China’s Role in the Global R&D Strategies of
Multinational Corporations
Jason Dedrick
School of Information Studies
Syracuse University
Based on research with Kenneth L. Kraemer and
Jian Tang.
Supported by grants from the U.S. National Science Foundation (SES-0527180) and
the Alfred P. Sloan Foundation.
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Research
• Questions
– How is China trying to upgrade its position in
global value chains for innovative products?
– How are the R&D strategies of MNCs influenced
by China’s policies?
• Methods
– Study of China’s indigenous innovation policies
– Case studies of 5 U.S. high-tech firms in China
School of Information Studies, Syracuse University
Personal Computing Industry Center, UC Irvine and Syracuse University
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Global Value Chains: The iPhone Case
Japan
Display
Korea
Memory
CHINA
Assembly
USA
Processor
USA
Retail
Consumer
USA
Apple
Others
Battery
 “Designed in California, assembled in China”
 Who captures the value from Apple’s success?
 Where is the innovation?
School of Information Studies, Syracuse University
Personal Computing Industry Center, UC Irvine and Syracuse University
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iPhone value capture
Source: Kraemer, Linden and Dedrick, 2011
School of Information Studies, Syracuse University
Personal Computing Industry Center, UC Irvine and Syracuse University
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China’s response: indigenous innovation policies
 Support domestic technology companies
 Promote domestic innovation and standards
 Encourage MNCs to conduct R&D and transfer
technology
 Policy tools
 Tax incentives
 Government procurement policies
 Local patenting requirements
School of Information Studies, Syracuse University
Personal Computing Industry Center, UC Irvine and Syracuse University
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R&D Strategies for MNCs in China
 Motivations
 Develop technologies for large, fast-growing
market
 Low-cost science and engineering talent
 Market access
 “Most companies are doing only as much as the
government forces them to. Market access requires
doing R&D in China.”
 Drawbacks
 Risk of intellectual property loss
 Lack of experienced managers
School of Information Studies, Syracuse University
Personal Computing Industry Center, UC Irvine and Syracuse University
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Impacts of innovation policy on MNC strategies
 Incentives for “domestic” firms and technologies
 “The central government offers subsidies to domestic
companies for indigenous development of technology.
But there is no clear definition of what is a domestic
company.”
 Qualifying requires domestic R&D and patenting
 “The business issue is this: does the benefit of
licensing in China, like tax benefits, potential sales,
goodwill with the government, outweigh the IP risk?”
School of Information Studies, Syracuse University
Personal Computing Industry Center, UC Irvine and Syracuse University
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Operating in China’s policy environment
 Levels of government
 Central government makes rules but local
governments certify firms and offer incentives.
 “The local governments are under pressure to
stimulate high-tech industry, so they attract
companies that appear to be doing high-tech on
the surface although they might not be in reality.”
 MNCs can sometimes navigate to get better
treatment, but bureaucracy is tricky.
School of Information Studies, Syracuse University
Personal Computing Industry Center, UC Irvine and Syracuse University
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MNC R&D strategies vary significantly
IP policies
MNC 1
IP managed
globally
MNC 2
IP managed
globally, IP
from joint
projects is
shared
MNC 3
IP managed
globally
MNC 4
IP managed
globally, IP from
joint research is
shared
MNC 5
IP registered in
China and
globally if
developed in
China
Response to
indigenous
innovation
policy
Try to influence
and shape policy
behind the
scenes
Does not seek
treatment as
domestic
company
Developing local
outsource
suppliers, attract
R&D to China
Built a fabrication
plant, increased
R&D activity
Certified as high
tech company
for lower tax
rate
R&D activities
in China
Development
and testing for
global teams,
localization
Localization.
Potential to
develop
tech’s for
global market
Research and
develop
technologies for
global business
units
Develop extensions
of existing techs for
local market,
possible use in
other markets.
Development for
local market,
development
and test for
global projects
Management
control
Limited control,
decisions made
in U.S. or
elsewhere
Limited
control,
decisions
made in U.S.
Independent
Matrix
projects, integrated organization,
into global projects report to local
management and
corporate teams
School of Information Studies, Syracuse University
Personal Computing Industry Center, UC Irvine and Syracuse University
Lead some
global projects,
compete with
other global labs
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Summary of MNC strategies
 Activities
 Range from localization to significant innovation
 Governance
 Ranges from semi-autonomous to completely under
control of headquarters
 Evolving to greater autonomy
 Interaction with government
 Some seek incentives and submit to government
requirements
 Most compromise on patenting, only licensing jointly
developed technologies
 Some are more vocal, others use quiet diplomacy
School of Information Studies, Syracuse University
Personal Computing Industry Center, UC Irvine and Syracuse University
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Conclusions
 Strategy: MNCs pursue different strategies
depending on their situation and goals
 Importance of China market
 Risk tolerance
 Policy: concerted pressure can have influence.
 China eased some indigenous innovation
requirements under U.S. pressure.
 Important to build coalitions.
 China’s perspective: limited progress so far
 A few Chinese companies succeeding
 Still dependent on foreign technologies
School of Information Studies, Syracuse University
Personal Computing Industry Center, UC Irvine and Syracuse University
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