China Preferred for R&D

China Preferred for R&D

February 8th, 2008 | Posted in Business & Economy

It turns out that China is emerging as the preferred global location for doing research and development.

Here are some key facts as summarized at Angry Bear blog.

  • Sixty-two percent of global companies ranked China first “as the most attractive location for prospective R&D.”
  • Multinationals have set up 1,160 research institutions by the end of 2007.
  • Total revenue of the hi-tech industry (foreign companies) exceeded 706 billion U.S. dollars.
  • Patent applications as of 2006 put China fourth in the world.
  • 40% of those applications came from foreign companies
  • The original article.

    Glen Hiemstra is a futurist speaker, consultant, blogger, internet TV show host and founder of Futurist.com. To arrange for a speech contact Futurist.com.

    Glen Hiemstra

    About Glen Hiemstra

    Glen Hiemstra is the founder and owner of Futurist.com. An internationally respected expert on future trends, long-range planning and creating the preferred future, Glen has advised professional, business, and governmental organizations for two decades.

    3 Comments

    1. PredictionBoy   |   Jul 7, 2008

      “It turns out that China is emerging as the preferred global location for doing research and development.”

      This is at least in part due to the fact that R&D is heavily subsidized in China.

      In fact, subsidization explains much of the “Chinese Miracle”. Note this summary from the latest HBR:

      Subsidies and the China Price

      “Many assume that Chinas cost advantage in mfg comes from cheap labor. But in Chinas burgeoning steel industry, our research suggests, massive govt energy subsidies, not other factors, keep prices down. These subsidies have broad implications for how companies compete and collaborate with Chinese businesses.
      In 2005, Beijing designated steel as a pillar industry for the Chinese economy. Chinas was the world’s largest producer of steel, w 27% of global production, but until then it had imported 29 million tons of steel annually. That year, China suddenly transformed itself from a net steel importer to a net steel exporter. In 2006, the country became the world’s largest steel exporter by volume, up from the fifth largest in 2005. Today it remains the world’s largest consumer and producer of steel, w 40% of global production. How did China make these astonishing gains so quickly and manage to sell steel for abt 19% less than steel from US and European companies? Labor accounts for less than 10% of the costs of producing Chinese steel, and Chinese steel doesnt appear to to relay on scale economies, supply-chain proximities, or tech efficiencies to lower its costs.
      Let’s look in detail at the probable source of this costs advantage. In research conducted w funding from the Alliance of American Mfg – work that draws heavily on our decade-long previous study of Chinese industry – we found that total energy subsidies to Chinese steel (from 2000 to mid-2007) reached $27 billion. About 95% of that amt was for coal. Our analysis of the relationship b/t the increase in energy subsidies and the growth of Chinese steel production and steel exports showed a powerful statistical correlation; this is not a chance association.
      Our research revealed that energy subsidies to the steel industry were paid to the energy sector and passed on through lower energy prices, which suggests that the energy supplied to China’s other mfg industries is subsidized as well. The steel industry may benefit disproportionately from energy subsidies because of its voracious appetite for coal, but the energy subsidies obviously help other industries too.
      Foreign companies doing biz in or w China or competing against Chinese rivals need to recognize a few things abt subsidies. First, they can be abruptly affected by political forces. For example, the Nov 2007 World Trade Organization subsidy-reduction agreeement b/t the US and China cut export subsidies to foreign companies located in China bu maintained subsidies to Chinese companies. This shows how subsidy-based cost advantages of foreign companies located in China can suddenly evaporate.
      Second, companies that offshore to, or source or import from, China may suffer price shocks if they dont discount fluctuating, subsidy-based cost advantages. Our research showed that under scrutiny, subsidies from Beijing often dry up, only to be replaced to varyting degrees by subsidies from provincial and local governments, which use them to support employment, build self-sufficiency, and promote import substitution locally. Companies should establish relationships with industry and govt officials in China so that they know the source of subsidies and can gauge the risk of reduction and subsequent price increases.
      Before foreign companies cut other suppliers loose in favor of lower-priced Chinese sources, they should be mindful that Chinese firms’ prices may fluctuate abruptly as subsidies shift. Foreign firms should there retain some original supply relationships until Chinese suppliers prove reliable over the medium term. ”

      The steel energy subsides in China have grown 4,000% in the last 7 years, from $400 million in 2000 to nearly $16 billion in 2007 (up from $5.8 billion in 2006).

      The full report is available at americanmanufacturing.org

    2. Glen Hiemstra   |   Apr 12, 2008

      Yeah, well there is that, isn’t there. But then if that was the only standard, we’d have to stop buying all that Saudi oil. Oops.

      World is complicated.

    3. PredictionBoy   |   Apr 12, 2008

      I prefer China for all my R&D needs

      surprisingly affordable, with just a hint of dictatorship