Trend: Innovation not Imitation

Written By Daniel Allen on Friday, May 4, 2007 at 9:46 AM | In China, Technology

China ramps up investment in R & D as both national and overseas companies look to leverage an increasingly favorable climate for creativity.

Trend Description:
While the US remains the world leader in R & D, China is fast emerging as a major player in the innovation arena. In 2006 American companies were responsible for 32.4 percent of global R&D, compared to 13.4 percent for China. Those numbers were first and second in the world, respectively, but represent a decline for the US and an increase for China. According to industry analysts the trend will continue in 2007, with the US responsible for 31.9 percent of global R & D and China 14.8 percent.

China’s spending on R & D as a percentage of GDP, known as R &D intensity, has more than doubled from 0.6 percent of GDP in 1995 to just over 1.2 percent in 2004. This represents an increase from just over US$17 billion in 1995 to US$94 billion in 2004. In 2006 China spent US$136 billion on R & D to move past Japan into second spot in the R & D spending table.

With China leading the way, Asia continues to seize more and more of the international R & D market. Asia’s share of global R & D grew from 34.9 percent in 2005 to 35.6 percent last year, and should continue to grow to a projected 36.5 percent in 2007.

The Chinese government has identified eight key areas where it wants to promote R & D, including IT, biotechnology, energy and automation. Despite increased investment from both the government and abroad however, many people feel China is still handicapped by an education system and society that encourage orthodoxy rather than creativity and individuality.

Developing market conditions also mean that an increasing number of foreign companies are setting up R & D bases in China. There are a number of drivers for this dynamic:

 Strengthening of China’s IP laws
 Cheap labor
 An increasingly skilled and specialized workforce
 “Westernization” of China’s domestic market (over 200,000) foreign companies are already manufacturing in China

Case Studies:

AstraZeneca
Last year UK-based pharmaceutical giant AstraZeneca announced its intention to invest US$100 million in R&D in China over the next three years, focusing on the benefit and value of innovative medicines for Chinese patients.
The prime focus of this programme will be the establishment of the AstraZeneca Innovation Centre China. The company has initiated a comprehensive search for an appropriate location for the Innovation Centre, which will be operational by the end of 2009. The Centre will focus on translational science by developing knowledge about Chinese patients, biomarkers and genetics. The initial therapeutic area for the Innovation Centre will be cancer, which is a major cause of death in China.
In addition, AstraZeneca will expand its clinical research capabilities and is looking this year to increase the number of scientific collaborations with local Chinese organizations. AstraZeneca has recently signed a deal worth US$14 million with Wuxi Pharmatech for Compound Collection Synthesis and has an existing collaboration with Shanghai Jiao Tong University on the genetics of schizophrenia.
AstraZeneca China has its headquarters in Shanghai, with branch offices in more than 20 cities across mainland China. The manufacturing plant located in Wuxi, Jiangsu province was inaugurated in 2001.

Novo Nordisk
In March 2007 Novo Nordisk, the Danish pharmaceutical giant and the Chinese Academy of Science (CAS) signed an agreement to establish a joint research foundation in China.
The research foundation aims to fund or co-fund activities of common interest within the fields of diabetes and biopharmaceuticals, including related disciplines and technologies such as protein chemistry, immunology, inflammation, toxicology, oncology, endocrinology and drug delivery.
Dr Mads Krogsgaard Thomsen, executive vice president and chief science officer of Novo Nordisk, said, “This cooperation illustrates the attention Novo Nordisk pays to China as well as our long-term commitment to help in further developing the Chinese healthcare system. We will continue to launch new products in China and increase the company’s R&D presence in the country.”
In January 2002, Novo Nordisk established a world class R&D centre in Beijing, which was the first R & D centre in China established by an international bio-pharmaceutical company.

Microsoft / Lenovo
US software giant Microsoft announced plans in April 2007 to set up a multi-million-dollar joint research and development centre in Beijing with China’s leading computer maker Lenovo.
“The investment involves several million US dollars but the specific figure will vary according to the needs of different projects within the partnership,” said Lenovo spokesman Chen Ji. Each party will hold 50 percent of the joint research and development centre.
The partners will try to identify opportunities in the consumer and mobile markets such as digital photography, digital media and the Internet, the state-run newspaper China Daily said, citing Craig Mundie, chief research and strategy officer at Microsoft.
Lenovo, which has about 30 percent of the market in China, sold five million computers with the Microsoft Windows operating systems last year, out of its total shipment of eight million units, the China Daily said.

Trend Impact:
Changes in government attitudes, direct government investment, liberalization of the economy and an increased emphasis on developing a highly educated, technology-oriented population are some of the major factors leading to the R & D growth in China. These are also reasons why industry from all over the world is changing the way it develops relationships with China’s very own R & D communities.
The first steps in overseas R & D investment in China were characterized by casual, “testing-the-waters” interactions that included preliminary contract research arrangements. However, these have quickly evolved into major investments in institution-building, the creation of subsidiary operations, and the development of a wide range of joint ventures. China’s home-grown R & D market also continues to develop, driven by the knowledge that Chinese enterprises need to be innovative in order to sustain the phenomenal economic growth experienced over the last decade, and to be able to compete with the increasing number of foreign companies entering the Chinese marketplace.

AstraZeneca

Novo Nordisk

Lenovo