how China seeks to innovate

Post from Alan Brown: 

Alan Brown

I recently attended a panel on engineering globalization put together by Rochester Institute of Technology’s Ron Hira and the National Science Foundation. There were many interesting talks, but I want to touch on one by Jason Dedrick of Syracuse University’s School of Information Studies.

Jason Dedrick of Syracuse University’s School of Information Studies recently spoke at a panel on engineering globalization that was put together by Rochester Institute of Technology’s Ron Hira and the National Science Foundation.

Dedrick is well known for studies with UC Irvine’s Kenneth Kraemer and Greg Linden on Apple’s value chain. They found that the U.S. trade deficit increases $275 for every iPad sold in the United States, but the value China captured from their assembly is only $10.

Naturally, China wants to capture more value in the global value chain. One way is to encourage more indigenous innovation.

China does that in several ways. Some are obvious, like supporting domestic technology companies and providing favorable tax and procurement policies.

Others are surprising, Dedrick said. China wants its companies to seek roles in setting standards, since companies that do so capture large amount of profit. It often strong-arms multinationals to conduct R&D and technology transfer in China. This is a relationship shot through with ambivalence, since China does not want foreign firms to dominate its markets or set standards.

Dedrick got five multinationals to open up about their Chinese R&D strategies. There was a great deal of variation among them. All the firms understood that they needed to R&D in China to gain access to its large, fast-growing market. At a minimum, some plan to re-engineer existing products for the Chinese market. Others have gone beyond that. They see China as a source of low-cost science and engineering talent to bolster their overall research efforts.

Either way, Dedrick sees mission creep: Once a company sets up a lab, the people in it become entrepreneurial in developing new technologies. Over time, they will pull work into their lab and start competing with other corporate labs for projects.

There are downsides. The risk of theft of intellectual property is well understood. Less well understood is the lack of experienced that Chinese R&D managers with 10-15 years of experience have.

Another increasingly obvious risk, Dedrick said, is that there is really no such thing as the Chinese government. There are many different ministries and various local and regional governments. While the central government may set the rules, it is the local governments that certify firms and offer incentives.

Often, their goals clash. The central government might want world- class R&D, but the locals might prefer an investment that delivers jobs. Sometimes, Dedrick said, multinationals can navigate among different government entities for better treatment. Other times, they are blindsided by other agencies.

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The Editor

John G. Falcioni is Editor-in-Chief of Mechanical Engineering magazine, the flagship publication of the American Society of Mechanical Engineers.

May 2012

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