China a 'fertile field' of fresh business ideas

Companies are moving to make their R&D activity more global

China is becoming a true global innovation hub for multinational corporations from developed markets, a survey has found.

Two-thirds of MNCs reported that they are conducting research and development activity in China for foreign markets, and more plan to follow suit, according to consultancy Booz & Co.

Booz conducted the research in conjunction with the Benelux Chamber of Commerce in China, the 21st Century Business Review and the China Europe International Business School.

The China Innovation Survey, in its second year, drew on the views of 264 domestic and foreign companies.

It found that innovators in China are rapidly gaining competitiveness compared with their counterparts from developed economies.

Companies based in China increased R&D spending by 26.5 percent in 2011, the study said, more than double the global average, five times as much as Europe-based companies and 11 times that of Japanese companies.

The robust growth in R&D expenditure is evidently beginning to pay off. About two-thirds of respondents at MNCs operating in China reported that certain Chinese competitors are at least as innovative as their own companies, if not more so.

Chinese companies also said their innovation efforts are competitive with those of MNCs in China, though they still see significant room for improvement.

Companies are moving aggressively to make their innovation more global. More than two-thirds of the respondents said they are conducting product development for the rest of the world in China.

Participants had big ambitions for the future, with 74 percent saying they expect to be conducting global R&D in China for the rest of the world 10 years from now.

The survey found that vehicle manufacturers and computing and telecommunications companies are the most likely types of enterprises to undertake global R&D in China, closely followed by companies involved with consumer goods, health and life sciences and industrials.

"One example of the kind of innovative products is the Chevrolet Sail car, manufactured by SAIC-GM. The latest model was designed and engineered at Shanghai GM's Pan-Asia Technical Automotive Center, and it is exported to India, Latin America, North Africa and the Middle East," said Steven Veldhoen, a global partner at Booz.

More than half of the respondents forecast that R&D work in China would offer higher value-added than that carried out elsewhere over the next decade.

"I think it is because China has the most diversified consumer segments and the fastest-changing shopper behavior, factors that propel us to keep innovating," said Zhu Jianwen, the Beijing-based president of the R&D center Procter & Gamble Co, a leading consumer goods company based in the United States.

China-based innovation becomes viable also because of its huge market size and incomparable talent pool, said Shen Yuanqing, chief operating officer of Microsoft Corp's Asia-Pacific R&D group.

"The country churns out some 500,000 university graduates annually with computer science-related degrees, bringing fresh impetus to our innovative work. It also ships the largest number of electronic devices," he said.

Respondents to the survey named Alibaba Group Holding Ltd, Huawei Investment& Holding Co Ltd and Tencent Holdings Ltd as the country's top three innovative companies.