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How to take advantage of China knowledge base?
A CEIBS-SKEMA joint research projectBarcelona, November 2013.
102/12/2013Dominique Jolly, CEIBS/SKEMA, How to take
advantage of China knowledge base?
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A changing landscape
“A new world order in innovation is taking hold, one in which rapidly developing economies (RDEs), led by China, India, and Brazil, will increasingly assume more prominent positions, while the United States and other mature economies continue to play major roles but gradually become less dominant.”
(The Boston Consulting Group, 2011, Innovation 2010 – A Return to Prominence and the Emergence of a New World Order).
02/12/2013 2Dominique Jolly, CEIBS/SKEMA, How to take
advantage of China knowledge base?
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Our proposition: Drivers for foreign R&D centers in China have changed
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① COST DRIVEN
= outsource or support for local production
=> low-cost replicated products
② MARKET DRIVEN= adaptation of products or processes developed
outside China or full local development (China for
China)=> revised products
③ KNOWLEDGE DRIVEN= access to the knowledge
of the national & local systems of innovation
=> new products
Cont
ribu
tion
to v
alue
Past strategies Actual strategies Future strategiesDominique Jolly, CEIBS/SKEMA, How to take
advantage of China knowledge base?
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Part 1Mapping the Chinese National
System of Innovation
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advantage of China knowledge base?
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Public research institutes
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advantage of China knowledge base?
the locomotiveof national Innovation
Examples:- SIOC: Shanghai Institute of Organic Chemistry- SIBS: Shanghai Institute of Biological Science- SARI: Shanghai Advanced Research Institute, etc.
+ research institutes managed by ministries
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Public universities
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advantage of China knowledge base?
Program 211 (1995) = focus on 100
The best 10Research
universities
Teachinguniversities
A total of 2.183 universities
(in 2011)
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The top 10 universities
02/12/2013 7Dominique Jolly, CEIBS/SKEMA, How to take
advantage of China knowledge base?
Source: http://edu.sina.com.cn/focus/utop.html
(Hefei)
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Scientific articles from China
Chinese Institute for Science and Technology
• Since 2007, China is 2d rank world-wide with 218.000 scientific articles
Thomson Reuters
• 1998: 20.000 scientific articles• 2006: 83.000 (outpace UK, Germany, Japan,
France)• 2009: 120.000 (USA = 350.000)
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advantage of China knowledge base?8
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+100 science and technology parks
Beijing
Shanghai & Yangzi delta
Guangzhou & Shenzhen
Scientific and technology parks are concentrated in three
regions, and more generally, on the coastal area.
Dominique Jolly, CEIBS/SKEMA, How to take advantage of China knowledge base?
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More and more Chinese companies investing in R&D
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advantage of China knowledge base?
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More and more foreign companies starting R&D centers in China
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Information technologies Pharmaceutical industry
Dominique Jolly, CEIBS/SKEMA, How to take advantage of China knowledge base?
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More and more foreign companies starting R&D centers in China
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Chemical industry
Others: food, car, cosmetic, etc.
Electrical ind. & electronic
Dominique Jolly, CEIBS/SKEMA, How to take advantage of China knowledge base?
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Technological intensity: Long-term trends for leading countries
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advantage of China knowledge base?
0,00
0,50
1,00
1,50
2,00
2,50
3,00
3,50
4,00
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
R&
D s
pen
din
g /
GD
P
USA
Japan
Germany
United Kingdom
France
Italy
South Korea
China
Brazil
India
Sources: OECD and stats.gov.cn
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China’s surge in patent activity
1402/12/2013Dominique Jolly, CEIBS/SKEMA, How to take
advantage of China knowledge base?
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China > USA
In 2011, according to the World Intellectual Property Organization (WIPO), China surpassed the USA for patent applications: 526.000 were filed in China as 504.000 were filed in the USA and 343.000 in Japan.
02/12/2013 15Dominique Jolly, CEIBS/SKEMA, How to take
advantage of China knowledge base?
There are nevertheless several restraints. One thing is volume, quality is quite another. This is domestic patenting; in 2010, China filed only 6% of the patent applications in the international system. And, it is alleged that much of the domestic patenting is not patenting of original innovations, but utility patents for an application, or patents of existing foreign innovations, which are intended to provide a basis for extortion with a foreign company to buy the patent right.
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Chinese NSI in brief
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advantage of China knowledge base?
