The Internationalization of Corporate R&D

THE INTERNATIONALIZATION OF CORPORATE R&DWith its growing importance in world markets, both on the demand and supply sides,China is increasingly determining world prices for goods, services and labor, as well asinterest and exchange rates. China’s expanding role in the world economy is not onlyaffecting prices and wages. It is also shifting the geography of world trade by dramaticallyincreasing the volume and value of trade between developing countries. This issometimes referred to as South-South trade, which is increasing in relative importanceto North-South or North-North trade (UNCTAD 2005a). In addition, China’s growingeconomic role has repercussions in the international political order and balance ofpower (see for example Shambaugh 2005).10.2.3 China’s Innovation SystemRapidly Growing Knowledge ResourcesChina is far from being a knowledge-based economy. This is demonstrated by indicatorsboth of knowledge inputs (R&D expenditure as a percentage of GDP) and knowledgeoutputs (scientific publications and patenting activity). Thus, China has few knowledgeassets in relation to its size. Furthermore, China’s knowledge resources are very unevenlydistributed between regions, societal groups and sectors. Yet China has considerableknowledge resources, when compared with most other countries in the world. 3Even if China’s R&D expenditure is difficult to assess and compare, it is clear that Chinainvests more in R&D than most other countries in the world. According to the OECD, onlythe U.S. and Japan spend more on R&D, in absolute terms, than China. China has thesecond-highest number of researchers, after the U.S. 4 Between 1999 and 2003 China’sR&D expenditure increased by approximately 130 percent (total), or an average of 24percent per year. This can be compared with Germany, the U.S. or Japan, whereexpenditure increased by 15–20 percent in total or 3–5 percent on average per year (seeFigure 10-1).It is important to note that R&D figures in India, which is often compared with China, areconsiderably lower than China’s, both in absolute terms – with total expenditure amountingto 19 billion purchasing power parity (PPP) dollars in 1999, compared with 36 billion PPPdollars in China in the same year – and as a share of GDP (0.8 percent in 2000). Since 1999,China’s R&D expenditures have overtaken many countries, including the U.K., France andGermany. Furthermore, China’s R&D expenditures have increased significantly in terms ofshare of GDP (from 0.6 percent of GDP in 1996 to 1.3 percent in 2003) at a time when3 A more in-depth analysis of China’s innovation system can be found in Schwaag Serger & Widman (2005).4 It is difficult to gauge the accuracy and comparability of China’s R&D statistics. When compared with othercountries, China’s R&D absolute expenditure differs considerably in size depending on whether one measuresexpenditure in nominal values or in purchasing power parity (PPP) values. Given the large differences in purchasingpower between China and more developed countries, it makes sense to use PPP values. However, it must then beconsidered which PPP conversion rate to use (see for example Schaaper 2004).231