Overseas R&D: Fast track for learning

International operations play dual role of supporting and teaching Chinese enterprises in global economy

As they expand overseas, Chinese enterprises have entered a new phase: taking advantage of international knowledge and technology.

It goes beyond merely chasing overseas market opportunities. Globalization of research and development activities has become the key for the Chinese enterprises to enhance their capacity and competitiveness.

Chinese enterprises are latecomers in establishing overseas research and development subsidiaries but they realized their importance.

Following in the footsteps of enterprises from the United States and Europe, which invested greatly in overseas R&D centers in the 20th century, Chinese enterprises have tried to develop R&D overseas with unique characteristics.

We may identify the trends of current overseas R&D investment as the follows:

First, the Chinese firms' overseas R&D subsidiaries have surged in quantity. In 2010, 149 Chinese enterprises established overseas R&D subsidiaries.

In 2013, that number increased to 515. A total of 2,190 Chinese enterprises have been "going out" for R&D investment since 2010, with 1,600 during the last three years.

Second, Chinese enterprises' overseas R&D subsidiaries have been widely distributed in both developed and developing countries, including 10 of the least-developed countries.

Third, the majority of the enterprises are from the manufacturing (756), electronics (390) and internet (66) industries. The other top industries are pharmacy, agriculture, information and communication, biology, medical, clothing, media, food and space. This industrial distribution is in accordance with China's traditional pattern, as well as its new development trajectory shaped by economic transition trends.

While surging in quantity, and embarking on a unique Chinese path, the Chinese enterprises' R&D "going out" is still at an early stage. Among the 1,600 enterprises that established overseas R&D subsidiaries in the past three years, only 60 registered more than one. Enterprises that registered an R&D subsidiary for the first time (or only once) went to 96 percent of the total.

That is to say, most of the enterprises are now using a "polycentric decentralized" R&D configuration, based on one or several R&D subsidiaries, without much overall coordination in between.

Only a few big enterprises, such as Huawei, Zhongxing Telecommunication Equipment Corp and China South Railway, have formulated an integrated global R&D network.

Taking a closer look at the large number of Chinese enterprises which established overseas R&D subsidiaries in the past three years, the purpose of 1,553 is to support sales and production in the host countries.

This type of R&D subsidiary is defined by Western economists as a "support laboratory" for multinational corporations in the developed countries. Supporting sales and production in overseas markets has been the primary incentive for R&D investment.

This is the same with the Chinese enterprises.

Furthermore, Chinese enterprises view the globalization of R&D as a "window of opportunity" to catch up with advanced technology, which resonates with the country's resolution to develop through technological innovation.

R&D "going out" has achieved remarkable progress and has demonstrated to the world a new kind of "globalization". But there are challenges ahead.

The Chinese enterprises need to balance a market-supporting orientation with a knowledge seeking orientation", continuously optimizing their configuration in order to achieve both the aims of enhancing competitiveness and the national goal of innovation-driven development.

Liu Xielin is Dean of the Innovation annd Entrepreneurship Research Centre, University of Chinese Academy of Sciences and Wu Sheng is a doctoral student in the academy.

The views do not necessarily reflect those of China Daily.

(China Daily European Weekly 02/24/2017 page12)