This document provides an overview of trends in the multinational corporation research and development landscape in China. It discusses the continuous growth of MNC R&D centers in China, with over 1,300 centers established as of 2011. It also examines the emergence of secondary Chinese cities as locations for these centers, with nearly half of MNC R&D centers now located outside of top tier cities like Beijing and Shanghai. The role of the Chinese government in supporting rising research and development investment in the country is also covered.

1. Media Release
MNC R&D Landscape: A China Perspective
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2. Overview 1
SCOPE
 This report is intended to provide an overview of the MNC R&D landscape in China
 More specifically, the report maps the evolution of R&D in China, how it compares with India
and the following key trends in the local R&D ecosystem:
 Continuous growth of MNC R&D centers in China
 Emergence of Tier-2 locations as new centers of growth
 Rising competition for MNCs from domestic Chinese firms
 Change in innovation philosophy of MNCs in emerging geographies
 Expansion of work portfolio by MNCs in China
 Diminishing cost arbitrage advantage for MNCs in China
 In addition the report looks at the role of the government for the rising R&D investment in the
region
CONTENTS
 The current document is a preview to the complete study and covers the evolution history of
R&D in China with focus on 2 key trends: Growth of MNC R&D centers & Emergence of new
locations for R&D in China
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3. China has evolved as a premier destination for R&D offshoring in the last
few decades 2
Evolution of R&D Globalization in China
Pre-Historic Era Reforms Era Exploratory Era Expansion Era
1949 – 1965: 1977 – 1988: Early – Mid 1990s: Late 1990s – 2000:
• China adopts Soviet S&T System • Reforms in Economic, Legal and • MNCs setup China centers as a test • Mature stage for MNCs with
and signs Sino-Soviet Treaty of Education fields, foreign trade and case for R&D off-shoring successful test cases
Friendship, Alliance & Mutual import of Science & Technology
Assistance (S&T) from West • Most of these centers involve local • Growing global competition for
partners in technology transfer for international R&D
• R&D initiatives in Defense & Heavy • In 1979, Deng Xiaoping signs a leveraging tax & other financial
Industries begin bilateral agreement on S&T benefits 2001 – Current:
cooperation with US, which is
1966 – 1976: renewed every 5 years henceforth Mid – Late 1990s: • In 2006, Introduction of National
Medium & Long term program for
• Sino-Soviet Split in 1960s • 1979, Special Economic Zones • Booming IT sector and Inter firm S&T Development
introduced in Fujian & Guangdong – competition for R&D forces MNCs
• Over dependency on Soviet aid & entry of low-tech & light industry to look for market expansion • China plans to invest 2.5 percent of
technology gives major setbacks to its GDP in R&D by 2020 from 1.45
Chinese R&D • Program 863 launched in 1986 • Number of Joint Venture firms in percent in 2006
concentrating on basic & applied China for R&D gradually increase
• Cold War limits technological aid & research in 8 key areas • By the end of 2008 multinational
trade sanctions • Work profile is localization of corporations had established over
• Torch program launched in 1988, products than creation of new – 1,100 R&D centers in China from all
• Political Instability & radical steps 53 High Tech Development Zones More ‘D’ (development) than ‘R’ the industries
by Mao disrupt growth of R&D launched (research)
• Despite downtime, China added
200 new centers between 2009 to
March 2011
Source: Ministry of Commerce (MOFCOM), China; Ministry of Science & Technology (MOST), China; National Bureau of Statistics (NBS); Zinnov Analysi
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4. Though offshoring of R&D to China started way back in’90s, recent trends
indicate that the landscape is currently undergoing a paradigm shift 3
a b
Expansion to
Continuous growth
Government secondary locations
of MNC R&D centers Influence to perform R&D
Diminishing cost Key
Rising MNC
f
arbitrage advantage Trends competition with c
domestic Chinese
firms
Maturity and
Transformation &
expansion of work Government
Influence innovation in R&D
portfolio
e d
Source: Primary interviews with stakeholders, News aticles, Zinnov Analysis
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5. One of the key contributors to the rapidly evolving R&D landscape in China
a
is the phenomenal growth of MNC R&D centers in the last decade 4
2011 MNC R&D Centers* in China (Till 2011)
1046 MNCs
1,400 1300 R&D Centers 1,300 300
266 275
1,200 1,100 250
1,000 904
200
163
800 196 200
138 629 150
600
363 100
400
199
200 50
0 0
Before '00 01-'02 03-'04 05-'06 07-'08 09-'11
Total Number of MNC R&D Centers (till March 2011) Number of New MNC R&D Centers (till March 2011)
Cisco,
Microsoft, Samsung, nVidia, EMC, ARM, British Yahoo,
Broadcom,
Fujitsu, Motorola, Nokia, Telecom, BMW,
IBM,
Ericsson, Panasonic, Kronos, SanDisk, Eli Lilly,
Electrolux,
Intel, Nortel Toshiba, TI McAfee Avaya Foxconn, Esri
Logitech
Of the Fortune 500 companies worldwide, over 400 already have R&D centers in China
Note: *A company can have more than one R&D centers
Zinnov Source: Economist Intelligence Unit (EIU); Ministry of Commerce (MOFCOM), China, Newspaper Articles; Zinnov Analysis
Confidential
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6. Growth in MNC R&D centers is being significantly driven by Global top 1000
a R&D spenders who have shown increased interest in extending their 5
presence in China
Distribution of MNCs Having R&D Centres in China in
Comparison to World’s Top 1,000 MNC R&D Spenders, 2008
China World’s Top 1,000 World’s Top 1,000
R&D Spenders China
620 R&D Spenders
700 704
658
300 342
Number of MNCs: 920 2008 Number of MNCs: 1046 2011
• There is an increasing interest of the top global R&D spenders in the China domestic market
opportunities, abundant talent pool, quality infrastructure and government support
• These companies are working on an “in China for China” strategy along with a global focus of their
R&D centers
• Some of the recent entrants include Yahoo, Toyota, Eli Lilly, Volvo etc.
