1. Science & Technology in China
Brussels
Science & Technology in China -
Some Issues
Prof. Dr. Max von Zedtwitz

2. China is Undergoing a Massive Economic Expansion
Fastest economic expansion ever!
CAGR 80-00: 9.6%
CAGR E: 7.8%
Real GDP
(US$ Bn)
Growth
Time period
2500
China’s 20 yr economic reform 7X
over 20 years
2000
Japan post WWII recovery 6X
over 25 years
1500
2nd Industrial Revolution
1000
3.5X
over 60 years
500
1st Industrial Revolution
2.5X
over 100 years
1980
1985
1990
1995
2000
2010E
Source: China Statistical Yearbook; BCG analysis

3. S&T is on the Agenda Increasing S&T literacy Shift towards Research
Intellectual Property Rights
Building competitiveness
… and many others!

4. China’s Agenda for S&T: Increasing S&T Literacy
R&D amount to about 1.5% of GDP in 2004, up from 0.7% in late 1990s
Annual growth rate of 15% between 1991 and 2002, far more than the average growth rate of Western economies (2-3%)
Expected focus of national innovation system:
Basic research
University expansions
National science foundation
Information and telecom infrastructure
Challenges
OECD countries, India will react (Japan has increased R&D to GDP ratio by 1% to 3.2% within a decade, too)
Only 5% of China has tertiary education: much potential (US: 37%, Europe: 24%), but also much to do to catch up

5. In China, Number of Graduate Students is Increasing Fast

6. Relative Share of Graduates from Different Faculties
Philosophy
Economics
Sciences
Engineering

7. China’s Agenda for S&T: Shift to Research
In many areas, China is still in the stage of external technology assimilation
However, foreign R&D activities are poorly integrated in the Chinese N.I.S.
Focus is on technology absorption and generation of production capacity
As long as markets are expanding, there is no need to invest in research and much incentive to spend on marketing, distribution, manufacturing competence
Assessment
Once external technology inflow subsides, necessary infrastructure of original innovation may be missing and may take a long time to build up (example: Japan)
Continued investment in production know-how
Withdraws talents from research
Establishes a path dependency with respect to sunk costs
Lenovo-IBM: Buy into a dying industry?

8. Foreign R&D Fairly Independent from Chinese Innovation System
Cooperation with Chinese Academies and Research Institutes
2003: 154 bn RMB (15 bn Euro) R&D in China
About 60% corporate, 30% gov’t R&D, 10% universities
About 380 R&D central gov’t labs and 4’000 labs in provinces
CAS, MOST, NSFC
Good infrastructure with respect to spin-offs and S&T parks/incubators
Problems:
Tsinghua, Fudan, Beida, etc.: Exaggerated expectations in terms of own value (still, costs per project comparatively low)
Most lack project management ability
Few professors speak English
Loss of IP(?)
No brain drain observed in MNC – CAS collaborations
MNCs get little sponsorship from NSF or MOST programs
Little spill-over (training, etc.) observed (Wang 04, Yuan & Lu, 05)

9. Relevance: Why is China attractive for Foreign R&D?
Majority of foreign R&D sites established for market reasons
China a potential market of 1.3 billion customers
Growing wealth of Chinese population
Fairly inaccessible local science and technology
National R&D intensity: about 1.5% (advanced countries: about 2+%)
Increasing number of Chinese patents and Chinese papers
Total of 743’000 scientists and engineers annually (second worldwide)
WTO and domestic reforms (IPR, law enforcement, VC, etc.)
Bright people available for good price
BEA Systems, 2002: First ever int’l R&D site in China
LG, 2002: Largest int’l R&D site in China
Motorola, 2003: 18 R&D labs in China
PRC Gov’t, 2005: 700+ R&D centers in China

10. Rise of Foreign R&D Labs in China
‘87
‘88
‘89
‘90
‘91
‘92
‘93
‘94
‘95
‘96
‘97
‘98
‘99
‘00
‘01
‘02
‘03 2 4 6 8 10 12 14 16 18 20 22
# of R&D labs / year
STS (2003) and own research

