Media Release. MNC R&D Landscape: A China Perspective

Transcription

1 Media Release MNC R&D Landscape: A China Perspective This report is solely for the use of client and personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from

2 Overview 1 SCOPE This report is intended to provide an overview of the MNC R&D landscape in China More specifically, the report maps the evolution of R&D in China, how it compares with India and the following key trends in the local R&D ecosystem: Continuous growth of MNC R&D centers in China Emergence of Tier-2 locations as new centers of growth Rising competition for MNCs from domestic Chinese firms Change in innovation philosophy of MNCs in emerging geographies Expansion of work portfolio by MNCs in China Diminishing cost arbitrage advantage for MNCs in China In addition the report looks at the role of the government for the rising R&D investment in the region CONTENTS The current document is a preview to the complete study and covers the evolution history of R&D in China with focus on 2 key trends: Growth of MNC R&D centers & Emergence of new locations for R&D in China

3 China has evolved as a premier destination for R&D offshoring in the last few decades 2 Evolution of R&D Globalization in China Pre-Historic Era Reforms Era Exploratory Era Expansion Era : : Early Mid 1990s: Late 1990s 2000: China adopts Soviet S&T System and signs Sino-Soviet Treaty of Friendship, Alliance & Mutual Assistance R&D initiatives in Defense & Heavy Industries begin : Sino-Soviet Split in 1960s Over dependency on Soviet aid & technology gives major setbacks to Chinese R&D Cold War limits technological aid & trade sanctions Political Instability & radical steps by Mao disrupt growth of R&D Reforms in Economic, Legal and Education fields, foreign trade and import of Science & Technology (S&T) from West In 1979, Deng Xiaoping signs a bilateral agreement on S&T cooperation with US, which is renewed every 5 years henceforth 1979, Special Economic Zones introduced in Fujian & Guangdong entry of low-tech & light industry Program 863 launched in 1986 concentrating on basic & applied research in 8 key areas Torch program launched in 1988, 53 High Tech Development Zones launched MNCs setup China centers as a test case for R&D off-shoring Most of these centers involve local partners in technology transfer for leveraging tax & other financial benefits Mid Late 1990s: Booming IT sector and Inter firm competition for R&D forces MNCs to look for market expansion Number of Joint Venture firms in China for R&D gradually increase Work profile is localization of products than creation of new More D (development) than R (research) Mature stage for MNCs with successful test cases Growing global competition for international R&D 2001 Current: In 2006, Introduction of National Medium & Long term program for S&T Development China plans to invest 2.5 percent of its GDP in R&D by 2020 from 1.45 percent in 2006 By the end of 2008 multinational corporations had established over 1,100 R&D centers in China from all the industries Despite downtime, China added 200 new centers between 2009 to March 2011 Source: Ministry of Commerce (MOFCOM), China; Ministry of Science & Technology (MOST), China; National Bureau of Statistics (NBS); Analysi

4 Though offshoring of R&D to China started way back in 90s, recent trends indicate that the landscape is currently undergoing a paradigm shift 3 a Continuous growth of MNC R&D centers Government Influence Expansion to secondary locations to perform R&D b f Diminishing cost arbitrage advantage Key Trends Rising MNC competition with domestic Chinese firms c e Maturity and expansion of work portfolio Government Influence Transformation & innovation in R&D d Source: Primary interviews with stakeholders, News aticles, Analysis

5 a One of the key contributors to the rapidly evolving R&D landscape in China is the phenomenal growth of MNC R&D centers in the last decade 4 1,400 1, MNCs 1300 R&D Centers MNC R&D Centers* in China (Till 2011) ,100 1, , Before '00 01-'02 03-'04 05-'06 07-'08 09-'11 Total Number of MNC R&D Centers (till March 2011) Number of New MNC R&D Centers (till March 2011) 0 Microsoft, Fujitsu, Ericsson, Intel, Nortel Samsung, Motorola, Panasonic, Toshiba, TI Cisco, Broadcom, IBM, Electrolux, Logitech nvidia, EMC, Nokia, Kronos, McAfee ARM, British Telecom, SanDisk, Avaya Yahoo, BMW, Eli Lilly, Foxconn, Esri Of the Fortune 500 companies worldwide, over 400 already have R&D centers in China Note: *A company can have more than one R&D centers Source: Economist Intelligence Unit (EIU); Ministry of Commerce (MOFCOM), China, Newspaper Articles; Analysis

