More Stimulations for MNC R&D Center, or for Assoeted R&D Activities Leng Min (Institute of Policy and Management, CAS) Global R&D in China, May 28-29,2005 from personal observation and practice

1. Chinese Government’s Attitude towards MNC Establishing R&D Centers (1) earlier stage: The founding of Microsoft Research China (1998) is an important event for the development of MNCs’ R&D affiliates in China. From then on, proprietary R&D Centers began to dominate Chinese-foreign equity or contractual joint venture types. Chinese official authority organized the second investigation, worrying about that intelligence outflows would hit the national R&D system. —“R&D organizations and proprietary technology developing of our country are facing challenge and pressure with aspect of market and talents competition because foreign sponsored ones boast advantages of funds, equipments, technology, talents and management experience”. （ Wu,1999 ）

(2) Current stage  MOST shows a very positive attitude toward MNC establishing R&D affiliates.  The National Development and Reform Commission and Department of Commerce list R&D affiliates as favored item in the newly revised Industry guidelines for foreign direct investment (2004).  Provincial governments are soliciting MNCs to site their R&D affiliates and regional headquarters there by offering supports in land, utilities construction, taxation and funds.

2. “bystanders” : foreign R&D facilities in Chinese National Innovation System (1) “Brain Drains” between CAS and MNCs The expected Brain drains between AI of CAS and Microsoft Research China didn’t happen. Microsoft Research China cooperated with universities and institutes and recruited talent graduated doctors. ThinkIT laboratory: The mass employee resignation from the MNC and joining CAS is an exception and not typical for future trend. I got some information that MNCs rarely participated in programs either sponsored by National Natural Science Fund or planned By the MOST.

(2) MNCs’ cooperations in industry technology development of China.  Chinese Industry Technology Standards:their participation and contribution are not much in AVS, TD-SCDMA and IGRS.  R&D partnerships co-founded with Chinese communication enterprises such as Huawei and Zhongxing are basically insignificant.

（ 3 ） Spillover effect. It’s not as well as expected for FDI enterprises to promote technology association(Wang,2004). Non-state enterprises managers’ training directly from FDI enterprises is not obvious(Yuan and Lu, 2005).

（ 4 ） Summary  MNCs and their R&D affiliates are in a self-dependent and close state in Chinese National Innovation System.  Players from Taiwan are just alike.

3. Is cost the determining factor in MNCs’decision making for siting of their R&D Centers (1)Taxation: Policies oriented toward R&D centers may not be effective. The decision-making is controlled by their global headquarters.Marketing strategies rather than overheads takes priority in their considerations. Conclusion from McKinsey:“Goverments all over the world are trying to attract FDI through costly taxation and tariff reducing and land and power subsidy.But according to our investigation, it’s unfruitful.” Regions are competing to promote FDI and policies are imitated. With integration of domestic and foreign taxation, local government manipulation is less possible. Points from personal review with Dr. Wenke and my personal experience in Ningbo when I was responsible for introduce R&D Centers and Hi-tech projects to the city’s S&T Campus can support the idea.I successfully introduced a IC design center but failed in introducing any MNC R&D Centers.

(2) Is the Salary level in R&D Centers reflecting China’s labor cost advantage? A Graduate from Peking University received very high monthly salary after his internship in the Microsoft institute, exceeding the level of employees of Chinese universities, institutes and high-tech companies. Wuhan, Xi’an and Chengdu where salary expectaion is far lower have not clustered more MNCs’ R&D affiliates.

4. Conclusions and policy implications (1) Three judgements MNCs choose regional economy center to site their R&D Centers. The number of R&D Centers ranks according to the city’s economic position in the nation. Investments or headquarters in some regional economy center will help an R&D affiliate establishing there. Policies given by local government are not as attractive compared with the size of the industry sector and R&D advantage of that region. Local peer enterprise with size of economy and competent R&D will attract MNCs’ cooperation and help the establishment of R&D Centers.

(2) some policy implications for Nanjing To build a more open and more active social and economical environment. Investment environment improving, internalization and high level of education envrionment will be important.. Clustering effect of R&D activities suggest that to attract peer MNCs must rely on own industry advantage and R&D competence. It’s urgent for government to stimulate enterprises of all types to undertake R&D activities rather than weigh one type more than others.