The Internationalization of Corporate R&D

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THE INTERNATIONALIZATION OF CORPORATE R&DThe second section provides a brief overview over China’s economic development and itsnational innovation system. Section 3 outlines principal policy developments and trendsregarding FDI in China. In Section 4, we closely examine the R&D activities of foreigncompanies in China, and also emerging R&D activities of Chinese companies abroad. Inaddition to mapping current R&D activities, we identify drivers of R&D investment andlocalization decisions, and examine some of the challenges and opportunities related tothese activities for China. Section 5 discusses the future of corporate R&D investments inChina and draws some conclusions for Sweden.MethodologyThe dramatic pace of change in China, extreme regional differences, a lack of reliableand comparable statistics, and certain political control of the collection and disseminationof information make it difficult to gain a true picture of China’s economic development.In order to assess China’s economy today and predict its future, it is necessaryto supplement official statistics with other information sources.Some of the supplementary data used for this study has been published by the EnergyInformation Administration (EIA), the European Commission, the National Bureau ofStatistics of China, the Organisation for Economic Development (OECD), the StateIntellectual Property Office (SIPO), the United Nations Conference on Trade and Development(UNCTAD), the World Bank, and the World Intellectual Property Organisation(WIPO).Other information sources include articles and books on foreign companies’ R&Dactivities in China, such as Gassmann & Han 2004, von Zedtwitz 2004, and Walsh,2003. And we gathered important, up-to-date information from periodicals and newspapers(e.g. The Economist, BusinessWeek and China Daily) to shed light on China’scurrent economic development activity, and to reveal the issues considered critical inChina right now.A number of discussions and “half-structured” interviews 1 have also been conductedwith representatives of approximately 20 companies in connection with the study. Thecompanies varied in terms of size and industry. Representatives of chambers of commerce,employers’ organizations, trade associations, universities and colleges, othergovernment authorities, international organizations, academics, journalists, and otherexperts were also interviewed.1 By half-structured we mean that interviews were conducted based on a questionnaire. Interviewees wereasked about their experiences with conducting, managing or analyzing foreign R&D in China, about factorsspeaking in favor or against establishing R&D in China, and about their assessment of how firms’ R&Dactivities in China might develop in the future.228
THE INTERNATIONALIZATION OF CORPORATE R&DThe aim of the interviews was to supplement the lack of reliable statistics on China,and to gain a realistic picture of the extent and drivers of foreign R&D operations inChina. To assess how much innovative R&D is conducted by foreign companies inChina, we have cross-referenced press clippings (e.g. on the establishment of a foreignR&D center in China with companies’ annual reports and websites) and interviewedexperts and company representatives.10.2 Economic Development and National InnovationSystem10.2.1 IntroductionThe magnitude of economic change that China has experienced in the past 20 yearscannot be overstated. After decades of isolation (particularly from the western world),the effects of cultural revolution, and the effects of a strongly Soviet-inspired model foreconomic planning and technology policy, Deng Xiaoping’s “open door” strategy ofthe late 1970s ushered in a new era in China’s economy. The strategy laid the foundationfor an economic opening toward the world, in the form of trade, investments andpersonal mobility; for far-reaching, market-oriented legal reform; and for an explicitfocus on improving China’s scientific and technological competitiveness through increasedcooperation with the Western world. 2 In the past two decades, China hassuccessively liberalized and privatized sectors and companies, as well as opened itsborders for trade. Its accession to the World Trade Organisation (WTO) in 2001 constitutesan important milestone in China’s integration into the global economy.The reform of China’s science and technology system, begun in 1985, belongs to theprincipal policy decisions that have enabled China’s progress in economics, technologyand science in the past 20 years. Whereas China’s science and technology resourceshad previously been closely connected to its military needs, the government formallyacknowledged that these resources were of vital importance for economic development.Consequently, China made a deliberate decision to link science and technology to theproductive sector (Walsh 2003).China’s economic reforms have been impressive, particularly when considering theresults in terms of economic growth. A number of areas, however, require further reformin order to secure China’s successful transition to a stable market economy. Thegovernment needs to continue restructuring and privatizing the approximately 150,000state-owned enterprises (SOE). China’s financial sector is still underdeveloped, inefficient,and too sheltered from market competition. Bad loans, which according to someestimates are equivalent to nearly half of China’s GPD, constitute a significant threat to2 A good overview of China’s technology policy since 1978 can be found in Walsh (2003).229
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The Swedish Institute for Growth Po
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