR1
Wuhan-Guangzhou HSR etc.
Wuxi: Microelectronics
Shenzhen: Infocomm Products
Suzhou is the second biggest industrial city after Shanghai
About 50% of the installed talent pool of MNC R&D centers is in tier-2 cities
In addition to the waiver of Corporate taxes Local taxes (about 3%) are
exempted in Shenzhen, Wuxi etc.
Cost arbitrage over tier-1 Cities
Improved R&D infrastructure
Improved rail-road connectivity
Concentration of industries
Economic and cultural development
Availability of talent pool
Incentives given by the local governments
Note: 1 High Speed Rail Source: Ministry of Commerce (MOFCOM), China Primary Interviews, Company web sites and press releases, News Articles, Zinnov Analysis
b
Established secondary locations
Emerging secondary locations
Telecom
Electronics
Software
Growth Drivers for Emergence of Tier-2 Cities
Infocomm
Electronics
IT
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Secondary locations now account for nearly half of the total number of MNC R&D center establishments 8
0%
25%
50%
75%
100%
ROC
Dalian
Chengdu
Suzhou
Guangzhou
Shenzhen
Beijing
Shanghai
Per
Ce
nt
Headquarter Location Wise Distribution of MNC R&D Centers Across Key China Locations (2011)
US (54%)
EU (28%)
Japan (9%)
SEA (6%)
ROW (3%)
Headquarter Location
China Location
Source: Ministry of Commerce (MOFCOM), China, News Articles, Zinnov Analysis
b
This is a preview. The total slides displayed are limited. For full access contact [email protected]
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Additional Information 9
The current document is a preview to the complete study and covers the evolution history of R&D in China with focus on 2 key trends: Growth of MNC R&D centers & Emergence of new locations for R&D in China
The full report provides information on other key trends in the MNC R&D landscape in China including
Rising competition for MNCs from domestic Chinese firms Change in innovation philosophy of MNCs in emerging geographies Expansion of work portfolio by MNCs in China Diminishing cost arbitrage advantage for MNCs in China
In addition, the role of the government in driving R&D investment in the region is analyzed
Full report on China MNC R&D landscape can be accessed at Zinnov ‘s Global Location & Talent Pool Portal. Sign up today for a free trial account
http://zinnov.com/US/demo_signup.php Or, email us at [email protected]
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