Comparison of China and India in R&D Globalization

UK-China Innovation Workshop for Sustainable and Equitable Development

March 19, 2010, Tsinghua University

Dr. Liang Zheng China Institute for Science&Technology Policy (CISTP) School of Public Policy and Management (SPPM) Tsinghua Universtiy liangzheng@tsinghua.edu.cn

Outline

Globalization of R&D: New Trends FDI Inflows and Outflows R&D Inflows R&D Outputs in Global OFDI and R&D Outflows Conclusions

I. Globalization of R&D: New Trends

Top 15 locations for R&D by the world’s largest R&D spenders in the UNCTAD survey, 2004-2005

(per cent of respondents)

Source: World Investment Report 2005

Most R&D is performed in industrialized countries, but a number of developing ones now also host MNC R&D.

More than half of the top R&D spenders already have R&D facilities in China, India or Singapore.

8.8

8.8

11.8

13.2

13.2

14.7

17.6

19.1

19.1

25.0

29.4

35.3

35.3

47.1

58.8

0 10 20 30 40 50 60

Switzerland

Sweden

Belgium

Spain

Brazil

Italy

Singapore

Germany

Canada

India

Japan

France

China

United Kingdom

United States

Among the developing world, Asia is the preferred destination. Some examples:

The share of developing Asia in United States MNCs' overseas R&D rose from 3% in 1994 to 10% in 2002.

More than half of the top R&D spenders have R&D activities in China, India or Singapore.

More than 700 foreign-owned R&D centres in China(2005).

More than 100 MNCs conduct R&D in India and in Singapore.

Developing Asia now accounts for 30% of global semiconductor design.

Source: World Investment Report 2005

Most attractive prospective R&D locations in the UNCTAD survey, 2005-

2009(per cent of respondents)

Source: World Investment Report 2005

Further shift towards some developing countries, mainly in Asia, and in Russia is expected.

Few respondents plan to expand R&D in Latin America or Africa.

2.9

2.9

2.9

2.9

2.9

4.4

4.4

4.4

4.4

5.9

8.8

10.3

13.2

14.7

29.4

41.2

61.8

0 10 20 30 40 50 60

Thailand

Republic of Korea

Malaysia

Italy

Belgium

Taiwan Province of China

Singapore

Canada

The Netherlands

Germany

France

Russian Federation

United Kingdom

Japan

India

United States

China

China and India become the“hot-spot”

Source: Booz & Company analysis (2008)

Ⅱ. FDI Inflows and Outflows

0

10

20

30

40

50

60

70

1990 1995 2000 2005

FDI Inflows to China (billion USD)

FDI Stocks in selected countries

Source: MOFCOM FDI Statistics, OECD

0 20 40 60

UK

Canada

China

France

Germany

US

Korea

India

Japan

Outward

Inward

％ of GDP

  FDI from and to India, 2000-01 to 2007-08 (in Millions of US $)

Source: Sunil, 2009

Ⅲ. R&D InflowsThe Growth of Foreign R&D Centers in India and China

Year Number

1985 3

1995 19

1999 49

2000 64

2005 145

2006-07 200*

Growth of Foreign R&D Centres in India Growth of Foreign R&D Centres in China

Source: TIFAC Survey and CSSP/JNU Data base.

Source: MOFCOM Statistics

Year Number

2001 124

2002 100

2003 400

2004 700

2005.8 750

2006.10 980

2007 1160

2008 1200

2009.7 1250

The location distributions of foreign R&D centers in India and China

Location of Foreign R&D Centres in India

The regional distribution of the R&D organizations settled by Business1000 MNCs in China （ 2004 ）

Source: TIFAC Survey (2006).

