The Internationalization of Corporate R&D

THE INTERNATIONALIZATION OF CORPORATE R&DSummaryThe following quote by an executive with a long business experience in China succinctlysummarizes the development of foreign companies’ R&D in China: “Initially,firms located R&D here because they had to. But once they were here, theyrealized how attractive it was for them to do R&D in China.”Thus, government policy of “encouraging” or effectively demanding technologytransfer in return for access to the Chinese market played a key role in initiallygetting companies to establish R&D centers in China. This seemingly “bitter pill”was sweetened with generous tax and other incentives for foreign companies settingup R&D operations in China. Government policy still plays an important rolein some industries. However in recent years, the importance of government policyhas waned. It has been replaced by a combination of factors (e.g. proximity to productionfacilities, a large market, and human capital) that constitute a strong argumentin favor of foreign companies’ establishing R&D in China.Several aspects make China a unique case. First, low production costs and the domesticmarket coincide to make China a highly attractive location for production.Second, and in addition to these two factors, China offers a competitively pricedand abundant pool of highly skilled labor. The combination of these factors meansthat companies, or industries, can either locate or have access to the entire valuechain of their product in one, albeit large, country. According to several interviewees,it is the combination of these factors that makes China attractive for purchasing,production, distribution and R&D.10.4.7 Limited R&D Activities by Chinese Companies AbroadChinese companies have relatively limited international R&D activities. Maximilianvon Zedtwitz (2005), examined eleven Chinese companies – all leaders in their industryin China – and found that six of them operated international R&D units. SomeChinese companies acquire international R&D centers through the purchase offoreign companies. Examples are computer manufacturer Lenovo, which “acquired”R&D centers outside China through purchase of IBM’s PC business, and consumerelectronics producer TCL through its merger with French counterpart Thomson. Afew Chinese companies have set up their own R&D centers abroad. Thus,telecommunications companies ZTE and Huawei recently established R&D centersin the Stockholm region.The most likely reason for Chinese companies to set up R&D in developed countriesis to source foreign technology. In contrast, when Chinese companies establish R&Dcenters in developing countries, the main reason seems to be market-oriented R&D(von Zedtwitz 2005). Furthermore, a number of large Chinese companies are still254