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Outline
Trend of MNC R&D (Expenditure Pattern)   R&D expenditure by foreign affiliates, based on a sample of 30 economies,  values...
Trend of MNC R&D in China Most attractive prospective  R&D locations Source: UNCTAD, World Investment Report 2005 R&D Labs...
<ul><ul><li>Role as a global lead market and as a world manufacturing center  </li></ul></ul><ul><ul><li>Increased Competi...
Our Focus (MNC R&D: For better or for worse?) (1) Spillover effects (2) Crowding out effect Horizontal Spillover <ul><li>R...
<ul><li>3-stage model of  R&D development  </li></ul><ul><li>Bruce D. Merrifield 3-stage Innovation Model (1986) </li></ul...
Our Focus Country  China Industry Electronics Industry Areas Evaluated <ul><li>What are the impacts of MNC R&D on the whol...
Trend of China’s Electronics Industry
Trend of China’s Electronics Industry
Methodology * MNC definition : at least 25% capital share owned by HK, Macau, Taiwan or other foreign investors. Data Sour...
MNC R&D Impact on Total Industry Performance Local R&D Impact on Local Company Performance <ul><li>Total profit </li></ul>...
<ul><li>Dependent Variable </li></ul><ul><li>= β0 +  β1 LN_MNC_RND  + β2 LN_LOCAL_RND </li></ul><ul><li>+ β3 LN_TOTAL_ASSE...
β0 = 0.6076 (0.72)  S = 0.455647  R-Sq = 92.8%  R-Sq(adj) = 91.7% (1) Regression Analysis – Results (Profit) 1. MNC R&D to...
β0 = -1.019 (-0.99)  S = 0.560753  R-Sq = 91.6%  R-Sq(adj) = 90.4% (1) Regression Analysis – Results (New Product) 1. MNC ...
LN_LOCAL_RND   = β0 +  β1 LN_L_MNC_RND  + β2 LN_L_VALUE_ADDED + β3 LN_L_TOTAL_ASSET + β4 LN_L_EMPLOYEES + β5 LN_L_FIXED_AS...
β0 = -7.554 (-5.85)  S = 0.577459  R-Sq = 89.0%  R-Sq(adj) = 87.3% (2) Regression Analysis - Results 1. MNC R&D to Whole I...
Dependent Variable = β0 +  β1 LN_MNC_RND  + β2LN_LOCAL_RND + β3 LN_L_TOTAL_ASSET + β4 LN_L_EMPLOYEES + β5 LN_L_FIXED_ASSET...
β0 = 4.399 (0.66)  S = 2.65415  R-Sq = 34.9%  R-Sq(adj) = 26.4% (3) Regression Analysis – Results (Profit) 1. MNC R&D to W...
β0 = -1.696 (-1.25)  S = 0.535723  R-Sq = 91.0%  R-Sq(adj) = 89.8% (3) Regression Analysis – Results (New Product) 1. MNC ...
<ul><li>MNC R&D impact in relation to the following variables: </li></ul>Regression Analysis – Summary Dependent Variable ...
Stages of MNC R&D evolution: <ul><li>Limited spillover effect </li></ul><ul><ul><li>MNC R&D impacts only the total profit ...
<ul><li>Industry and corporate contributions </li></ul><ul><ul><li>Increase supply of qualified employees </li></ul></ul><...
<ul><li>Government initiatives </li></ul><ul><ul><li>Introduce incentives to attract technology, talent and capital from a...
<ul><li>Limited timespan of data </li></ul><ul><ul><li>Unable to carry out time series analysis to evaluate the MNC R&D ef...
<ul><li>LI Hongyu1,*; LIU Meiyue2; YU Yang3, “The Spillover Effect of FDI on the Manufacturing Industry in China” Internat...
Q & A
<ul><li>Brief Literature Review: impact of FDI/R&D on the host economy </li></ul><ul><li>1.)  Todo and Miyamoto Study (200...
Trend of MNC R&D in China Electronics Industry <ul><li>A positive but diminishing number of new entries </li></ul><ul><li>...
<ul><li>Rapidly decreasing growth rate for non-MNC companies </li></ul><ul><li>Relatively steady high growth rate from MNC...
Appendix #1: Development of Electronics Industry in China <ul><li>Annual growth rate :  Sales generated = 30.9% </li></ul>...
FDI Inflow to China by Industry <ul><li>Increased flow of FDI into China </li></ul>Appendix #2:  Development of Electronic...
