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Multinationals rev up R&D presence in China

By Wang Zhenghua (China Daily)
Updated: 2008-12-26 08:03

China has surpassed the US and India in 2007 as the most attractive destination in the world for research and development (R&D) investment, according to a recent United Nations report.

There are now approximately 1,000 R&D centers in China with most of them in the technology sector. The number of centers in the country continues to rise thanks to the ongoing investment by multinational corporations (MNCs), the increasing need to be closer to local customers and low labor costs.

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While a number of these R&D facilities have been successful in terms of research results, product development and overall growth, others have never reached their targeted size or scope and have not provided the desired return on investment, according to a survey by Russell Reynolds Associates, a leading global executive search and assessment firm. The survey polled over 20 R&D center heads from the technology sector in China.

Conscious and clear positioning, competency-based hiring, leadership induction and integration are some of the major factors that companies look for when expanding or setting up new facilities in China, the consulting firm said in its report.

Companies should first decide what type of center is most appropriate for them after a review of their business strategy, motivating factors for key stakeholders and the market, talent situation in China. They should also understand the key challenges the new facility would face, says Ed Zheng, the author of the report.

On competency-based hiring, MNCs need to look for candidates that best demonstrate the competencies that are relevant to the identified challenges, it said.

"The most important challenge for the new leader will be to understand how the headquarters works and to build sponsorship at senior levels," he says.

The best investment that a company can make for the new leader is to help him or her integrate with the senior leadership team effectively.

R&D heads said their facilities in China are now becoming strict on new hiring as they expect reduced investment in the wake of the global financial crisis.

Daniel Lee, general manager, eBay global development center, says the US online auctioneer is scrutinizing the growth of its R&D headcounts across the world and "China is no exception".

Xie Enwei, general manager, server & tools business, Microsoft China, expects a slower growth for the software giant's R&D business in China, compared to a 100-150 percent growth in the past few years. He, however, adds that Microsoft has not changed its original investment commitments.

The Russell Reynolds report also categorizes the R&D centers in China as extension centers, competence centers, product centers and research centers.

Technical staff in extension centers acts as an extension of the core R&D teams located in other parts of the world. Competence centers relatively complete modules of the development process, typically including detailed design, coding and quality assurance. Product centers own the end-to-end life cycle of the product. Research centers on the other hand concentrate on truly path breaking innovations.

"When we asked our respondents what were the critical factors for success, the answers were strikingly consistent. An in-depth understanding of the relevant technologies and industry as well as solid experience of managing development processes were considered prerequisites," says Zheng.

Respondents also agreed that the critical factor for ongoing success is the leaders' ability to win sustained support and sponsorship at the highest possible level within the broader organization.

The principals need to understand how the headquarters work, know the key stakeholders, understand their respective business priorities, and the explicit and implicit processes of "getting things done" at headquarters, the report said.

The success of an R&D facility also hinges upon its leader's ability to constantly define and redefine a clear positioning, for instance, to choose the technological and functional areas to focus upon, and build capability.

"R&D heads need to proactively seek opportunities to promote their capabilities and success stories to potential stakeholders, corporate technologists and business unit leaders. Internal promotion is especially critical in the early stage of a facility but remains a crucial part of the R&D head's job even after the business is established," the report adds. 

Hiring, people development and cultural astuteness are also important factors for success in China.

The successful R&D leaders also recognize the need to define people development goals in terms of not just technical skills but also managerial capability, communication skills and behavioral traits based on the strategic positioning of their facilities.

An interesting facet from the study was that a number of top developers in China demonstrated a strong desire to move into management roles. This seems to be more prevalent among local teams in China than among their Western counterparts, Zheng says.

The developers consider a promotion to the manager level as the strongest recognition of their technical skills and expect to make an upward move every two to three years, the survey said.

Top management positions are inevitably more limited, and some individuals are more suited for a purely technical role. Those companies that want to keep specific individuals in a technical track often find the following initiatives effective:

Build an environment that rewards technical innovation and excellence with public recognition such as awards, training opportunities and short-term transfers to overseas R&D centers.

Relocate senior technical executives with recognized technical achievements from overseas facilities to China to serve as role models.

Hands-on management and entrepreneurial approach, drive for results and early wins, process and procedures, are other critical factors.

"One respondent noted that, 'If your company hasn't set up a R&D center in China, the chance is that it will do so very soon'," says Zheng.