Source: Xue and Liang(2008)

Region No of Centres

Bangalore 45

Hyderabad 7

Chennai 4

NCR (Delhi) 22

Pune-Mumbai 17

Other regions 5

Total 100

Regions

Total OrganizationsAutonomous R&D

CentersR&D Units

Number Percent Number Percent Number Percent

Beijing 65 39.2% 51 47.7% 14 23.7%

Shanghai 49 29.5% 35 32.7% 14 23.7%

Tianjin 8 4.8% 2 1.9% 6 10.2%

Guangdong 15 9.0% 8 7.5% 7 11.9%

Jiangsu 14 8.4% 5 4.7% 9 15.3%

Other regions 15 9.0% 6 5.6% 9 15.3%

Total 166 100% 107 100% 59 100%

The Industry distributions of foreign R&D centers in India and China

Major R&D Segment (Target areas of application) Number of Companies Share(%)

Software development (software applications for different sectors, networking tools, multi-media applications, CAD/CAM tools, multimedia tools)

34 25.8

Hardware-computer/telecommunications and embedded tools (chip designing-aerospace/mobile, optical switching systems, broad band system)

19 14.4

Automotive sector (vehicle and component design, embedded control system, safety systems)

14 10.6

Pharmaceuticals (formulations, intermediaries, vaccination, drug discovery)

13 9.8

Agro-chemicals (insecticide, hybrid seeds) 11 8.3

Chemical (coating, basic inorganic chemicals, polymers and synthetic materials, tanning agents, textile chemical)

11 8.3

Consumer products 11 8.3

Engineering goods (Medical equipments, textile machinery, electrical test equipments, compressors, motors)

9 6.8

Biotechnology (Genomics, bio-informatics) 6 4.5

Food industry (fermentation, processed foods) 4 3.0

Total 132 100

Major R&D Segment of FDI Firms in India

Source: Based on TIFAC Survey (2006), Krishna and Bhattacharya,2007

The Industry distributions of foreign R&D centers in India and China R&D organisations set up by MNEs in China by industry, 2004

Industry Total organisations1 Autonomous R&D centres

R&D units

Number Share (%) Number Share (%) Number Share (%)

Software 37 17.2 26 24.3 4 6.8

Telecommunication 35 16.3 20 18.7 5 8.5

Semiconductors 19 8.8 15 14.0 0 0.0

Industrial equipment and components 30 14.0 5 4.7 16 27.1

Automobiles 17 7.9 7 6.5 5 8.5

Commodity chemicals 10 4.7 7 6.5 1 1.7

Biotechnology and drugs 18 8.4 6 5.6 9 15.3

Household electronics 13 6.0 6 5.6 3 5.1

Other IT products 14 6.5 5 4.7 8 13.6

Chemicals 9 4.2 4 3.7 3 5.1

Food and beverages 7 3.3 3 2.8 4 6.8

Industrial conglomerates 2 0.9 2 1.9 0 0.0

Others 4 1.9 1 0.9 1 1.7

Total 215 100 107 100 59 100

Source: Xue and Liang (2008)

Types of R&D Activity of TNC Centers in India

The types of foreign R&D centers in India and China

R&D Activity Type from TIFAC Survey

Pearce (2005) R&D Type Activity

Collaborative R&D Type

Number of TNC Centres (%)

Only Offshore R&D for In-house R&D (ie parent TNC R&D)

Support Laboratories

-

53 (47%)

R&D exports + Domestic Marketing

R&D exports + local manufacturing

Locally Integrated Laboratories

-do- -

23 (20%)

19 (16%)

Contract research - Collaborative R&D 20 (17%)

Total 115 [1](100%)

[1] Note: Actually 15 centres were involved in multiple types of activities and hence the figure escalates to 115 instead of 100.

Source: Krishna and Bhattacharya, 2007

Types of Foreign R&D Centers in Beijing

The types of foreign R&D centers in India and China

Cluster

1（ N＝ 10）

2（ N＝ 11）

3（ N＝ 1）

4（ N＝ 9）

FAC1（ Knowledge Screen and Explore)

2.83（－） 3.52（＋） 4.00（＋） 4.11（＋）

FAC2（ Technology Adaption and Support）

4.15（＋） 2.59（－） 1.00（－） 4.61（＋）

FAC3（ New Product Development） 3.15（＋） 4.09（＋） 1.00（－） 4.33（＋）

TypesKnowledge Exploiting

Knowledge Generating

Knowledge Screening

Multi-type

Source: Liang et. al(2008)

Source ： CISTP Survey(2004-2005)

Influence factors in attracting foreign R&D investments

The importance of different factors which have impacts on MNCs' R&D investing decision in China