11. Foreign R&D Location in China
Development in Shanghai
Historic reasons (also, more expats)
Close to customers & production
Fast-paced
Central location
Research in Beijing
Standardization and decision-making bodies
> 100 universities
Cluster vs. crowding-out effects
But: Decision to be made case by case: account for industry and R&D focus (e.g., Pharma, TCM  Shanghai; IT, Genetics  Beijing) 1 78 1 8 1 4 9 61 2
Anzahl Fragebogen: 30 Stück, davon vom Konsortium ausgefüllt: 8 1 1 9 5
Zedtwitz (2004): R&D in China. R&D Mgt
Ch-11

12. China’s Agenda for S&T: IPR Management
Traditional attitude to art and craftsmanship promoted copying of old masters
“To Steal a Book is an Elegant Offense”
Useful for diffusion of technology, but not necessarily for invention
Although China has been home to a large number of important inventions, few were protected by any legal institutions (such as IPR)
The current record of IPR in China shows weak incentives for invention
Assessment
Problem is mostly with respect to IPR enforcement, not law
Foreign MNCs are considering to retreat cutting-edge technologies and investments unless IPR situation improves
As some Chinese companies develop into technology companies they too will be unable to reap the benefits of their work

13. Domestic and Foreign Patent Applications in China
Ref: Hu and Jefferson (2005)

14. Increasing Number of Patent Applications

15. China’s Agenda for S&T: Building Competitiveness
The origins and mainstay of Western multinationals lie in their ability to develop unique technological capabilities (eg, Microsoft, Merck, Shell, Siemens, etc.)
International success is tied to innovative capacity and the ability to stay abreast of latest technology (R&D, NPD)
Assessment
Western and Japanese firms have built up international innovation organizations around a core R&D center
Only a handful of Chinese companies have started to do so
Main limitations:
Lack of international experience: no global managers, lack of English
Lack of R&D experience: no R&D expertise, no R&D currency
No cost advantages abroad: int’l R&D comparatively expensive
Most companies still young and small: focus on short-term, not R&D

16. Strong R&D  Basis for International Competitiveness
Why a Chinese firm would internationalize R&D:
Access to local technology and market intelligence
Hiring foreign experts
Developing a global image
Supporting local sales
Example Haier:
R&D in Qingdao, Beijing, Guizhou
R&D in Hong Kong (SAR), London, Silicon Valley, Sydney
#5 white-goods company worldwide
Competes & cooperates with companies like Siemens, Whirlpool, GE
 A necessary (for some) but painful process!

17. Chinese R&D, Globally Dispersed40
Zedtwitz (2005): R&D from Developing Countries. UNCTAD

18. Questions?

19. Recent References
von Zedtwitz, M. (2004): Managing Foreign R&D Labs in China. R&D Management, Vol. 34, No. 4,
von Zedtwitz, M. (2006): Connecting Science to Innovation: Managing R&D on a Global Scale. Edgar Elgar: Cheltenham.
Gassmann, O.; von Zedtwitz, M. (2003): Trends and Determinants of Managing Virtual R&D Teams. R&D Management, Vol. 33, No. 3,
von Zedtwitz, M.; Gassmann, O. (2002): Market versus Technology Drive in R&D Internationalization: Four different patterns of managing research and development. Research Policy, 31, 4,
von Zedtwitz, M. (2003): Initial Directors of International R&D Laboratories. R&D Management, Vol. 33, No. 4,
Fischer, W.A.; von Zedtwitz, M. (2004): Chinese R&D: Naissance, Renaissance, or Mirage? R&D Management, Vol. 34, No. 4,
Boutellier, R.; Gassmann, O.; von Zedtwitz, M. (2006): Managing Global Innovation - Uncovering the Secrets of Future Competitiveness. 3rd ed. Springer: Heidelberg