Globalization of R&D: Trends of Foreign ICT and Biotechnology Firms in India and China Swapan Kumar Patra Centre for Studies in Science Policy School of Social Sciences Jawaharlal Nehru University New Delhi-110067 INDIA
Why this topic• Highlighted in scholarly journals and media report• Similar but quite dissimilar NIS• Some studies in 1980s and 1990s but no systematic study in the last decade.
• Not a new phenomenon started with long distance trade, exploration & conquest• Globalization • 1.0 Focus on country • 2.0 MNEs become the dominating force • 3.0 MNEs from developing world (Friedman 2005 ) IBM acquisition by Lenovo Jaguar & Land Rover by Tata Motors (Globalization3.0)• Large MNEs are the main actor/driver of globalization (Freeman 1995 )• Usually, among many other corporate functions, offshore R&D by multinationals is usually considered to be the one of the last corporate functions to internationalize in the value chain (Mansfield 1979).• Scattered manufacturing units in different offshore locations to take advantage of skilled work forces, cost differences and quality factors of production• FDI to merger & acquisition (Brownfield investment) and green field investment. Even the most strategic of corporate functions, (R&D), is now a target of companies globalization efforts
Science and Technology Indicators Report OECD (1990)Science and Engineering Indicators United States National Science BoardMNEs account for at least• 46% of total R&D expenditures in the world• 69% of business R&D expenditures in the world• The R&D expenditure of some MNEs is higher than that of many countries (WIR 2005)MNEs from developing economics have19% of cumulative stock market share of 1,000 global companiesAmong 1,000 top stock market capitals 221 are from developing countries (Ernst &Young 2008)
Phases in internationalization of R & D Source: Hedge & Hicks, 2008, Reddy 2000, Neosi, 1999Period Overseas R&D function Facilitating factor DriversFirst Wave up Very little R& D abroad To capture new Based on clients’ needto 60 marketSecond Wave Market customization Learning to operate Increasing demand by60’s to 80’s abroad foreign customerThird Wave Listening post Decreased Industrial &80’s-90’s communication costs technology strengthFourth Wave Sources of innovation Increased variety in S&T,90’s till date Incremental innovation means of Knowledge base Multi-product innovation communication human capital Frontier Innovation Proximity to manufacturing & to industrial customers
Internationalization of R&D -One way interaction between patent and subsidiary -Technology transfer units -Limited to product adaptation to local markets -Mainly restricted to developed countriesGlobalization of R&D -Two way interaction -Global production units -MNEs subsidiary are important for headquarter -Globally disperded particularly exploiting knowledge based in developing countries (India and China)
Evolution of R &D Type & StructureAuthors Variables TypesRonstadt (1977) Location of R&D Transfer Technology Units (TTUs) and market of Indigenous Technology Units (ITUs R&D Result Global Product Units (GPUs) Corporate Technology Units (CTUs)Bartlett & Locality and Central InnovationGhoshal (1989) intended market of Local Innovations R&D activity Locally Leveraged Innovation Globally Linked Innovations
Gassmann & the quest for 1. domestic research and domesticvon Zedtwitz external science development: national treasure(2002) and technology, R&D; new markets and 2. dispersed research and domestic new products development: technology-driven R&D; 3. domestic research and dispersed development: market-driven R&D; 4. dispersed research and dispersed development: global R&D.Present Foreign R&D Market demand basedscenario directed towards Technology based developing Human resource availability at lower countries specially cost India and China Strong Knowledge base in developing countries
•MNEs have increasingly internationalized R&D since the 1980s•Internationalization might more appropriately be characterized as‘triadization’ as most R&D investment flows are within the Triad•Recently R&D investment into developing and transition countrieshas increased•Today, R&D units abroad have broader missions and mendate ofmore than the technology transfer unit or local sales supportactivities•Both the quantity (expenditure, investment, personnel) and quality(mandate, functions, organization) of R&D establishments abroaddiffer considerably with the sector, home country, host country,technology base, and even companies.
Research QuestionsQ:What are the motivating factors of foreign firms to locate their R&D centre in India and China?Is there any preference in particular location and what are the factors?Q: What is the structure of foreign R&D units in India and China? Are they doing adaptiveR&D and a Technology Transfer Unit? Or doing higher order R&D? Is the typology fit into theexisting typology already developed by scholars in the field or a new typology coming up which will besignificantly different from the existing typology? Are foreign R&D centers evolving with the time?How they are changing in terms of expenditure, manpower and products?Q: How the ICT and biotechnology sectors firms, are embedded with the local innovation system ?What is the knowledge scouting process and who are the possible actors and with whom foreign firmsare interacting with?Q: What is the latest corporate R&D strategy? Are foreign firms going more towards openinnovations? Who are the partners?
