Thursday, December 02, 2004
Do we have similar stats about R&D outsourcing to India

Cashing in on research boom

LI WEITAO,China Business Weekly staff 2004-12-02

Du Yonggang is elated with his elite team. A wireless communications
research programme, headed by Du, at Philips Research East Asia in Shanghai,
produced 90 patents last year. That is amazing: It amounts to three patents per
person on average. And nearly half of the team's members are Chinese. The
achievements may best describe the rewards of Philips' efforts to build a
research and development (R&D) network in China. It also underlines the
rapid rise of China as a global corporate R&D base - and as a major source
of innovation. Foreign technology firms, which have long been looking at China
as a major manufacturing workshop and a big market, are now aggressively tapping
the nation's scientific brainpower. The world-class lab where Du works employs
more than 80 researchers or scientists, 90 per cent of whom are Chinese. Philips
has 15 R&D centres in China, which, combined, employ about 1,000 people.
Most of those workers are Chinese. Xu Chengkai, vice-president at Philips'
China, said the firm plans to recruit about 1,500 people in China next year.
That would represent a 120-per-cent increase over the number of workers
recruited in China by the firm last year. A number of the new employees will
work on R&D. "What we need most are employees who majored in
semiconductors," Xu said. Rapid business growth is driving the recruitment, the
vice-president said recently during an interview with China Business Weekly.
Philips' revenues in China, composed of sales in the country and exports from
the country, surged nearly 12 per cent last year, to reach US$7.5 billion. And
Philips's business has grown even faster this year: Its revenues in China soared
more than 30 per cent, year-on-year, in the year's first three quarters. "The
huge size of the local market and the talent pool are also reasons for our
expanded recruitment in China," Xu said. Philips this year also plans to recruit
numerous graduates from leading Chinese universities to quench its thirst for
talent. China's universities, spurred by better education and the nation's rapid
economic growth, are now producing an increasing number of talented engineers,
who are being courted by foreign firms. "It is noteworthy that the number of
university graduates, majoring in engineering with a bachelor's degree in China,
is already larger than the combined total of Japan and the United States," said
Josephine Cheng, director of IBM's China Software Development Laboratory (CSDL).
"China is producing a greater number of brilliant talents." CSDL plans to
recruit 200 more software engineers in China by year's end, Cheng said. That
will raise the lab's headcount to 2,000. CSDL is one of IBM's top five software
laboratories in the world. IBM earlier this month said it plans to recruit 400
graduates from top-notch Chinese universities. That, if accomplished, will be a
record number. It will also double, from last year, the number of IBM's
recruitment on campuses in China. University graduates are expected to account
for half of the firm's total recruitment this year in China. Industry
professionals said many university graduates in China prefer to go abroad, but
they are also inclined to work in China for foreign companies. To lure Chinese
students, foreign technology firms have tied up with leading Chinese
universities in such initiatives as making donations to improve education and
co-establishing institutes. For example, Cisco Systems has spent US$38 million
since 1998 to set up university training centres for software programmers in
China. Meanwhile, Philips has been co-operating with several major Chinese
universities on numerous technology projects. Xu said Philips will send its new
employees to Asian and European countries for various training programmes. The
training could involve a great deal of investment. Siemens plans to more than
double, to 800, the number of engineers in its mobile phone R&D centre in
Beijing next year. And the firm will spend approximately 200,000 euros
(US$260,000) each to train the 500 engineers, Wolfgang Klebsch, vice-president
and head of the company's Beijing R&D Product Development Centre, told China
Business Weekly. John Chambers, Cisco System's president and chief executive
officer, said China's excellent infrastructure, large pool of talents and
business-friendly policies implemented by the country's government have prompted
Cisco to increase its R&D activities in China. Chambers announced last
September that Cisco will open a US$32-million R&D centre in Shanghai. It is
scheduled to open next year. The centre will employ about 100 people. Cisco is
now localizing both its R&D and manufacturing in China, due in part to fend
off competition from local players. "What we're trying to do is outline an