<ul><li>Rapid growth of output value </li></ul>Appendix#3: Development of Electronics Industry in China
<ul><li>Increasing number of employees </li></ul><ul><li>Generally increasing number of RND personnel </li></ul>Trend of M...
<ul><li>Continual growth in sales of both MNCs and non-MNCs </li></ul>Trend of MNC R&D in China’s Electronics Industry
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[Econ4354] MNC RnD Impacts

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This presentation shows the results of the analysis of the effects of MNC R&D on R&D by Local Chinese Firms.

The Merrifield 3-stage Innovation Model will be utilized to determine the stage of R&D of Chinese Firms by examining the effects of MNC R&D on Total Industry Performance, Local R&D, and Local Company Performance.

The data utilized will be from 2007 with a focus on the Electronics Manufacturing Industry

Published in: Education, Technology, Business
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[Econ4354] MNC RnD Impacts

  1. 2. Outline
  2. 3. Trend of MNC R&D (Expenditure Pattern)   R&D expenditure by foreign affiliates, based on a sample of 30 economies, values and share in business R&D, 1993-2002 - (Billions of dollars and per cent) Source: UNCTAD, World Investment Report 2005
  3. 4. Trend of MNC R&D in China Most attractive prospective R&D locations Source: UNCTAD, World Investment Report 2005 R&D Labs in China, 1987 - 2003
  4. 5. <ul><ul><li>Role as a global lead market and as a world manufacturing center </li></ul></ul><ul><ul><li>Increased Competition from Internationalization </li></ul></ul><ul><ul><li>Abundant human capital </li></ul></ul><ul><ul><ul><ul><li>Significant stock of R&D staff </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Expanded their university systems </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Extensive ‘Diaspora networks’ </li></ul></ul></ul></ul><ul><ul><li>Government involvement </li></ul></ul><ul><ul><ul><li>Strong network of public research organizations (e.g. Chinese Academy of Sciences) </li></ul></ul></ul><ul><ul><ul><li>Nurtured the development of attractive regional clusters </li></ul></ul></ul><ul><ul><ul><li>Infrastructure for the protection of intellectual property </li></ul></ul></ul><ul><ul><ul><li>Offering incentives and infrastructure support </li></ul></ul></ul>Trend of MNC R&D in China (Drivers)
  5. 6. Our Focus (MNC R&D: For better or for worse?) (1) Spillover effects (2) Crowding out effect Horizontal Spillover <ul><li>Reverse engineering </li></ul><ul><li>Skilled labor turnovers </li></ul><ul><li>Demonstration effect </li></ul>Vertical Spillover <ul><li>Backward linkages </li></ul>
  6. 7. <ul><li>3-stage model of R&D development </li></ul><ul><li>Bruce D. Merrifield 3-stage Innovation Model (1986) </li></ul>Our Focus (Stages of R&D Development) Maturity Stage <ul><li>Develop own technology and new products </li></ul><ul><li>Corporate R&D will be aimed at both local global markets </li></ul>Development stage <ul><li>Accumulate strategic assets & improve technological capability </li></ul><ul><li>Improve productivity and efficiency </li></ul>Starting-up stage <ul><li>Understand the trends of technology development in time </li></ul><ul><li>- Learn the advanced technology from MNCs </li></ul>
  7. 8. Our Focus Country China Industry Electronics Industry Areas Evaluated <ul><li>What are the impacts of MNC R&D on the whole industry? </li></ul><ul><li>Any spillover or crowding out effects? </li></ul><ul><li>What stage of R&D development is China in? </li></ul>
  8. 9. Trend of China’s Electronics Industry
  9. 10. Trend of China’s Electronics Industry
  10. 11. Methodology * MNC definition : at least 25% capital share owned by HK, Macau, Taiwan or other foreign investors. Data Source Origin Firm level data in China (CIE) Number of firms 336,768 Year 2007 Industry focus Electronics manufacturing industry Data categorization <ul><ul><li>Firm level data are aggregated into data of 73 sub-sectors according to the Classification of National Economy Industries ( 国民经济行业分类 ) </li></ul></ul><ul><ul><li>Firm level data is separated into MNC* and non-MNC </li></ul></ul>
  11. 12. MNC R&D Impact on Total Industry Performance Local R&D Impact on Local Company Performance <ul><li>Total profit </li></ul><ul><li>New product </li></ul><ul><li>Total profit </li></ul><ul><li>New product </li></ul>Regression Analysis Model 1. Model 2. Model 3.