Summary of hypothesisGrowth, Location & MotivationTrends in internationalization of R&D,Type of R&D units,Input indicators (R&D Manpower, R&D expenditure)Output indicators- Publication and Patenting trendsNew product announcementLinkages, Spillovers
MethodologyFirst PhasePilot study --India 471 with 647 R&D units --China 287 firms with 516 R&D units News paper report (The Hindu Business Line, Times of India, Economic Times, Business Standard, China Daily, Xinhua, US-China Business Council report) Lexis-Nexis DatabaseSecond Phase Firms in high technology sectors (ICT and BT )selected based on the following criteria --in fortune 500 list -- more than 1000 global patent till 2010 --have publication activity --data availabilityThird Phase Interviews conducted in selected firms in Beijing, China and New Delhi, India
• This is not a firm level analysis• It is adopting S&T policy macro analysis; scientometrics indicators;• Innovation studies literature• Case studies Study is undertaken with a number of limitations time, data availability, field visit to China and language
Motivation for setting up of R&D centre in Health Care sector Cause Factors India (n=35) China (n=22) Talent Technology-driven (pull) 11(32.3%) 7(31.8%) Local Market Market-driven 10(29.4%) 9(40.9%) Cost effective R&D Cost-driven 7(20.5%) 2(9.0%) R&D Capability building Innovation-driven (push) 6(17.6%) 8(36.3%) Local Partner Technology-driven (pull) 6(17.6%) 5(22.7%) Particular location advantage Technology-driven (pull) 6(17.6%) 4(18.1%) Global Market Market-driven 4(11.7%) General Expansion Innovation-driven (push) 4(11.7%) 2(9.0%) IPR regime Policy-driven 3(8.8%) Infrastructure Innovation-driven (push) 3(8.8%) 4(18.1%) Diversified population Innovation-driven (push) 2(5.8%) - Competition Technology-driven (pull) 2(5.8%) 1(4.5%) Shorter Product Life Cycle Market-driven 2(5.8%) 3(13.6%) Government Support Policy-driven 2(5.8%) 4(18.1%) Local Customer support Market-driven 1(2.9%) 5(22.7%) Low cost clinical trial Cost-driven 1(2.9%) 2(9.0%) Near Manufacturing facility Production-driven 1(2.9%) 2(9.0%) Cost effective Raw material Cost-driven 1(2.9%) Others 1(2.9%)
• ---Mr Joseph Hogan, President and CEO of the GE Healthcare, said, India, is no longer viewed for cost arbitrage but for its vast pool of talented engineers. "Today India has the best talent and this is where we have to be," (2009).• --The companys decision to set up the R&D centre in India is due to the availability of a pool of educated scientists who are capable of providing R&D output faster at a lower cost Nektar Therapeutics (India), (2009).• --"We found a pool of high-quality engineering talent available in Hyderabad and thats why weve chosen it as the location for our new research and development centre," explains Adrian Hartog, chief tecCTO and senior vice president, consumer business unit, ATI Technologies, Inc. (2007)
Patents and publications of Software & Services Industry group firms*Name Total India China India China Publication Publication Publication Granted Granted Applied Applied Global India ChinaAdobe 988 39 - 6 - 168 4 4Cadence 789 25 2 14 1 626 26 8IBM 58,840 453 136 606 484 52,866 175 216Microsoft 16,771 99 790 340 1376 6,177 109 1,178Novell 467 32 - 15 - 47 5 2Oracle 1,345 73 3 241 17 785 12 18SAP 1,546 51 13 53 37 209 1 2Unisys 2,482 - 2 - 354 4 0Yahoo 750 33 1 103 5 494 20 9 *USPTO & WoS data till 2010
US Patents Granted & Applied from India and China in Pharmaceuticals Sector* Global Granted Granted Applied Applied Patent from from from from ChinaFirms Granted China India IndiaAventis Pharma 18,599 4(0.02%) 63(0.33%) 0GE Medical Systems 1,901 35(3.2%) 41(3.75%) 13 12Novartis AG 15,811 6(0.03%) 32(0.20%) 2 8AstraZeneca 2,650 2(0.07%) 15(0.56%) 13 3Bristol-Mayers Squibb 2,811 1(0.03%) 7(0.24%) 1 1Pfizer 3,898 8(0.20%) 7(0.17%) 0 2Johnson & Johnson 11,908 13(0.1%) 7(0.05%) 2Abbott Lab 3,186 0 5(0.15%) 0 0Bayer AG 14,308 35(0.24%) 4(0.02%) 4 6Merck & Co. 5,659 8(0.14%) 4(0.07%) 1 0Wyeth 10,000 3(0.03%) 4(0.04%) 4 0Novo Nordisk 1,086 0 3(0.27%) 0 4Eli Lilly 4,055 0 1(0.02%) 2 0*USPTO data till 2010
Co-relation matrix of patent output of Pharmaceutical firms Global Global India India China China Patent application grant application grant applicationGlobal patent 1 Global application .877 1 (**)India grant -.475 -.461 1 India application -.413 -.574 -.128 1 China Grant -.633 -.818 .033 .492 1 (*) (**)China applications .057 -.407 -.757 .589 .511 1
Not only adaptive R&D – some examples• GE’s John F Welch Technology Centre in India houses more than 2,000 technical staff• Eli-Lilly, Sanofi-Aventis, Novartis etc do clinical trials in India• India has about 84 United Stated Food and Drug Administration (USFDA) approved manufacturing facilities. It is the largest number of manufacturing sites outside the US. Indian pharmaceutical firms apply about 35 per cent of Drug Master File applications and 25 per cent of all Abbreviated New Drug Application filings in FDS. Presently, 1 percent of global clinical trials are conducted in India, but it is predicted that in a couple of years it will reach up to 10 percent.
