Pages Navigation Menu

Foreign R&D in China

Foreign R&D in China

With the growth of the China economy and the advent of China’s Indigenous Innovation Policy, one might expect the foreign investment in Chinese R&D to be declining. In fact, quite the opposite. More and more investment funding is entering into China for a few key reasons. First, there’s still a pretty good return on that investment compared to alternatives. While some of the more high tech and software focused research remains clearly outside of China, keys areas like agriculture and rail transportation and alternative energy are well funded and driving significant results in China. The trends and expectations suggests that China will be on par with the US in terms of R&D spending per GDP by the end of this decade. How is this incentivized and governed in China.

While the past few years may have seen the rate of foreign direct investment in China level off, the level is still significantly higher than that of nearly every other country in the world.  In 2010, US firms invested the same amount of money in China as they did in all of EU combined.   There’s little doubt that there will be increasing R&D investment in China in the coming years.   There are two key factors driving this investment.  The first is the rapid domestic growth in China and the need to understand the market here.   While some high tech firms will be able to rely on developed markets for the bulk of both their revenue and profit over the coming decade, most companies will need to tap deeply into emerging markets like China and India in order to survive.  Those that do not, risk shrinking margins and top line growth estimates and potentially market value.   Those that understand how to deliver real value in emerging markets and capture share will win the day.   Many companies believe that it important to be in China (or India) to understand how to deliver the right solution(s) for that market.   The second reason to invest in local R&D in China is simply the “availability of capability”.  Part of this is talent, but a larger part is material sourcing, access to funding sources, channel access to market, and business practices knowledge.   All of these are significantly improved through local R&D efforts on the ground in China, as setting up even modest R&D capability in country establishes a firm at a new level in the eyes of both the government and the public. …Read more

404