  12. 13. <ul><li>Dependent Variable </li></ul><ul><li>= β0 + β1 LN_MNC_RND + β2 LN_LOCAL_RND </li></ul><ul><li>+ β3 LN_TOTAL_ASSET + β4 LN_EMPLOYEES </li></ul><ul><li>+ β5 LN_FIXED_ASSETS + β6 LN_HK_MAC_TW_CAP </li></ul><ul><li>+ β7 LN_FOREIGN_CAP + β8 LN_EMPLOY_BENE </li></ul><ul><li>+ β9 LN_STATE_CAP </li></ul><ul><li>where dependent variables are: </li></ul><ul><li>1. LN_TOTAL_PROFIT 2. LN_NEW_PROD </li></ul><ul><li>Effect of MNC R&D on whole industry performance </li></ul>(1) Regression Analysis - Model 1. MNC R&D to Whole Industry 2. MNC R&D to Local R&D 3. MNC R&D to Local Firms
  13. 14. β0 = 0.6076 (0.72) S = 0.455647 R-Sq = 92.8% R-Sq(adj) = 91.7% (1) Regression Analysis – Results (Profit) 1. MNC R&D to Whole Industry 2. MNC R&D to Local R&D 3. MNC R&D to Local Firms Independent Variables Description Coefficients LN_MNC_RND Value of MNC R&D Expenditure 0.14633 (3.45***) LN_LOCAL_RND Value of Local R&D Expenditure 0.14057(2.28**) LN_TOTAL_ASSET Value of Total Asset -0.00980 (-0.19) LN_EMPLOYEES Number of Employees 0.04415(0.48) LN_FIXED_ASSETS Value of Fixed Assets 0.5191(3.97***) LN_HK_MAC_TW_CAP Hong Kong, Macau and Taiwan Capital Share -0.08542(-2.44**) LN_FOREIGN_CAP Foreign Capital Share (Except Hong Kong, Macau and Taiwan) 0.11055(1.56) LN_EMPLOY_BENE Value of Employee Benefit 0.1736(1.33) LN_STATE_CAP State Owned Capital Share -0.03787(-1.20)
  14. 15. β0 = -1.019 (-0.99) S = 0.560753 R-Sq = 91.6% R-Sq(adj) = 90.4% (1) Regression Analysis – Results (New Product) 1. MNC R&D to Whole Industry 2. MNC R&D to Local R&D 3. MNC R&D to Local Firms Independent Variables Description Coefficients LN_MNC_RND Value of MNC R&D Expenditure 0.10636 (2.04**) LN_LOCAL_RND Value of Local R&D Expenditure 0.33418 (4.45***) LN_TOTAL_ASSET Value of Total Asset -0.00980 (-0.19) LN_EMPLOYEES Number of Employees 0.04415 (0.48) LN_FIXED_ASSETS Value of Fixed Assets 0.6029 (3.80***) LN_HK_MAC_TW_CAP Hong Kong, Macau and Taiwan Capital Share -0.07135 (-1.66*) LN_FOREIGN_CAP Foreign Capital Share (Except Hong Kong, Macau and Taiwan) 0.03268 (0.37) LN_EMPLOY_BENE Value of Employee Benefit 0.1968 (1.23) LN_STATE_CAP State Owned Capital Share -0.03865 ( -1.00)
  15. 16. LN_LOCAL_RND = β0 + β1 LN_L_MNC_RND + β2 LN_L_VALUE_ADDED + β3 LN_L_TOTAL_ASSET + β4 LN_L_EMPLOYEES + β5 LN_L_FIXED_ASSETS + β6 LN_L_HK_MAC_TW_CAP + β7 LN_L_FOREIGN_CAP + β8 LN_L_EMPLOY_BENE + β9 LN_L_EXP_VALUE <ul><li>Effect of MNC R&D on local R&D </li></ul>(2) Regression Analysis - Model 1. MNC R&D to Whole Industry 2. MNC R&D to Local R&D 3. MNC R&D to Local Firms
  16. 17. β0 = -7.554 (-5.85) S = 0.577459 R-Sq = 89.0% R-Sq(adj) = 87.3% (2) Regression Analysis - Results 1. MNC R&D to Whole Industry 2. MNC R&D to Local R&D 3. MNC R&D to Local Firms Independent Variables Description Coefficient LN_L_MNC_RND Value of MNC R&D Expenditure 0.12054 (2.48** ) LN_L_TOTAL_ASSET Value of Local Firm Total Asset 2.4983 ( 7.11*** ) LN_L_EMPLOYEES Number of Employees in Local Firm -0.6664 ( 3.06 ***) LN_L_FIXED_ASSETS Value of Local Firm Fixed Assets -0.6992 (-2.20 **) LN_L_HK_MAC_TW_CAP Hong Kong, Macau and Taiwan Capital Ownership of Local Firm -0.08080 (-1.75 *) LN_L_FOREIGN_CAP Foreign Capital Ownership of Local Firm (Except HK, Macau and Taiwan) -0.07826 (-1.08 ) LN_L_EMPLOY_BENE Value of Local Firm Employee Benefit -0.03233 (-0.76 ) LN_L_VALUE_ADDED Value of Local Value Added -0.2519 (-1.10) LN_L_EXP_VALUE Value of Local Export Value 0.06664 (1.24 )