3.86

4.29

2.86

2.29

2.86

2.71

2.71

2.14

2

012345

Acquirement of high quality human resources

Level of Chinese economy development, market scale and chances

Level of science and education development of China

Status of protection of knowledge right of China

Level and resources of technology of Chinese related industries

Chinese favorable policies attracting R&D investment

Level of infrastructures of China

W orking efficiency of government departments

Extent of being a native the R&D organization enjoys

ShanghaiBeijing

Drivers of Future R&D Sites

(figures in % in responses from 186 global firms)

Source ： INSEAD Survey 2006

China India Brazil USA

Qualified Workers 12 25 21 17

Technology Cluster and Academic institutions

13 13 14 27

Low cost skill base 24 30 11 3

Proximity to production facilties

17 11 18 12

Others(business/markets)

34 21 36 41

Ⅳ. R&D Outputs in Global

Patents as representative indicators

Source: Sunil, 2009

Trends in patent applications by Indian inventors in the USPTO in comparison with BRICS (Number of patent applications)

Source: Sunil, 2009

Trends in patents granted to Indian inventors in the USPTO in comparison with those granted to BRICS (Number of patent granted)

Foreign R&D Centers (In India) Actively Involved in Patenting in USPTO: Patents Granted by USPTO

(1990-2006)

Organizations/ Industries 1990-94 1995-98 1999-02 2003-04 2005-06 Cumulative Texas Instruments Incorporated 1 13 28 34 64 140

International Business Machines Corporation - 1 16 37 52 106

General Electric Company - 2 24 19 56 101

STMicroelectronics Ltd. 1 11 35 47

Hoechst Aktiengesellschaft 21 7 3 - - 31

Hewlett Packard 3 13 8 24

GE Medical System Global 10 11 21

CISCO 4 16 20

Unilever Home & Personal Care - - 8 8 3 19

Cypress Semiconductor Corp. - 1 5 4 10

Analog Devices 2 1 2 5 10

Intel Corporation 4 - 4 8

Adobe Systems 1 1 1 4 7

Lucent Technologies 1 2 - 3 6

Monsanto Company 6 - - - - 6

Microsoft Corporation 3 3

Source: Krishna and Bhattacharya ， 2007

Patent Activity of Select Firms and Organisations in USPTO (1990-2006)

Organizations/ Industries 1990-94 1995-98 1999-2002 2003-04 2005-06Cumulative

Patents

Council of Scientific & Industrial Research (CSIR)

29 71 278 272 248 898

Ranbaxy Laboratories Limited 7 9 23 20 19 78

Dr. Reddy's Research FoundationDr Reddy Labs

-3

37

321

15-

15-

6511

Dabur Research FoundationDabur India Ltd

-5

-5

156

101

92

3419

Indian Oil Corporation Limited - 2 16 7 6 31

Orchid Chemicals & Pharmaceuticals - - 2 11 5 18

Lupin Laboratories Limited - 7 4 1 4 16

Panacea Biotech Limited - 2 11 1 1 15

Indian Petrochemicals Corporation Limited

1 2 4 3 4 14

National Institute of Immunology 1 2 10 - - 13

Wockhard Limited 6 6 12

Aurobindo Pharma 2 3 4 9

Bicon India Limited 1 5 3 9

Source: Krishna and Bhattacharya, 2007

First-Named Assignee Accumulative Grants

INDIVIDUALLY OWNED PATENT 1033

HON HAI PRECISION IND. CO., LTD. 641

MICROSOFT CORPORATION 295

HONG FU JIN PRECISION INDUSTRY (SHENZHEN) CO., LTD. 205

FU ZHUN PRECISION INDUSTRIAL (SHENZHEN) CO., LTD. 109

HUAWEI TECHNOLOGIES CO., LTD. 103

TSINGHUA UNIVERSITY 101

CHINA PETROCHEMICAL DEVELOPMENT CORP. 79

INTEL CORPORATION 74

CHINA PETROLEUM AND CHEMICAL CORPORATION 65

SEMICONDUCTOR MANUFACTURING INTERNATIONAL(SHANGHAI) CORPORATION 62

SAE MAGNETICS (H.K.) LTD. 61

INTERNATIONAL BUSINESS MACHINES CORPORATION 49

SHENZHEN FUTAIHONG PRECISION INDUSTRIAL CO., LTD. 42

WINBOND ELECTRONICS CORP. 37

UNITED MICROELECTRONICS CORPORATION 27

ASIA OPTICAL CO., INC. 24

CHANGCHUN INSTITUTE OF APPLIED CHEMISTRY, CHINESE ACADEMY OF SCIENCES OF CHINA 23

Patents Granted by USPTO to Chinese inventors (till 2008)