Source: EIU; Ministry of Commerce (MOFCOM), China, Zinnov Analysis
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7. MNCs in China have increased their R&D presence not just through opening
a
new centers but by also increasing the headcount in existing setups 6
Distribution of MNC R&D Centers in China by Headcount Range
120
The R&D centers are gaining in head This group represents firms who have over the
count growth over the years and are years have accumulated the best of the talent
slowly building up a mature talent from China and have increasingly grown with a
pool. Ex. UTStarcom, Infineon fast pace in headcount year over year. Eg. EMC,
100
Technologies, NEC etc. Microsoft, IBM, Bosch, Nortel etc.
Average Headcount Per Center
Number of Centers
80 (2008) = 117
60
40 2011
2008
Average Headcount Per Center
20 (2008) = 105
0
0 - 30 31 - 60 61 - 100 101 - 200 201 - 300 301 - 400 401 - 500 501 - 600 601 - 1000 1001 - 2000 2000+
Headcount Range
Source: Primary Interviews, Company web sites and press releases, News Articles, Zinnov Analysis
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8. China is witnessing rapid expansion of secondary locations as these are
b
increasingly becoming viable for MNCs to set up their R&D centers 7
Growth Drivers for Emergence of Tier-1 locations
Tier-2 Cities Established secondary locations
Emerging secondary locations
Cost arbitrage over 20-30% saving in total cost
tier-1 Cities
Improved R&D Suzhou and Chengdu have one of the IT
infrastructure largest high tech parks in China Dalian
Beijing
Improved rail-road China has the world’s longest HSR1
connectivity Tianjin
Wuhan-Guangzhou HSR etc.
Concentration of
industries
Wuxi: Microelectronics
Shenzhen: Infocomm Products China
Suzhou is the second biggest industrial
Telecom Suzhou
Electronics
Economic and cultural
development city after Shanghai Xi’an
Electronics Nanjing
Wuhan Wuxi
Shanghai
Hangzhou
Availability of talent About 50% of the installed talent pool Chengdu
pool of MNC R&D centers is in tier-2 cities Chongqing Fuzhou Xiamen
Incentives given by
In addition to the waiver of Corporate Software
taxes Local taxes (about 3%) are Guangzhou
the local governments
exempted in Shenzhen, Wuxi etc.
Shenzhen Infocomm
Note: 1 High Speed Rail
Zinnov Source: Ministry of Commerce (MOFCOM), China Primary Interviews, Company web sites and press releases, News Articles, Zinnov Analysis
Confidential
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9. Secondary locations now account for nearly half of the total number of
b
MNC R&D center establishments 8
Headquarter Location Wise Distribution of
MNC R&D Centers Across Key China Locations (2011) China Location
100%
ROC
Dalian
75%
Chengdu
Suzhou
Per Cent
50%
Guangzhou
Shenzhen
25%
Beijing
Shanghai
0%
US EU Japan SEA ROW
(54%) (28%) (9%) (6%) (3%)
Headquarter Location
Source: Ministry of Commerce (MOFCOM), China, News Articles, Zinnov Analysis
Zinnov
Confidential
This is a preview. The total slides displayed are limited. For full access contact info@zinnov.com

10. Additional Information 9
 The current document is a preview to the complete study and covers the evolution history
of R&D in China with focus on 2 key trends: Growth of MNC R&D centers & Emergence of
new locations for R&D in China
 The full report provides information on other key trends in the MNC R&D landscape in China
including
 Rising competition for MNCs from domestic Chinese firms
 Change in innovation philosophy of MNCs in emerging geographies
 Expansion of work portfolio by MNCs in China
 Diminishing cost arbitrage advantage for MNCs in China
In addition, the role of the government in driving R&D investment in the region is analyzed
 Full report on China MNC R&D landscape can be accessed at
 Zinnov ‘s Global Location & Talent Pool Portal. Sign up today for a free trial account
http://zinnov.com/US/demo_signup.php
 Or, email us at info@zinnov.com
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