  17. 18. Dependent Variable = β0 + β1 LN_MNC_RND + β2LN_LOCAL_RND + β3 LN_L_TOTAL_ASSET + β4 LN_L_EMPLOYEES + β5 LN_L_FIXED_ASSETS + β6 LN_L_HK_MAC_TW_CAP + β7 LN_L_FOREIGN_CAP + β8 LN_L_EMPLOY_BENE where dependent variables are: 1. LN_L_TOTAL_PROFIT 2. LN_L_NEW_PROD <ul><li>Effect of MNC R&D on domestic firm performance </li></ul>(3) Regression Analysis - Model 1. MNC R&D to Whole Industry 2. MNC R&D to Local R&D 3. MNC R&D to Local Firms
  18. 19. β0 = 4.399 (0.66) S = 2.65415 R-Sq = 34.9% R-Sq(adj) = 26.4% (3) Regression Analysis – Results (Profit) 1. MNC R&D to Whole Industry 2. MNC R&D to Local R&D 3. MNC R&D to Local Firms Independent Variables Description Coefficient LN_MNC_RND Value of MNC R&D Expenditure 0.5394 ( 2.28 **) LN_LOCAL_RND Value of Local R&D Expenditure -0.0261 (-0.04 ) LN_TOTAL_ASSET Value of Total Asset -0.631 (-0.33 ) LN_EMPLOYEES Number of Employees 2.529 ( 2.47 **) LN_FIXED_ASSETS Value of Fixed Assets 0.668 (0.44 ) LN_HK_MAC_TW_CAP Hong Kong, Macau and Taiwan Capital Share -0.2210 (-1.08) LN_FOREIGN_CAP Foreign Capital Share (Except Hong Kong, Macau and Taiwan) -0.653 ( -1.94 *) LN_EMPLOY_BENE Value of Employee Benefit -0.9631 (-1.20)
  19. 20. β0 = -1.696 (-1.25) S = 0.535723 R-Sq = 91.0% R-Sq(adj) = 89.8% (3) Regression Analysis – Results (New Product) 1. MNC R&D to Whole Industry 2. MNC R&D to Local R&D 3. MNC R&D to Local Firms Independent Variables Description Coefficient LN_MNC_RND Value of MNC R&D Expenditure 0.05007 ( 1.05 ) LN_LOCAL_RND Value of Local R&D Expenditure 0.3898 ( 3.31 ***) LN_TOTAL_ASSET Value of Total Asset 0.7497 ( 1.96 **) LN_EMPLOYEES Number of Employees 0.2725 (1.32) LN_FIXED_ASSETS Value of Fixed Assets -0.0901 (0.30 ) LN_HK_MAC_TW_CAP Hong Kong, Macau and Taiwan Capital Share -0.03418 (-0.83 ) LN_FOREIGN_CAP Foreign Capital Share (Except Hong Kong, Macau and Taiwan) 0.02227 (0.33) LN_EMPLOY_BENE Value of Employee Benefit -0.2109 (-1.31 )
  20. 21. <ul><li>MNC R&D impact in relation to the following variables: </li></ul>Regression Analysis – Summary Dependent Variable Result 1. The whole electronic industry <ul><ul><li>a. Total Profit </li></ul></ul>+ <ul><ul><li>b. New Product Produced </li></ul></ul>+ 2. Local R&D + 3. The local firms <ul><ul><li>a. Total Profit </li></ul></ul>+ <ul><ul><li>b. New Product Produced </li></ul></ul>NA
  21. 22. Stages of MNC R&D evolution: <ul><li>Limited spillover effect </li></ul><ul><ul><li>MNC R&D impacts only the total profit of local firms </li></ul></ul>Regression Analysis – Analysis Maturity Stage <ul><li>International markets have equal importance to domestic markets </li></ul><ul><li>Corporate R&D will be aimed at global markets directly </li></ul>Development stage <ul><li>Accumulate strategic assets & improve technological capability </li></ul><ul><li>Development of oversea market </li></ul>Starting-up stage <ul><li>Understand the trends of technology development in time </li></ul><ul><li>- Learn the advanced technology from developed countries </li></ul>
  22. 23. <ul><li>Industry and corporate contributions </li></ul><ul><ul><li>Increase supply of qualified employees </li></ul></ul><ul><ul><ul><li>Cooperate with selected universities in research areas and recruitment events to attract skilled graduates </li></ul></ul></ul><ul><ul><ul><li>Organize travelling and trainings to improve employee exposure </li></ul></ul></ul><ul><ul><li>Foster interactions with MNCs to facilitate information exchange </li></ul></ul>Insights for Chinese Domestic Firms & Govt