Source ：

USPTO Database

Ⅴ. OFDI and R&D Outflows

Indian Firm Target Firm Country Deal Value (Million $) Sector

Tata SteelTata SteelTata MotorsTata Tea

Corus GroupNatsteelDaewooTetley

UKSingaporeKoreaUSA

12000293118430

SteelSteelAutomotiveTea

Hindalco Hindalco

NovelisStraits Pty

CanadaAustralia

598256

SteelSteel

VideoconVideocon

Daewoo ElectronicsThomson SA

KoreaFrance

729290

ElectronicsElectronics

Dr Reddy Labs Betapharm Germany 597 Pharma

Suzlon Hansen Group Belgium 565 Energy

HPCL Kenya Petroleum Kenya 500 Oil and Gas

ONGC and Mittal Group

Sakhalin and other firms Russia, Sudan, Venezuela and African countries

30,000 Oil and Gas

Ranbaxy LabsRanbaxy Labs

Terapia SARPG(Aventis)

RomaniaFrance

32480

PharmaPharma

VSNL Teleglobe Canada 239 Telecom

Reliance Ind.Reliance Ind

Flag TelecomTrevira

BermudaGermany

21295

TelecomTelecom

Subex Systems Azure Systems UK 140 Telecom

Bharat ForgeBharat Forge

Carl DanSwedish Imatra Kilstra AB

GermanySweden

Na1300

ForgingAuto

Infosys 4 acquisitions Australia, USA Na Software

Wipro 7 acquisitions USA, UK, Austria, Portugal, Finland

250 Software

TCS 2 acquisitions Chile, Australia na Software

Patni Computers Cymbal USA 68 software

M&

A o

f To

p In

dia F

irms 2000

-2007

Source: Various websites – http://track.in/Tags/Business/category/mergers/; Wall Street Journal; http://ibef.org;

Selected M&A deals by Chinese firms, 2001-05

Source: Wu (2005), Boston Consulting Group (2006), see OECD ， 2008

Chinese bidder Target foreign firm/unit Industry

Holly Group Philips Semiconductors, CDM hand-set reference design (United States), 2001

Telecommunications

TCL International Schneider Electronics AG (Germany), 2002 Electronics

TCL international Thomson SA, Television manufacturing unit (France), 2003 Electronics

BOE Technology Group

Hyundai display technology ( Korea), 2003 Electronics

Shanghai Auto Industry Corporation (SAIC)

Sangyong Motor (Korea), 2004 Automotive

Lenovo Group IBM, PC Division (United States), 2004 IT

Nanjing Automotive MG Rover Group (United Kingdom), 2005 Automotive

Selected overseas design and R&D labs of Chinese firms

Source: Various press reports, see OECD ， 2008

Chinese firm Location Industry

Huawei R&D centres in Sweden (Stockholm), United States (Dallas, Silicon Valley), India (Bengalooru) and Russia (Moscow)

Telecommunications

ZTE R&D centres in Sweden (Stockholm), India (Bengalooru) Telecommunications

Glanz Group R&D centre in the United States (Silicon Valley) Electronics

Konka R&D centre in the United States (Silicon Valley) Electronics

Haier R&D centre in Germany, United States (South Carolina) and India, design centre in Boston

IT and electronics

Kelon Design centre in Japan Electronics

Foton Motor R&D centres in Japan, Germany and Chinese Taipei Automotive

Ⅵ. Conclusions

There are really similarities between India and China on their roles in globalization of R&D, which are more complementary than competitive

India is more skilled than China in integrating innovative resources globally, but China has huge potentials and learn quickly

The rising of China and India influence global industry composition and innovation governance.

…………

Thank you!

Comments are welcomeliangzheng@tsinghua.edu.cn