MNC R&D Ecosystem in China

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China has emerged as a key location for outsourced R&D operations especially in Telecom, Software and Electronics. The offshoring wave in China started nearly a decade later than in India. However, today, the country is competing with India and already being considered as an established offshore destination.

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MNC R&D Ecosystem in China

  1. 1. Media Release MNC R&D Landscape: A China PerspectiveThis report is solely for the use of Zinnov client and Zinnov personnel. No part of it may be circulated, quoted, or reproducedfor distribution outside the client organization without prior written approval from Zinnov
  2. 2. Overview 1 SCOPE  This report is intended to provide an overview of the MNC R&D landscape in China  More specifically, the report maps the evolution of R&D in China, how it compares with India and the following key trends in the local R&D ecosystem:  Continuous growth of MNC R&D centers in China  Emergence of Tier-2 locations as new centers of growth  Rising competition for MNCs from domestic Chinese firms  Change in innovation philosophy of MNCs in emerging geographies  Expansion of work portfolio by MNCs in China  Diminishing cost arbitrage advantage for MNCs in China  In addition the report looks at the role of the government for the rising R&D investment in the region CONTENTS  The current document is a preview to the complete study and covers the evolution history of R&D in China with focus on 2 key trends: Growth of MNC R&D centers & Emergence of new locations for R&D in China ZinnovConfidential
  3. 3. China has evolved as a premier destination for R&D offshoring in the last few decades 2 Evolution of R&D Globalization in China Pre-Historic Era Reforms Era Exploratory Era Expansion Era 1949 – 1965: 1977 – 1988: Early – Mid 1990s: Late 1990s – 2000: • China adopts Soviet S&T System • Reforms in Economic, Legal and • MNCs setup China centers as a test • Mature stage for MNCs with and signs Sino-Soviet Treaty of Education fields, foreign trade and case for R&D off-shoring successful test cases Friendship, Alliance & Mutual import of Science & Technology Assistance (S&T) from West • Most of these centers involve local • Growing global competition for partners in technology transfer for international R&D • R&D initiatives in Defense & Heavy • In 1979, Deng Xiaoping signs a leveraging tax & other financial Industries begin bilateral agreement on S&T benefits 2001 – Current: cooperation with US, which is 1966 – 1976: renewed every 5 years henceforth Mid – Late 1990s: • In 2006, Introduction of National Medium & Long term program for • Sino-Soviet Split in 1960s • 1979, Special Economic Zones • Booming IT sector and Inter firm S&T Development introduced in Fujian & Guangdong – competition for R&D forces MNCs • Over dependency on Soviet aid & entry of low-tech & light industry to look for market expansion • China plans to invest 2.5 percent of technology gives major setbacks to its GDP in R&D by 2020 from 1.45 Chinese R&D • Program 863 launched in 1986 • Number of Joint Venture firms in percent in 2006 concentrating on basic & applied China for R&D gradually increase • Cold War limits technological aid & research in 8 key areas • By the end of 2008 multinational trade sanctions • Work profile is localization of corporations had established over • Torch program launched in 1988, products than creation of new – 1,100 R&D centers in China from all • Political Instability & radical steps 53 High Tech Development Zones More ‘D’ (development) than ‘R’ the industries by Mao disrupt growth of R&D launched (research) • Despite downtime, China added 200 new centers between 2009 to March 2011 Source: Ministry of Commerce (MOFCOM), China; Ministry of Science & Technology (MOST), China; National Bureau of Statistics (NBS); Zinnov Analysi ZinnovConfidential This is a preview. The total slides displayed are limited. For full access contact info@zinnov.com
  4. 4. Though offshoring of R&D to China started way back in’90s, recent trends indicate that the landscape is currently undergoing a paradigm shift 3 a b Expansion to Continuous growth Government secondary locations of MNC R&D centers Influence to perform R&D Diminishing cost Key Rising MNC f arbitrage advantage Trends competition with c domestic Chinese firms Maturity and Transformation & expansion of work Government Influence innovation in R&D portfolio e d Source: Primary interviews with stakeholders, News aticles, Zinnov Analysis ZinnovConfidential This is a preview. The total slides displayed are limited. For full access contact info@zinnov.com
  5. 5. One of the key contributors to the rapidly evolving R&D landscape in China a is the phenomenal growth of MNC R&D centers in the last decade 4 2011 MNC R&D Centers* in China (Till 2011) 1046 MNCs 1,400 1300 R&D Centers 1,300 300 266 275 1,200 1,100 250 1,000 904 200 163 800 196 200 138 629 150 600 363 100 400 199 200 50 0 0 Before 00 01-02 03-04 05-06 07-08 09-11 Total Number of MNC R&D Centers (till March 2011) Number of New MNC R&D Centers (till March 2011) Cisco, Microsoft, Samsung, nVidia, EMC, ARM, British Yahoo, Broadcom, Fujitsu, Motorola, Nokia, Telecom, BMW, IBM, Ericsson, Panasonic, Kronos, SanDisk, Eli Lilly, Electrolux, Intel, Nortel Toshiba, TI McAfee Avaya Foxconn, Esri Logitech Of the Fortune 500 companies worldwide, over 400 already have R&D centers in China Note: *A company can have more than one R&D centers Zinnov Source: Economist Intelligence Unit (EIU); Ministry of Commerce (MOFCOM), China, Newspaper Articles; Zinnov AnalysisConfidential This is a preview. The total slides displayed are limited. For full access contact info@zinnov.com
