The Internationalization of Corporate R&D

THE INTERNATIONALIZATION OF CORPORATE R&DRecently, there has been growing criticism of China’s strong focus on investment,including its policies for attracting FDI. China’s FDI policies are seen to be effectively“tilting” the playing field in favor of foreign and foreign-funded companies (see forexample China Daily 2004, and Prasad & Wei 2005). Some observers claim thatIndia’s less aggressive promotion of FDI, and its “favoring [of] domestic investmentover foreign,” has allowed the development of domestic companies that can now competeon the international market (The Economist 2005b). Economists are starting toquestion whether China’s policies aimed at promoting investment are beneficial forChina’s long-term economic development and prosperity. The debate over the benefitsof preferential investment policies is partially connected to concerns about growinginequalities and accusations that China’s growth has benefited a small minority at theexpense of the vast majority of people. Kuijs and Wang argue that:...reducing subsidies to industry and investment, encouraging the development ofthe services industry, and reducing barriers to labor mobility would result in amore balanced growth and a substantial reduction in the income gap between ruraland urban residents (Kuijs & Wang 2006, p. 1).China’s dependence on foreign companies for production and export of high-technologyproducts is also identified as an example of its “unhealthy” reliance on externaltechnologies. Companies with either whole or partial foreign ownership accounted for57 percent of China’s total exports in 2004 and 58 percent of total imports, in valueterms. Their share of national industrial outputs has increased from 2 percent in 1990 to32 percent in 2004 (Invest in China website). Foreign companies also dominate exportsof high-technology goods. In 2003, these companies accounted for approximately 80percent of China’s total high-tech exports (NRCSTD 2005).10.3.3 Strategic Factors Drive Chinese Outward FDIOutflows of FDI from China are still modest. According to UNCTAD, outflows onlyamounted to 1.8 billion dollars in 2004, or a mere 0.2 percent of total FDI outflowsworldwide, and 2.2 percent of developing countries’ outflows. Between 2001 and mid–2005, according to China Daily (2006), Chinese companies completed 103 outboundMergers and Acquisitions (M&A), most of which were in minerals, natural resourcesand communications industries.Chinese FDI outflows have been driven primarily by China’s highly raw-material andenergy-intensive economic growth and, consequently, by the need to secure access tonatural resources and energy (see Zweig & Jianhai 2005 and Financial Express 2004).As a result, some of China’s FDI outflows in recent years have been directed at countriesrich in natural resources, (e.g. Africa, Latin America, Central Asia and the MiddleEast). Examples are Sinopec’s one billion dollar deal with Brazil to build a gas pipeline,Shanghai Baosteel’s 1.4 billion dollar joint venture with the Brazilian steel pro-241