  23. 24. <ul><li>Government initiatives </li></ul><ul><ul><li>Introduce incentives to attract technology, talent and capital from abroad </li></ul></ul><ul><ul><ul><li>Establish science parks </li></ul></ul></ul><ul><ul><ul><li>Provide R&D subsidies </li></ul></ul></ul><ul><ul><ul><li>Set up R&D incubators </li></ul></ul></ul><ul><ul><li>Increase strategic investment in human resources </li></ul></ul><ul><ul><li>Targeted FDI policies </li></ul></ul><ul><ul><li>Protect better intellectual property rights </li></ul></ul>Insights for Chinese Domestic Firms & Govt
  24. 25. <ul><li>Limited timespan of data </li></ul><ul><ul><li>Unable to carry out time series analysis to evaluate the MNC R&D effect over time </li></ul></ul><ul><li>Limited in the degree of detail of the data available </li></ul><ul><ul><ul><li>e.g. no patent filing data of a type of company of a specific industry </li></ul></ul></ul><ul><li>Further topics to be investigated </li></ul><ul><ul><li>Spillover effects on the academia </li></ul></ul><ul><ul><li>Comparison with MNC R&D in India </li></ul></ul>Limitations of Study
  25. 26. <ul><li>LI Hongyu1,*; LIU Meiyue2; YU Yang3, “The Spillover Effect of FDI on the Manufacturing Industry in China” International Business and Management </li></ul><ul><li>Vol. 3, No. 1, 2011, pp. 200-208 </li></ul><ul><li>Peter J. Buckley, Jeremy Clegg and Chengqi Wang, “Inward FDI and host country productivity: evidence from China’s electronics industry” Transnational Corporations, Vol. 15, No. 1 (April 2006) </li></ul><ul><li>National Bureau of Statistics of China </li></ul><ul><li>http://www.stats.gov.cn/ </li></ul>References
  26. 27. Q & A
  27. 28. <ul><li>Brief Literature Review: impact of FDI/R&D on the host economy </li></ul><ul><li>1.) Todo and Miyamoto Study (2006) </li></ul><ul><li> </li></ul><ul><li>MNCs’ R&D activities enhance the extent of knowledge spillovers from foreign to domestic firms. </li></ul><ul><li>2 .) Yasuyuki Todo , Weiying Z hang , Li-An Zhou Study(2006) </li></ul><ul><li>Positive effects of R&D stocks of foreign-owned firms on the productivity of domestic firms. </li></ul>Trend of MNC R&D in China
  28. 29. Trend of MNC R&D in China Electronics Industry <ul><li>A positive but diminishing number of new entries </li></ul><ul><li>Mainly non-MNC firms </li></ul>
  29. 30. <ul><li>Rapidly decreasing growth rate for non-MNC companies </li></ul><ul><li>Relatively steady high growth rate from MNC companies </li></ul>Trend of MNC R&D in China Electronics Industry
  30. 31. Appendix #1: Development of Electronics Industry in China <ul><li>Annual growth rate : Sales generated = 30.9% </li></ul><ul><ul><li>Profits = 32.7% </li></ul></ul>
  31. 32. FDI Inflow to China by Industry <ul><li>Increased flow of FDI into China </li></ul>Appendix #2: Development of Electronics Industry in China
  32. 33. <ul><li>Rapid growth of output value </li></ul>Appendix#3: Development of Electronics Industry in China
  33. 34. <ul><li>Increasing number of employees </li></ul><ul><li>Generally increasing number of RND personnel </li></ul>Trend of MNC R&D in China’s Electronics Industry
  34. 35. <ul><li>Continual growth in sales of both MNCs and non-MNCs </li></ul>Trend of MNC R&D in China’s Electronics Industry

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