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Part 2From cost-driven R&D to market-driven R&D
to knowledge-driven R&D
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advantage of China knowledge base?
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Research question: How to foster the innovation output of MNCs foreign R&D units?
Innovation output = f ( location, interactions with the milieu, people management, organization, knowledge management, etc. )
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advantage of China knowledge base?
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What do we mean by R&D?
Fund.Res.
Applied research
DevelopmentUniversities and Public
Research
Institutes
Research and development
Company
Papers& Patents
Patents & Prototypes
Products & processes
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FactoryPrimary Development End of Development
Patents
Dominique Jolly, CEIBS/SKEMA, How to take advantage of China knowledge base?
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Case studies: Nb. of companies visited12 industries 50 companies 71 interviews
Aeronautic 2 2
Electrical engineering 4 6
Electronic 2 6
Car industry 7 9
Chemical industry 12 18
Energy 1 1
Food Industry 2 2
Mechanical engineering 2 2
Construction materials 2 4
Pharmacy & Cosmetics 9 10
Information Technologies 5 9
Semiconductor industry 2 2
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advantage of China knowledge base?
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Sample
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advantage of China knowledge base?21
Country #
French 15
Germany 7
The Netherlands 6
The USA 9
Switzerland 3
United Kingdom 1
Sweden 2
Finland 1
Denmark 1
Japan 2
South Korea 2
Taiwan 1
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Two types of results
Independent of the context:
A. The older the R&D unit, the larger the scope of activities.
B. The number of WOFEs outpaces the number of JVs.
C. The older the R&D unit, the less the percentage of expatriates.
Strongly dependent on the
driver for R&D:
1. Cost-driven2. Market-driven3. Knowledge-driven
02/12/2013 22Dominique Jolly, CEIBS/SKEMA, How to take
advantage of China knowledge base?
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Result (A): The older the R&D unit, the larger the scope of activities.
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Fund.Res.
Applied research
DevelopmentUniversities and Public
Research
Institutes
FactoryPrimary Development End of Development
Market driven
Knowledge driven
Cost driven
Dominique Jolly, CEIBS/SKEMA, How to take advantage of China knowledge base?
(4 exceptions / 40 companies = BM, F, MA, and MS)
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Result (B): The number of WOFEs outpaces the number of JVs
�Predominantly Wofe (Wholly Owned Foreign Enterprise)
�3 x JVs�4 x Take-over of an existing Chinese company�Contracts with Chinese partners (pharma)
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advantage of China knowledge base?
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0,00
5,00
10,00
15,00
20,00
25,00
30,00
35,00
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
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eff
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Année de création du laboratoire
Série1
Result (C): The older the R&D unit, the less the proportion of expatriates.
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Main path
Too much?
Too less?
Dominique Jolly, CEIBS/SKEMA, How to take advantage of China knowledge base?
(data available for 30 companies / 50) F
FF
F
F
F
FF
FF
F
G
GG
G
F: French, G: German
G G
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Proposition: Cost > Market > Knowledge
How to foster innovation output of foreign R&D labs depends on the driver …
Innovation output = f ( location, interactions with the milieu, people management, knowledge management, etc. )
02/12/2013 26Dominique Jolly, CEIBS/SKEMA, How to take
advantage of China knowledge base?
Driver
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Done in China
1. Cost-driven: End of DevelopmentFew or no change to the product or process
Examples
Contribution to a global project: Outsourcing of testing Match with manufacturing: Small domestic appliances
Chinese Factory
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OtherAsian
countries
K
Activities carried in Europe, the USA, Japan, South Korea, etc.
Fund.Res.
Applied research
DevelopmentUniversities and Public
Research
Institutes Primary Development End of Development
Dominique Jolly, CEIBS/SKEMA, How to take advantage of China knowledge base?
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Key Success Factors / cost driven
• Match with suppliers for adaptation to local raw materials and local conditions (temperature, humidity, etc.)
• Match with regulatory bodies for compliance• Need for high degree of connection between R&D and
production• Location: close to Chinese factories to provide technical
assistance or in a S&T park which offers cost advantage for space and/or tax abatement
• People: Local Bs and Ms• Most of the K comes from the HQ in developed countries,
few K is developed in China• Patent / processes
02/12/2013 28Dominique Jolly, CEIBS/SKEMA, How to take
advantage of China knowledge base?
