Han Managing Foreign Research and Development in the People's Republic of China

The New Think-Tank of the World
1. Auflage 2008
ISBN: 978-1-78063-225-4
Verlag: Elsevier Science & Techn.
Format: EPUB
Kopierschutz: 6 - ePub Watermark

E-Book, Englisch, 260 Seiten

Reihe: Chandos Asian Studies Series

The undertaking of R&D in China by foreign organisations is explained through an analysis of the patterns of foreign investment in R&D and the motivations and challenges for undertaking R&D in China. The book provides a detailed reference source which outlines the general environment of R&D in China through governmental policies, Chinese domestic science and technology systems and contemporary developments of intellectual property protection. The practical implications for companies intending to set up R&D in China are also discussed. - Contemporary environmental circumstances of undertaking R&D in China (policies, systems etc.) - Insights from the perspective of R&D managers in China (best practices, lessons learned and case studies) - Important implications for R&D activities in China

Dr Zheng Han, a native Chinese, studied in Germany and holds a combined Master in Mechanical Engineering and Business Administration. At the Asia Research Centre of the University of St. Gallen in Switzerland, he is working as research associate, consultant and lecturer. He is a scholar of the Swiss National Science Fund and a visiting scholar at the China Europe International Business School in Shanghai, China and at Wharton-SMU Research Centre in Singapore. Zheng HAN has gained relevant experience at companies including McKinsey & Company and the Research and Technology division of DaimlerChrysler in Germany.

Autoren/Hrsg.