entire strategy of becoming a Chinese company," Chambers said. In addition to
Philips, some other technology giants have begun reaping the benefits of
localized R&D in China. About 30 per cent of Siemens mobile phones sold
globally are based on models developed in its Beijing R&D centre. And 40 per
cent of the handsets sold by Nokia's Mobile Phones Business Group globally are
designed and developed in its Beijing Product Creation Centre. "China has become
a very important part of Nokia's global R&D network," said David Ho,
president of Nokia (China) Investment Co Ltd. "Our deepened localized R&D
effort is already bearing fruit." Nokia earlier this month said it would double
the headcount at its global R&D centre in Hangzhou, capital of East China's
Zhejiang Province, within 18 months. The centre is focusing on the R&D of
third-generation (3G) mobile communications technology. Some technology firms -
concerned about the difficulties in protecting their intellectual property
rights (IPRs) - had resisted the temptation to move their R&D facilities to
China. But now many are running full-scale labs that work on their most-advanced
products. A report released by the European Commission last Thursday said China
is emerging as a low-cost rival to the European Union in high-skill industries.
The commission attributed China's success, in a large part, to the government's
policy to actively encourage investment which allows it to tap into foreign
technology. Ericsson last Thursday announced it had begun providing European
customers with 3G WCDMA wireless base stations. The stations are fully
researched, developed and manufactured in China. The firm said 15 per cent of
its employees in China are working on R&D, and its investment in R&D in
the country has been growing 25 per cent annually since 2000. Impacts US and
European technology firms are facing criticism and opposition in their home
countries for increasing R&D activities and expanding recruitment efforts in
China. Some critics feel such moves by the firms are leading to job losses in
the United States and Europe. Many technology firms are increasing employment in
China and India, but cutting jobs in their home countries. German Chancellor
Gerhard Schroeder has verbally attacked German firms that have moved jobs
abroad. Reuters has quoted Schroeder as calling the firms "unpatriotic." But
China remains a magnet. For example, increasing R&D staffing will help
Siemens cut substantial costs in an increasingly competitive market. Gerard
Kleisterlee, chief executive officer of Philips, said productivity per dollar
labour cost was five times higher in China than in Germany. "It is such a big
advantage to conduct R&D in China," Klebsch said. In responding to critics
of outsourcing jobs, Kleisterlee said people should "stop clinging to outdated
standpoints." "Many people in this part of the world still seem unable to grasp
the full implications of the dramatic rise of dynamic growth economies in Asia,
such as China and India," Kleisterlee has been quoted by Reuters as saying. "In
order to remain competitive, companies are shifting jobs from the West to Asia.
Initially it was in manufacturing, but increasingly it has come to include
support functions in services and research and development. "(China) is quickly
becoming the electronics factory of the world. Increasingly, however, it is also
becoming a base for research and development, driven by the availability of a
vast number of highly educated engineers and scientists." Xu said it is natural
for businesses to seek low-cost talents, and China is a market that
multinationals cannot afford to ignore. "But you know the average salary of
Chinese people has also been increasing very rapidly in recent years," he said.
"Maybe in 10 years, China will not be the country with the lowest labour costs."
Kleisterlee said his firm will "step up R&D activities, hire more R&D
engineers and transfer more business management activities to China." The firm
plans to employ or nurture 100 more senior Chinese executives by 2007, Xu said.
Currently, Chinese account for 30 per cent of Philips' management team in the
country. By 2007, the figure will exceed 50 per cent. That is in line with a
vision outlined by Kleisterlee, who has said Asian people should account for at
least 10 per cent of the firm's top managers. Localization of its management
team in China is also expected to boost the firm's business growth in China.
Philips has been aiming to increase its annual revenues in China, to
approximately US$12 billion by 2007.

(Business Weekly 11/30/2004 page16)

It is interesting to scan the hot topics in Chinese publications, blogs, and forums worldwide. The topics there center on economics, geostrategy, domestic socio-economic problems, and international relations. Meanwhile in India, its all about ideological rhetoric, tragi-comic domestic politics, Pakistan, Sankaracharyas, etc

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