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2. Marketing-Driven: Focus on Development
Products which need a local adaptation: Cosmetics, Car industry, Electrical engineering, Mechanical Engineering, Localized electronic products, Agro foodProduction processes which has to be adapted: Construction materials, Basic chemicals, Pharma clinical trials
Chinese Factory
OtherAsian
countries
Drivers: local demand and regulations
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Done in China
Done in Europe, the USA, Japan, South Korea, etc.
K
Fund.Res.
Applied research
DevelopmentUniversities and Public
Research
Institutes Primary Development End of Development
KReverseInnovation
Dominique Jolly, CEIBS/SKEMA, How to take advantage of China knowledge base?
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Wrinkles or spots?
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advantage of China knowledge base?
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From a two-parts body to a three-parts body vehicle: Peugeot 308
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advantage of China knowledge base?
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Car industry: Stretched models
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advantage of China knowledge base?32
The Chinese 5-Series LWB (long wheel base) model is built at BMW’s plant in Shenyang .
In the land of Mao,90% of the Benz executive sedan trade
comprise long wheel base cars.
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General Electric locomotive for Tibet
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advantage of China knowledge base?
Based on a design developed outside China,adaptation of
diesel engines
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advantage of China knowledge base?34
Construction materials
• Available raw materials
• Temperature• Moisture
>>> need to adapt products and processes
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advantage of China knowledge base?35
Bayer Material Science Showroom
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Key Success Factors / Market-driven R&DChina for China
• Cannot be done remotely: Need to match with local demand– Analyze consumers insights– Co-create with customers (B to B) – Make the market recognize the offer
• Match with regulatory bodies to fit with local standards and regulations
• Hire R&D managers with marketing abilities• Report knowledge developed locally to HQ• No need to be based in a S&T park, localize the center
close to sales people
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advantage of China knowledge base?
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3. Knowledge Driven:Development + Applied R. + Fundamental R.
Global business (same product all over the world, no need for local adaptation):
Software, Energy, Pharmaceutical companies for new drugs, Specialized chemicals, Global electronic products, Semiconductor industry
Chinese Factory
sub-contractors
HQ
The world
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KK
Done in China
HQ
Local start-ups
Fund.Res.
Applied research
Development
Primary Development End of Development
K K
K
Universities
and Public
Research
Institutes
Dominique Jolly, CEIBS/SKEMA, How to take advantage of China knowledge base?
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Example: A petro-chemical company
• Target: to gain access to Chinese research knowledge and infrastructure on the conversion of coal into synthesis gas
• Formation of 50-50 JV with a Chinese engineering company well embedded into the Chinese NSI to develop the next generation of syngas production technology
• Joint project with a Chinese partner from development to deployment
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advantage of China knowledge base?38
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Example : Microsoft, early investment in research• Started research (1999) before the Product
Development activity (2006)• 2013: 300 persons / Research, 3.000 / Product
Development• Intent for R: establish leading connections with
Chinese NSI – The 30 best universities: for hiring large numbers of
smart talents– The Chinese public research centers: for joint labs– The start-ups: The “Cloud integrator program”
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advantage of China knowledge base?39
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Example: The case of the pharmaceutical industry
• Chinese stake-holders: catching up with the West– CAS research institutes– Independent research institutes affiliated to hospitals– Bio-tech companies– Contract Research Organizations (CROs)
• Context – Public research on life sciences in China has not produced tangible outputs– Business is highly fragmented (+ 3.000 domestic companies + 40 MNCs)
• Two activities– Tests on human beings of drugs developed and already approved (by the FDA in the USA, the
EMEA in Europe, etc.). Foreign MNCs look for China approval (CFDA)– Research on new drugs
• Two strategies for research– Implementation of a research laboratory– Implementation of a team having the responsibility to connect HQ research with Chinese
public research teams
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advantage of China knowledge base?40
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Key Success Factors / Knowledge driven R&DChina for the world
• Need to gain the support of HQ• Foster collaboration with public universities and public research
institutes– Funding of initial research– Outsourcing R&D– Collaboration
• People: recruit good scientists (higher proportion of PhD than other modes and more returnees)
• Location: should facilitate access to local systems of innovation (LSI) and/or national system of innovation (NSI)
• Active patenting• Take-over is a possible option• Locally developed K transferred to other company locations
(networking) for worldwide use
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advantage of China knowledge base?
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Another China
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Questions & Answers
Dominique Jolly, CEIBS/SKEMA, How to take advantage of China knowledge base?
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