Han, Zheng

Leseproben

1 Introduction
Publisher Summary
This book, mainly based on over 100 qualitative interviews and a study of 40 multinational companies (MNCs), reveals the major motivations behind foreign R&D activities in China and the critical managerial uncertainties and challenges that MNC R&D activities face. In particular, three managerial areas comprising the most significant challenges and uncertainties are identified and investigated in more depth: managing R&D professionals in China; managing intellectual property rights; and managing cooperation with local universities. The success of foreign R&D activities in China strongly depends on the realistic estimation of its advantages and the proper identification and handling of the challenges. Accounting for one-third of global economic growth over the period 2002–2004, China has been the only leading force of global growth, aside from the U.S., in the course of the recent downturn. In terms of purchasing power, China is already the second biggest economy in the world. Since the late 1990s, R&D-related foreign direct investment has started to surface in emerging markets. The continued growth of the Chinese economy, together with the expansion of international investment in China, has led to a rapid increase in foreign R&D activities in the world’s biggest transition economy. Besides the increasing importance of R&D internationalisation that requires new attention, foreign R&D in China was previously neglected due to the emerging status of its economy. This book, mainly based on over 100 qualitative interviews and a study of 40 multinational companies (MNCs), reveals the major motivations behind foreign R&D activities in China and the critical managerial uncertainties and challenges that MNC R&D activities face. In particular, three managerial areas comprising the most significant challenges and uncertainties are identified and investigated in more depth: managing R&D professionals in China; managing intellectual property rights; and managing cooperation with local universities. The success of foreign R&D activities in China strongly depends on the realistic estimation of its advantages and the proper identification and handling of the challenges. The context
The rise of the People’s Republic of China as a new economic power during the last decade has stunned the world. After China’s opening and economic liberalisation, the GDP of the country rose at an astonishing average annual growth rate of 9.4 per cent, from US$147.3 billion to US$1.6494 trillion within the short span of 26 years, from 1978 to 2004. Accounting for one-third of global economic growth over the period 2002–2004, China has been the only leading force of global growth, aside from the USA, in the course of the recent downturn (AT Kearney, 2004). It has also become the third-largest trading nation and, according to OECD forecasts, it could become number one within five years. For leading economists, it is only a question of time before the ‘Middle Kingdom’, currently ranking fourth in the world in total GDP, will be as powerful as the world’s economic leaders, the USA and Japan. In terms of purchasing power, China is already the second biggest economy in the world. A major driving force of the largest transitional economy’s economic renaissance is foreign direct investment (FDI). Between 1979 and 2004, China absorbed a cumulative FDI of around US$560 billion (The Economist, 2005a). Bolstered by China’s entry into the World Trade Organization (WTO) in November 2001, FDI in China has continued to reach new heights. In 2003 China overtook the USA as the biggest recipient of FDI, which rose to US$54 billion in that year and reached an even higher level of approximately US$60 billion in 2004 and 2005 (The Economist, 2005a). Another 5 per cent increase occurred in 2006 (China Daily, 2007). This trend clearly reflects international investors’ confidence in China’s future economic development. A survey conducted by the UN Conference on Trade and Development (UNCTAD) reveals that 85 per cent of the responding experts and 87 per cent of the responding MNCs consider China the most attractive global business location (UNCTAD, 2005). In general, this confidence is based upon the country’s two well-known ‘magnets’. First, with a population of 1.3 billion (the largest in the world), the emerging Chinese market has extremely high potential for future expansion. Second, even in the long run the country is able to offer a low production cost structure, particularly in terms of labour costs, due to the almost ‘unlimited’ availability of a labour force. These two reasons have logically led to a concentration of production-focused investment in China since the 1980s (The Economist Intelligence Unit, 2004). While this trend is continuously progressing, a new development is emerging in respect of foreign investment. Since the late 1990s, and especially after China’s accession to the WTO in December 2001, R&D-related1 FDI inflows in China have started to surge.2 According to estimations by the Ministry of Commerce, MNCs’ accumulated R&D investment in China reached approximately US$4 billion by June 2004, while the number of foreign-affiliated R&D centres, registered according to the eligibility criteria in place since 2000, reached 800 by the end of 2006. The expansion of foreign-invested R&D is very likely to keep increasing in future. A survey on the ‘globalisation of R&D’ conducted with 100 senior high-tech executives by The Economist Intelligence Unit revealed that 39 per cent favoured China as the site for future overseas R&D investments over the next three years; the USA trailed at 29 per cent and India at 28 per cent (The Economist Intelligence Unit, 2004). Until now, most of the existing literature on R&D internationalisation has concentrated on global R&D within the triad regions – the USA, Japan and Western Europe – since MNCs’ R&D internationalisation traditionally occurs within these developed regions. Given the novelty of the trend, i.e. fast-growing global R&D activities in an emerging market like China, this area has until recently been largely ignored by further investigation. In-depth research of the phenomenon of foreign R&D in emerging markets is still rare. In particular, the body of knowledge regarding the managerial challenges of foreign R&D within the dynamic and still immature context of an emerging market such as China is underdeveloped. It is here where this book aims to contribute. Objectives and structure
Since the research on managing foreign R&D activities in emerging markets is at such an early stage, the necessary first step of this exploratory study will be to build up a thorough understanding of the phenomenon of continually soaring R&D-related FDI in China’s emerging market. Expected benefits and returns usually lie behind an investment decision. Costly R&D activities’ return on investment is particularly long-term oriented, and thus of a strategic nature. The book endeavours to discover the reasons why an increasing number of MNCs have invested in R&D in China. In other words, what are the expected returns and benefits? To date, experts and scholars have identified two major driving factors for R&D internationalisation within the triad regions. While some MNCs seek to improve their existing technology and know-how assets through foreign-located R&D sites (technology-driven), others intend to promote the use of technological assets in response to specific foreign market conditions and help a company efficiently commercialise its product in foreign markets (market-driven). The question of whether MNCs set up R&D activities in China for similar motives remains unanswered. At the same time, along with potential benefits, MNCs’ R&D managers will have to face unexpected managerial challenges and uncertainties within the context of an emerging market. Again, the question of the kind of uncertainties and challenges that MNCs’ R&D managers have to handle in managing foreign R&D in China remains unexplored, and, even more importantly, so does the question of how these challenges can be managed and the uncertainties be overcome. The study has been built up by two different research phases. Taking both phases together, 108 interviews were conducted with 84 interviewees and 40 MNCs were investigated. Interviews were conducted with executives and R&D managers involved in R&D activities in China and experts from consulting, university and independent research institutes. The companies interviewed are MNCs from the machinery, IT, pharmaceutical and chemical industries, such as ABB, Ciba, Lucent Technologies, Micronas, Nokia, Novartis, Schindler and Unilever, to name only a few. Depending on the industry, investment history, corporate strategy and mandate, the R&D activities of the interviewed MNCs employ from less than a dozen staff members to more than a thousand researchers (e.g. Lucent Technologies). Logically, the smaller the R&D unit, the more development- or reengineering-oriented its activities are. The majority of the companies interviewed are based in the triad...