China’s Role in the Global R&D Strategies of Multinational Corporations

1. China’s Role in the Global R&D Strategies of Multinational Corporations Jason Dedrick School of Information Studies Syracuse University Based on research with Kenneth L. Kraemer and Jian Tang. Supported by grants from the U.S. National Science Foundation (SES-0527180) and the Alfred P. Sloan Foundation.

2. Research School of Information Studies, Syracuse University Personal Computing Industry Center, UC Irvine and Syracuse University • Questions • How is China trying to upgrade its position in global value chains for innovative products? • How are the R&D strategies of MNCs influenced by China’s policies? • Methods • Study of China’s indigenous innovation policies • Case studies of 5 U.S. high-tech firms in China

3. Global Value Chains: The iPhone Case Japan Display USA Korea Retail CHINA Memory Consumer Assembly USA USA Processor Apple Others Battery • “Designed in California, assembled in China” • Who captures the value from Apple’s success? • Where is the innovation?

4. iPhone value capture Source: Kraemer, Linden and Dedrick, 2011 School of Information Studies, Syracuse University Personal Computing Industry Center, UC Irvine and Syracuse University

5. China’s response: indigenous innovation policies • Support domestic technology companies • Promote domestic innovation and standards • Encourage MNCs to conduct R&D and transfer technology • Policy tools • Tax incentives • Government procurement policies • Local patenting requirements School of Information Studies, Syracuse University Personal Computing Industry Center, UC Irvine and Syracuse University

6. R&D Strategies for MNCs in China • Motivations • Develop technologies for large, fast-growing market • Low-cost science and engineering talent • Market access • “Most companies are doing only as much as the government forces them to. Market access requires doing R&D in China.” • Drawbacks • Risk of intellectual property loss • Lack of experienced managers School of Information Studies, Syracuse University Personal Computing Industry Center, UC Irvine and Syracuse University

7. Impacts of innovation policy on MNC strategies • Incentives for “domestic” firms and technologies • “The central government offers subsidies to domestic companies for indigenous development of technology. But there is no clear definition of what is a domestic company.” • Qualifying requires domestic R&D and patenting • “The business issue is this: does the benefit of licensing in China, like tax benefits, potential sales, goodwill with the government, outweigh the IP risk?” School of Information Studies, Syracuse University Personal Computing Industry Center, UC Irvine and Syracuse University

8. Operating in China’s policy environment • Levels of government • Central government makes rules but local governments certify firms and offer incentives. • “The local governments are under pressure to stimulate high-tech industry, so they attract companies that appear to be doing high-tech on the surface although they might not be in reality.” • MNCs can sometimes navigate to get better treatment, but bureaucracy is tricky. School of Information Studies, Syracuse University Personal Computing Industry Center, UC Irvine and Syracuse University

9. MNC R&D strategies vary significantly School of Information Studies, Syracuse University Personal Computing Industry Center, UC Irvine and Syracuse University

10. Summary of MNC strategies • Activities • Range from localization to significant innovation • Governance • Ranges from semi-autonomous to completely under control of headquarters • Evolving to greater autonomy • Interaction with government • Some seek incentives and submit to government requirements • Most compromise on patenting, only licensing jointly developed technologies • Some are more vocal, others use quiet diplomacy School of Information Studies, Syracuse University Personal Computing Industry Center, UC Irvine and Syracuse University

11. Conclusions • Strategy: MNCs pursue different strategies depending on their situation and goals • Importance of China market • Risk tolerance • Policy: concerted pressure can have influence. • China eased some indigenous innovation requirements under U.S. pressure. • Important to build coalitions. • China’s perspective: limited progress so far • A few Chinese companies succeeding • Still dependent on foreign technologies School of Information Studies, Syracuse University Personal Computing Industry Center, UC Irvine and Syracuse University