6 a Growth in MNC R&D centers is being significantly driven by Global top 1000 R&D spenders who have shown increased interest in extending their presence in China Distribution of MNCs Having R&D Centres in China in Comparison to World s Top 1,000 MNC R&D Spenders, China 620 World s Top 1,000 R&D Spenders 700 China 704 World s Top 1,000 R&D Spenders Number of MNCs: Number of MNCs: There is an increasing interest of the top global R&D spenders in the China domestic market opportunities, abundant talent pool, quality infrastructure and government support These companies are working on an in China for China strategy along with a global focus of their R&D centers Some of the recent entrants include Yahoo, Toyota, Eli Lilly, Volvo etc. Source: EIU; Ministry of Commerce (MOFCOM), China, Analysis

7 Number of Centers a MNCs in China have increased their R&D presence not just through opening new centers but by also increasing the headcount in existing setups 6 Distribution of MNC R&D Centers in China by Headcount Range The R&D centers are gaining in head count growth over the years and are slowly building up a mature talent pool. Ex. UTStarcom, Infineon Technologies, NEC etc. This group represents firms who have over the years have accumulated the best of the talent from China and have increasingly grown with a fast pace in headcount year over year. Eg. EMC, Microsoft, IBM, Bosch, Nortel etc. 80 Average Headcount Per Center (2008) = Average Headcount Per Center (2008) = Headcount Range Source: Primary Interviews, Company web sites and press releases, News Articles, Analysis

8 b China is witnessing rapid expansion of secondary locations as these are increasingly becoming viable for MNCs to set up their R&D centers 7 Growth Drivers for Emergence of Tier-2 Cities Tier-1 locations Established secondary locations Emerging secondary locations Cost arbitrage over tier-1 Cities Improved R&D infrastructure Improved rail-road connectivity Concentration of industries Economic and cultural development Availability of talent pool Incentives given by the local governments 20-30% saving in total cost Suzhou and Chengdu have one of the largest high tech parks in China China has the world s longest HSR 1 Wuhan-Guangzhou HSR etc. Wuxi: Microelectronics Shenzhen: Infocomm Products Suzhou is the second biggest industrial city after Shanghai About 50% of the installed talent pool of MNC R&D centers is in tier-2 cities In addition to the waiver of Corporate taxes Local taxes (about 3%) are exempted in Shenzhen, Wuxi etc. China Electronics Chengdu Telecom Xi an Chongqing Software Guangzhou Dalian Beijing Tianjin Suzhou Nanjing Shanghai Wuhan Wuxi Hangzhou Fuzhou Xiamen Shenzhen IT Electronics Infocomm Note: 1 High Speed Rail Source: Ministry of Commerce (MOFCOM), China Primary Interviews, Company web sites and press releases, News Articles, Analysis

9 Per Cent b Secondary locations now account for nearly half of the total number of MNC R&D center establishments 8 100% Headquarter Location Wise Distribution of MNC R&D Centers Across Key China Locations (2011) China Location ROC 75% Dalian Chengdu 50% Suzhou Guangzhou 25% Shenzhen Beijing Shanghai 0% US (54%) Headquarter Location EU (28%) Japan (9%) SEA (6%) ROW (3%) Source: Ministry of Commerce (MOFCOM), China, News Articles, Analysis

10 Additional Information 9 The current document is a preview to the complete study and covers the evolution history of R&D in China with focus on 2 key trends: Growth of MNC R&D centers & Emergence of new locations for R&D in China The full report provides information on other key trends in the MNC R&D landscape in China including Rising competition for MNCs from domestic Chinese firms Change in innovation philosophy of MNCs in emerging geographies Expansion of work portfolio by MNCs in China Diminishing cost arbitrage advantage for MNCs in China In addition, the role of the government in driving R&D investment in the region is analyzed Full report on China MNC R&D landscape can be accessed at s Global Location & Talent Pool Portal. Sign up today for a free trial account Or, us at info@zinnov.com

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