The Internationalization of Corporate R&D

THE INTERNATIONALIZATION OF CORPORATE R&D10 China: From Shop Floor to KnowledgeFactory?Sylvia Schwaag Serger10.1 IntroductionChina’s pace of economic development in the last 20 years is unprecedented. From beingan essentially closed and planned economy in the 1970s, China has grown an average of9 to 10 percent per year to become one of the most important trading nations andrecipients of foreign direct investment (FDI) in the world (UNCTAD 2005a and 2005b).Whereas previously FDI into China consisted mainly of acquisition or greenfield investmentsin production, extraction and distribution facilities, today increasing numbersof international companies are investing in research and development (R&D) in China(Gassmann & Han 2004).In a recent survey of multinational companies, China was ranked as the most attractivecountry for future R&D investment, ahead of the U.S., India, Japan and the U.K.(UNCTAD 2005b). This development has led to growing concerns in many developedcountries that multinational companies will increasingly set up R&D in China at theexpense of Europe and the U.S. As American journalist Abe De Ramos eloquentlyposed the question in a 2003 issue of CFO Magazine, “U.S. companies are beginningto outsource technology research and development to India and China. Will a meltdownin tech jobs follow?” (De Ramos 2003).This chapter examines foreign R&D operations in China and identifies the key forcesdriving China’s rising importance as a location for such activities. The following questionswill be addressed:• What companies are locating R&D activities in China, and of what type?• What are the main reasons foreign companies are establishing R&D in China?• What is China’s government policy on attracting foreign R&D?• What factors may prevent companies from locating R&D in China?• How are foreign companies’ R&D activities likely to develop in the future?While foreign companies are increasingly locating R&D in China, Chinese companies arejust beginning to establish R&D facilities abroad. The determinants of this nascent trendare also examined.227