China’s Transition to Technology Creation: Challenges for Foreign Companies

By Dominique Jolly, Bruce McKern and George S. Yip

In this article the authors discuss the findings of their research into Research & Development centers set up by foreign companies in China, analysing their motivation, goals and challenges.

 

Despite the emergence of formidable Chinese competitors, there are still, surprisingly, major foreign companies that have no R&D centre in China, or only a few of their total R&D staff based there. These companies may be missing an important shift in the global competitive game. The Chinese system of innovation is now firmly on the world R&D map. All the necessary ingredients have been created: leading research universities, world-class public research centres, modern science and technology parks, a growing concern for intellectual property rights (as more and more Chinese companies need to protect their innovations) and a surge of companies investing in R&D. The Chinese share of the world’s top scientific papers is growing every year. As a result of all these investments, China has lodged since 2011 the world’s highest number of applications for domestic invention patents. In fields such as telecommunications equipment, photovoltaic panels or even construction equipment, China is now a recognised leader for technology creation.

Foreign companies that are not active in R&D in China are missing opportunities for innovation with applications not just in China, but globally. What can they do to benefit? What should be their driver for implementing R&D activities in China? Our research indicates that knowledge-driven R&D should be the target in many business sectors.

 

Our Research   

We studied 50 R&D centres established by foreign companies in China, mostly American and European, but also some Asian, operating in a range of sectors: chemicals, pharmaceuticals, automotive, IT, and others. A few of the R&D centres of our sample were launched more than 10 years ago. But most of them were set up in the last ten years. The large number of staff hired by those entities shows that those strategies are no longer incidental, but quite deliberate: 10 out of 50 have more than 1,000 employees; 25 have between 100 and 1,000 employees; only 15 have fewer than 100 employees. These entities are no longer simple support teams for factories and/or customers; they are true centres for research and development.

 
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Dominique Jolly is a Professor at Webster University in Geneva, and Chair of the Walker School of Business & Technology.

 

Bruce McKern is a Visiting Scholar at CEIBS and former Co-Director of its Centre on China Innovation, former Visiting Fellow at Stanford University’s Hoover Institution, and Visiting Research Fellow at Oxford University and INSEAD.

George S. Yip is Professor of Strategy and Co-Director of the Centre on China Innovation at China Europe International Business School (CEIBS) in Shanghai. He is also Professor of Marketing and Strategy at Imperial College Business School in London.

Yip and McKern are the co-authors, and Jolly is a contributing author of China’s Next Strategic Advantage: From Imitation to Innovation, The MIT Press, April 2016.

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