Foreign Software Company in China

R&D spending by large and medium-size foreign companies contributed about 11.5 percent of the total enterprise R&D spending in China.

Foreign R&D spending in China is thus still small, but rising with the influx of more foreign direct investment (about US$1 billion per week), the national 10 percent annual GDP growth rate, and the individual expansion of foreign R&D centers in China in size and numbers (see Figure 1). Nevertheless, foreign R&D in China is still in a nascent stage.

In general, the average salary of Chinese engineers is still quite low. At Tsinghua University, considered by many as the “MIT of China,” engineering graduates can expect to make about 4,000CNY (about US$500) a month in their first job. When working for foreign firms, Chinese R&D engineers earn on average about one-third of what their peers make in the U.S. or Western Europe. With salaries accounting for 40-60 percent of a typical R&D budget, the attraction of being able to employ more than twice the number of university-educated engineers in China is huge.

Companies establish R&D in China for business, political and strategic reasons. A significant investment in local R&D helps build relationships with the local or national government, which in turn facilitates business-related deals. As “friends of China,” it is often those with an R&D presence who get the favorable nod from the inside of powerful ministries. However, it is usually the central government in Beijing that encourages foreign R&D investments more than the provincial or municipal governments, whose interest is not primarily in global science and technology but rather in local tax revenue and employment, thus clearly favoring investments in more labor-intensive manufacturing facilities. Still, a foreign R&D lab makes local officials look better. Foreign companies thus assign networking and representative roles to their R&D centers in China, and in some cases these political responsibilities are more important than the actual R&D work done there.

Most foreign R&D labs have been established in China only recently and require more time to mature organizationally and produce truly innovative results. There are two camps of thought in this respect. The first camp believes that China will not be able to shed its status as a developing country and that the lack of creativity and initiative is hard-wired into the current generation. This camp argues that it took Japan and Korea many decades to develop leading-edge technologies even in only a limited number of areas. The second camp is more optimistic and believes that China’s overall energy and dynamism will also put its R&D on a fast track.

To benefit from China, one must be there. To realize China’s potential and opportunities, it is crucial to be a part of it, grow with it, give back to receive, and most importantly be there when it happens. China is changing rapidly. What is supposed to be a “Chinese standard” is actually a “moving target.” Whatever China is today, it will be different tomorrow. To succeed, one has to be continually vigilant in identifying first-mover opportunities while also anticipating future implications. A local organization and local technical capability need to be built. This requires a long-term organizational commitment that not every company is prepared to make. It also requires significant persistence and tenacity to carry it all the way.

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