The Internationalization of Corporate R&D

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THE INTERNATIONALIZATION OF CORPORATE R&DGiven the dominance of telecommunications, software and personal computercompanies in foreign companies’ R&D operations in China, combined with the factthat in the 1980s and 1990s, R&D internationalization was largely limited to technology-basedmultinational companies, it is not surprising that the literature has focusedon technology-intensive companies establishing R&D labs. Previous studiesfound R&D investments to be concentrated within high-technology industries and,quite often, to be pioneered by “high-tech companies operating in small markets thatface a scarcity of resources in their home countries” (Gassmann & Han 2004, p. 424).Lately, however, a number of companies in sectors which would not be consideredhigh-tech are locating important R&D functions in China. In particular, a number offoreign-owned or foreign-invested product design centers have sprung up in theShanghai area. Philips, Sony, GM, Electrolux and Motorola are examples of companiesthat have established design centers in China, and a number of companies reportconcrete plans to do so in the near future. For instance, Warner Brothers recentlyannounced that it will move its global architecture and construction center fromLondon to Shanghai (AFP). While many design centers set up by foreign companies inChina are still primarily geared to service the domestic market, a growing number ofcompanies with design operations are attracted to China because it offers good andinexpensive designers. Some are also starting to view the Chinese market as strategicallyimportant, not only because of its size, but because it is a dynamic and rapidlychanging country that is assuming an increasingly significant role as global trendsetter.10.4.5 Growing R&D Activities by Swedish Companies in ChinaSo far, activities by Swedish companies in China have consisted mainly of production,purchasing and sales. In recent years, some Swedish companies have set up productdevelopment in China, and a few have set up research and design (see Figure 10-4).Ericsson, SonyEricsson, ABB, AstraZeneca and Electrolux are some of the Swedish orSwedish-related companies with at least one R&D facility in China. These four companieshave also begun to locate parts of their innovative R&D operations in China. Ericsson, forexample, has R&D centers in Beijing and Shanghai that carry out innovative R&D.SonyEricsson is developing mobile phones in their entirety at its facility in Beijing. ABBhas several R&D facilities. These four companies employ a total of between 1,000 and1,500 R&D staff in China. The figure is even higher if R&D employees contracted fromwholly owned Chinese companies are included. Some companies, such as Ericsson, are alsoreportedly planning a substantial increase in R&D employees in China in coming years(China Daily 2005b). IKEA plans to locate a global design center in Shanghai.About ten other Swedish companies (e.g. Volvo Penta, SKF and Sandvik) have productdevelopment for the Chinese market in China. So far, there is no clear indication thatSwedish companies are closing down R&D operations in Sweden or in other countries246
THE INTERNATIONALIZATION OF CORPORATE R&Din favor of locating R&D in China. A more important question, which is difficult toassess, is whether future expansion of R&D activities in China will occur at the expenseof expanding similar activities in Sweden.While Swedish small and medium-sized enterprises (SMEs) are increasing their activitiesand presence in China, R&D activities by Swedish companies are limited tolarge companies. This pattern is not surprising when considering that large multinationalcompanies dominate international R&D activities in general (see for exampleITPS 2005 and UNCTAD 2005b). At the same time, however, SMEs experiencespecific challenges when setting up operations in China (Schwaag Serger & Widman2005). As a result, it is important to examine the extent to which absence of SMEs’R&D activities is a reflection of difficulties encountered in China, and whether thisabsence has consequences for their ability to participate in, and benefit from, theinternationalization process in the long term.10.4.6 Drivers of Foreign Corporate R&D Activities in ChinaAs mentioned in Chapters 1 and 2, three key drivers determine companies’ decision tolocate R&D activities in a given country. The first is a supply of knowledge resourcesthat may be better or cheaper in some countries than others, or may be unique to aspecific country. The second factor is the intention to adapt products and services to thelocal market or to be near production facilities. A third reason companies might locateR&D to, for example China, is in response to political or institutional conditions (vonZedtwitz 2004). Examples of the third driving force include “local content” rules, lawsconcerning intellectual property rights. There are also national regulations that mayrequire foreign companies interested in setting up production facilities to also set upR&D facilities. And there are fiscal incentives as well.In the case of China, all three factors play a role in explaining foreign companies’ R&Dactivities in China. However, the relative weight of each factor is changing over time.This section examines the driving factors by combining results from published studieswith findings from interviews carried out with R&D managers and other experts betweenMay 2005 and January 2006.247
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The Swedish Institute for Growth Po
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