  6. 6. Growth in MNC R&D centers is being significantly driven by Global top 1000 a R&D spenders who have shown increased interest in extending their 5 presence in China Distribution of MNCs Having R&D Centres in China in Comparison to World’s Top 1,000 MNC R&D Spenders, 2008 China World’s Top 1,000 World’s Top 1,000 R&D Spenders China 620 R&D Spenders 700 704 658 300 342 Number of MNCs: 920 2008 Number of MNCs: 1046 2011 • There is an increasing interest of the top global R&D spenders in the China domestic market opportunities, abundant talent pool, quality infrastructure and government support • These companies are working on an “in China for China” strategy along with a global focus of their R&D centers • Some of the recent entrants include Yahoo, Toyota, Eli Lilly, Volvo etc. Source: EIU; Ministry of Commerce (MOFCOM), China, Zinnov Analysis ZinnovConfidential This is a preview. The total slides displayed are limited. For full access contact info@zinnov.com
  7. 7. MNCs in China have increased their R&D presence not just through opening a new centers but by also increasing the headcount in existing setups 6 Distribution of MNC R&D Centers in China by Headcount Range 120 The R&D centers are gaining in head This group represents firms who have over the count growth over the years and are years have accumulated the best of the talent slowly building up a mature talent from China and have increasingly grown with a pool. Ex. UTStarcom, Infineon fast pace in headcount year over year. Eg. EMC, 100 Technologies, NEC etc. Microsoft, IBM, Bosch, Nortel etc. Average Headcount Per CenterNumber of Centers 80 (2008) = 117 60 40 2011 2008 Average Headcount Per Center 20 (2008) = 105 0 0 - 30 31 - 60 61 - 100 101 - 200 201 - 300 301 - 400 401 - 500 501 - 600 601 - 1000 1001 - 2000 2000+ Headcount Range Source: Primary Interviews, Company web sites and press releases, News Articles, Zinnov Analysis ZinnovConfidential This is a preview. The total slides displayed are limited. For full access contact info@zinnov.com
  8. 8. China is witnessing rapid expansion of secondary locations as these are b increasingly becoming viable for MNCs to set up their R&D centers 7 Growth Drivers for Emergence of Tier-1 locations Tier-2 Cities Established secondary locations Emerging secondary locations Cost arbitrage over 20-30% saving in total cost tier-1 Cities Improved R&D Suzhou and Chengdu have one of the IT infrastructure largest high tech parks in China Dalian Beijing Improved rail-road China has the world’s longest HSR1 connectivity Tianjin Wuhan-Guangzhou HSR etc. Concentration of industries Wuxi: Microelectronics Shenzhen: Infocomm Products China Suzhou is the second biggest industrial Telecom Suzhou ElectronicsEconomic and cultural development city after Shanghai Xi’an Electronics Nanjing Wuhan Wuxi Shanghai HangzhouAvailability of talent About 50% of the installed talent pool Chengdu pool of MNC R&D centers is in tier-2 cities Chongqing Fuzhou Xiamen Incentives given by In addition to the waiver of Corporate Software taxes Local taxes (about 3%) are Guangzhouthe local governments exempted in Shenzhen, Wuxi etc. Shenzhen Infocomm Note: 1 High Speed Rail Zinnov Source: Ministry of Commerce (MOFCOM), China Primary Interviews, Company web sites and press releases, News Articles, Zinnov AnalysisConfidential This is a preview. The total slides displayed are limited. For full access contact info@zinnov.com
  9. 9. Secondary locations now account for nearly half of the total number of b MNC R&D center establishments 8 Headquarter Location Wise Distribution of MNC R&D Centers Across Key China Locations (2011) China Location100% ROC Dalian 75% Chengdu SuzhouPer Cent 50% Guangzhou Shenzhen 25% Beijing Shanghai 0% US EU Japan SEA ROW (54%) (28%) (9%) (6%) (3%) Headquarter Location Source: Ministry of Commerce (MOFCOM), China, News Articles, Zinnov Analysis Zinnov Confidential This is a preview. The total slides displayed are limited. For full access contact info@zinnov.com
  10. 10. Additional Information 9  The current document is a preview to the complete study and covers the evolution history of R&D in China with focus on 2 key trends: Growth of MNC R&D centers & Emergence of new locations for R&D in China  The full report provides information on other key trends in the MNC R&D landscape in China including  Rising competition for MNCs from domestic Chinese firms  Change in innovation philosophy of MNCs in emerging geographies  Expansion of work portfolio by MNCs in China  Diminishing cost arbitrage advantage for MNCs in China In addition, the role of the government in driving R&D investment in the region is analyzed  Full report on China MNC R&D landscape can be accessed at  Zinnov ‘s Global Location & Talent Pool Portal. Sign up today for a free trial account http://zinnov.com/US/demo_signup.php  Or, email us at info@zinnov.com ZinnovConfidential
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