• US$130 million… invested by Microsoft, for setting up R&D centers in Beijing, Shanghai and Suzhou
• Nokia has stationed its global R&D centers in Beijing and Hangzhou.
• GE's R&D center in Shanghai is one of the company's three largest research bases across the world
• Novartis and AstraZeneca have announced plans to invest about $100 million in R&D in China
• Global majors like Microsoft, IBM, Motorola, Volkswagen, GM, Siemens, Nortel have R&D centers in China

According to the Chinese government statistics, about 750 R&D centers (foreign-funded) exist in China, located primarily around Shanghai, Beijing and Shenzhen. The R&D centers span across verticals including software, auto, pharma and telecom. An indicative list of some of the prominent captive R&D centers in China is given in the table below:

Harnessing Chinese talent

During the last decade, there has been an over 75% growth in employment of research personnel in China to reach close to one million (compared to about 1.3 million researchers in the US)

Most of the China's R&D centers employ local staff in 80% of their managerial and other senior positions. To access qualified manpower, companies like GE, Alcatel and Motorola are tying up with local universities and institutes. With the world's largest number of engineers, science postgraduates and PhDs produced in the country, China seems to have a good resource pipeline. By setting up China centers, the global companies are garnering the huge resource availability, to gain offshore advantage. Take for example, drug development, where the success rate is extremely low: while the research may last as long as 20 years, the cost can go up to as much as US$1 billion. It makes economic sense to locate in China, which provides low cost of development, as qualified human resources are available at almost one-fourth the cost of that in the US.

The IP protection threat

While cultural fitment is a commonly encountered issue, a greater concern amongst global companies is that of IP protection. Apart from major focus on localization of products, primarily the work sent across is peripheral rather than core. There are rare instances of local subcontracting and collaborative research. Concerns over IP protection are a major holdback for most global companies that would otherwise consider setting up China centers.

According to the Chinese patent office, more than over 400,000 Chinese patent applications were filed in China in 2005. Amongst foreign countries, Japan filed the most Chinese patent applications followed by European Union and the United States.

Because of the burgeoning Chinese market, relying on the US patent alone is considered inadequate to maintain competitive advantage by US-based companies. Companies that have filed Chinese patent applications believe that only when pending applications are granted as patents will it mean that Chinese IP protection exists.

The Chinese government, post-WTO membership is taking steps to bring up the IP protection and enforcement laws to international standards. While R&D centers in China will continue to grow, perceptions of IP threat will remain the top concern, at least for some time. A thriving Chinese counterfeit goods industry in complete defiance of intellectual property provides little comfort to the fears of some global companies currently.

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