Open Innovation- A new paradigm for global innovationFirms are tapping knowledge from both institutes of scientific excellence(Universities, Research Institutes) along with their own research and developmentcenters across the worldEli Lilly, Eli Lilly is transforming form an independent research and developmentpharmaceutical company (FIPCo) into the pharmaceutical research and development cooperationnetwork (FIPNet) modeJohnson & Johnson Paul Stoffels, M.D., Global Head, Pharmaceutical Researchand Development, Johnson & Johnson said “By establishing our R&D headquarters inShanghai and using a networked, open innovation model through which we work collaborativelywith universities, research institutes and companies, we are ensuring that we are part of Asia’sgrowth as a research leader
Foreign firm’s collaboration trends with different actors in India and China
Spillovers :Example of Spin off firmsName of the person Spin off firm Parent companySrini Koppolu Setu Software Systems MicrosoftJA Chowdary, Mojostreet NVDIASharad Sharma Brand Sigma YahooBala Parthasarathy Snapfish HP LabRamesh D. Grover CMS Group of companies IBMMr S Ramadorai CMS Group of companies IBMMr Varun Prasad CMS Group of companies IBM
Technology Transfer – Few Examples• Hindustan Semiconductor Manufacturing Company (HSMC) has tied up with Infineon, the fourth largest semiconductor company in the world, for technology transfer (2007)• TCS’ multi-million euro deal with Nokia Siemens Networks indicates a very significant climb up the IT service delivery value chain for the former (2008).•• Nokia Siemens Networks has transferred its radio R&D arm in Berlin, Germany, to Wipro Technologies (2007)• AMD has established a close relationship with key Chinese government organizations by transferring key x 86 microprocessor technologies and helping China develop its own supercomputing capability (2009)• Nortel Networks concluded a technology transfer agreement with one of its largest and most successful joint manufacturing ventures, Guangdong Nortel (2000).
Type of R&D units vs LinkagesName Country Type of R&D units Total of originAbbott Laboratories USA Local 2AstraZeneca Pharmaceuticals LP UK Global 9Aventis Pharma Limited France Regional 2Bayer Aktiengesellschaft Germany Local 2Bristol-Mayers Squibb Company USA Global-Local 5Eli Lilly & Company USA Global 13GE Medical Systems USA Local 10GlaxoSmithKline UK Global 8Johnson & Johnson USA Global 3Merck & Co., Inc. USA Local 5Merck KGaA Germany Local 2Novartis AG Switzerland Global 6Novo Nordisk A/S Denmark Global 5Pfizer Inc. USA Global-local 10Wyeth USA Regional 3Total 85
Major FindingsMajority is the green field investments occurred between the years 2004 to 2007.Bangalore, Pune, Hyderabad, NCR, in India Beijing & Shanghai in China where there areabundant supply of knowledge workers. Tire II cities are getting focusIn India it is more technology driven where as in China more Market driven’More and more firms have established their R&D centre in India and China as seen from thegrowth pattern of R&D unitsIndian R&D units are more ‘global’ type but Chinese R&D units are more ‘local’ typeFirms’ expenditure on R&D and investment on manpower is increasing in an exponentialrateGrowth of patenting activity is not correlated with the global patenting but there is acorrelation between Indian and Chinese patentingIn India linkages with local firms are more pronounced than China. Firms prefer localuniversities and GRIs in China as preferable alliance partners.
Concluding Remarks & Policy implications•No uniform estimate about the number of R&D centre either India or China•From the Tire I Cities firms are now preferring Tire II Cities, infrastructure ofthese cities need to strengthened•In China its ‘Adaptive R&D’, while in India its more towards ‘Creative R&D’•Foreign Firms in China is relying on more towards ‘Open Innovation mode’.To reap benefit from this ‘venture capital’ ecosystem of both these countriesneeds to be strengthened•In India Firms are deeply embedded with the local innovation system becauseICT and Pharma sector in India is comparatively stronger.•University-Industry linkages is very strong in China while weak in India.Needs attention
Acknowledgements• ICSSR (Financial grant to field visit China)• Tsinghua University (Specially Dr. Lu Li, Prof. Xue Lan, Dr. Liang Zheng)Orange Labs, Beijing,ZTE Corporation, BeijingSK Telecom (China) Holding Co. Ltd.HP Labs China,Beijing Yahoo!Ericsson (China) Communications Company Ltd.Microsoft Asia-Pacific Research and Development Group,Advance Micro Devices IBM India Research LabAdobe India,Microsoft Corporation (India) Pvt. Ltd.HP Labs,Yahoo! labsMaruti Suzuki IndiaGlobelics Academy