The Internationalization of Corporate R&D

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THE INTERNATIONALIZATION OF CORPORATE R&Dimported from abroad and merely assembled in China in order to be re-exported.This is the case in the computer industry, for example. Imports of high-technologyproducts are larger than exports of high-technology products, confirming that muchof China’s exported high technology actually comes from abroad. Furthermore,foreign-owned companies in China accounted for close to 85 percent of China’shigh-tech exports in 2003 (Breidne 2004 and Schaaper 2004).Considerable Weaknesses Remain in China’s Innovation SystemChina’s ability to create knowledge has grown rapidly in the past two decades. However,a number of factors hamper China’s ability to use these resources efficientlyand effectively. One such factor is the relatively underdeveloped service sector,particularly business services, which are an important source of innovation and futurecompetitiveness. Services account for a relatively small share of GDP. Furthermore,services have been relatively neglected in China’s innovation policy, which focusesprimarily on manufacturing.Insufficient protection of Intellectual Property Rights (IPR), particularly weaknessesregarding the enforcement of IPR law, presents a second impediment tostrengthening China’s innovative capacity (Zhang 2005 and OECD 2005c). WhileChina’s IPR legislation has improved in the past years, enforcement remains weak.Studies of China’s life-science sector show that fear of intellectual property theft,mistrust of the patenting process and a lack of social capital – defined as “features ofsocial organization such as networks, norms and social trust that facilitatecoordination and cooperation for mutual benefit” (Putnam 1995, p. 67) – constitutesignificant barriers to the commercialization of research (Nilsson et al. 2006).A third problem is the large gap between people, sectors and regions that generate orhave access to knowledge, and the overwhelming majority of Chinese who reap nobenefit whatsoever from investments in knowledge (Jefferson 2004, Schaaper 2004,and Schwaag Serger & Widman 2005). These knowledge gaps result in sub-optimalreturns on knowledge investments and also pose potential threat to China’s future political,social and economic stability.A fourth weakness in China’s innovation system is its underdeveloped financialsector (OECD 2005b and European Commission 2004). A conservative bankingsector with a strong focus on large and state-owned enterprises and the lack of afunctioning venture capital market explain the shortage of capital sources for smalland medium-sized companies and for high-risk projects.In addition to the above-mentioned weaknesses in China’s innovation system, a numberof challenges exist that are more difficult to quantify. These include the politicalsystem, which restricts critical and creative thinking, and a possible overemphasis on234
THE INTERNATIONALIZATION OF CORPORATE R&Dhard sciences in policy formulation at the expense of other sciences or research areasimportant to creativity, entrepreneurship and competitiveness (see Schwaag Serger &Widman 2005). 7Perhaps the most widely discussed weaknesses of China’s innovation system are: itsapparent over-reliance on foreign companies’ R&D, and the inability of its domesticcompanies to develop high-tech products. According to Maximilian von Zedtwitz, inearly 2004, there were approximately 200 foreign-owned R&D centers in China, andthe number is likely to have increased since then (von Zedtwitz 2004).Foreign companies’ R&D activities can be seen as one of the biggest strengths andbiggest weaknesses of China’s innovation system. They are a key component ofChina’s innovation system when measured by share of patenting and high-techexports. At the same time, analysts question whether foreign companies’ R&Dactivities in China actually increase or decrease the country’s innovative capacityin the long term. Some observers argue that foreign companies’ R&D activitiesoffer few, significant spillover benefits for domestic companies’ innovativecapacity. Furthermore, some Chinese experts we interviewed expressed concernsthat foreign R&D may actually undermine domestic innovative capacity by“crowding out” domestic companies in the labor market. As a result, there isgrowing criticism of the government’s policy to attract foreign R&D by providingsignificant tax and other incentives.China’s Efforts to Address its WeaknessesChinese policymakers have identified a number of the weaknesses in China’s innovationsystem and are addressing these with targeted policy measures. Thegovernment has identified innovation and a strong science and technology base asguarantors of future competitiveness and prosperity. The government also seesinnovation, science and technology as the solution to many of the challenges facingChina today, such as pollution, the threat of epidemics, water and energy shortages.As a result, innovation has high priority on their policy agenda (People’s Daily2005). When the Chinese government presented its medium- and long-rangescientific and technological development program (also referred to as the “15-yearplan”) in January 2006, it emphasized the importance of strengthening“independent innovation.” (SCPRC 2006) This term reflects the objective to reduceChina’s dependence on foreign companies’ R&D activities by increasing theinnovative strength of Chinese companies and researchers.7 Regarding the first-mentioned factor, recent studies have established that tolerance, diversity and opennessare important determinants of innovative capacity and high-tech growth (see for example Florida 2001).235
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ITPS, Swedish Institute For Growth
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The Swedish Institute for Growth Po
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