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(Courtesy Cory M. Grenier via Flickr)

 

The Asia Pacific Century A New Asia

Asia Society 50th Anniversary 1956-2006

December 4, 2006

p. 70 Development Issues

 

Asia Draws R&D Investment

By Bill Marcus

 

Motorola’s computer scientists have succeeded in developing a recognition technology to translate handwriting in many of the world’s leading languages into cellphone text messages. The technology is so successful that it is seven able to decipher the notoriously difficult script of left-handed writers.

But the research and development facility where Motorola achieved this success was not in Silicon Valley. It was in Shanghai, one of six Chinese cities into which the U.S. telecommunications company invested $800 million since it set up the first transnational R&D center in China in 1993.

Motorola’s stake is just part of the annual $2.1 billion spent in research and development in value-added, knowledge-based economies in Asia, a number that’s quintupled since the early 1990s, according to the United Nations. Business management consultant Booz Allen Hamilton projects that by 2020 engineering services global spending will top $1.1 trillion, with high-tech and telecom commanding 30 percent of the market and China and India leading the way.

“What’s most amazing is that it’s moving so fast,” said Torbjörn Fredriksson an economist with the UN Conference on Trade and Development (Unctad) and one of the authors of Unctad’s World Investment Report 2005: Transnational Corporations and the Internationalization of R&D .

Since the early 1990s R&D spending in Asia by American multinationals has grown from 3% to 10% of their R&D spending outside the U.S. China’s share of foreign R&D spending grew from 0.1 to 3.1 percent. The number of foreign-owned labs there increased in 10 years from virtually zero to 750.

A major component of that policy is the region’s massive growth in tertiary education – Asia is simply educating more scientists and engineers. And they are productive, says Tom MacTavish, vice president of Human Interaction Research for Motorola Labs.  He describes his Shanghai staff as educated, motivated and ready to learn. “With good telecommunications we come in every morning and we see new innovations that were created by our colleagues on the other side of the world.”

“Cost is a great benefit but not a primary justification for establishing a research center,” says the Motorola executive, whose labor overhead in China is 40 percent of what it is in the U.S.

European transnationals, attracted by cheap labor and land, moved a third of all their work designing easy-to-ship but extremely complex-to-design semiconductor chips, said Unctad’s Fredriksson. That’s because the same $300,000 chip designer in Silicon Valley costs $28,000 a year in Shanghai.

Software giant Microsoft, headquartered in Redmond, Wash., partners with universities throughout Asia; chip maker Intel of Santa Clara, Calif., has 250 university research projects underway, while Seagate Technology of Scotts Valley, Calif., trains Khon Kael university students in Thailand how to grow the Thai hard disk drive industry.

But Jerry Thursby, a professor of economics at EmoryUniversity, says costs are low on the list. Thursby, who with his wife, Marie, a research economist, authored of Here or There? A Survey on the Factors in Multinational R&D Location, finds proximity to the emerging markets of China and India and their universities drives U.S. and Western European firms when deciding to locate listening posts to track emerging sciences or sites for new R&D spending. Intellectual property protection is the top detractor.

“They want to be there because they want to sell there,” says Thursby, whose study was published in May, 2006 by the National Academies, an independent research group supported by the U.S. government.

The Thursbys’ survey found out of 143 new R&D centers sited outside Western multinationals’ home countries, well over half – 80 —  were sited in Asia, with the  lion’s share, 55, starting up in China. India followed with 18, Singapore with five, the South Korea and Taiwan with one each. The fact that overseas universities were the number two draw was his greatest surprise, Thursby says. “If a firm is going to go because of costs – don’t,” he advises.

China and India are, respectively, the number one and number three nations that corporations say they want to invest in over the next three years. (The U.S. is number two). The trend is for them to produce more and more skilled engineers and for R&D spending in the U.S. and Europe to stagnate and decline, says Unctad economist Fredriksson.  “The people with university education will increasingly be found in Asia,” he says.

Patents, too. Of the 26,000 foreign applications to the U.S. Patent and Trademark Service in the decade following the early ‘90s, four-fifths came from Taiwan and Korea. Almost all developing world applications came from developing Asia.

The Unctad report credits innovation in developed Asia – especially Taiwan, South Korea, and Singapore – to long-term policies of tertiary training. South Korea, with a population of 47 million, is number four in the world in students studying to be engineers, the report said.

Sammy Sana, managing director of Motorola’s Global Software Group in Bangalore, where researchers are perfecting a rural-friendly $40 phone that takes voice commands in 22 languages, says success of the Indian software industry is predicated on IT trainers needing only three to six months to make an Indian graduate “project ready.” General Electric set up a major research center in 2000 in Bangalore that now employs 3,000 researchers. Cisco, Intel and other U.S. IT companies have followed suit.

Biotechnology industries in India, meanwhile, buoyed by new laws protecting intellectual property, are three times more likely to lure skilled scientists and engineers back from the West than IT.

In quadrupling their 16-year-old Bangalore, India, facility London-based AstraZeneca, the world’s number five drug manufacturer, drew 27 out of  86 of the scientists charged with finding a new tuberculosis cure back from abroad. In Beijing’s ZhunguancunTechnicalPark, one out of every six high-tech companies was started by a returnee.

“They’re still missing some pieces which lead to economic well-being,” says Dr. Catherine L. Mann, a senior fellow at the Washington, D.C.-based Peter G. Peterson Institute for International Economics. By growing a broad-based economy on the rapid shift in research dollars, countries end up paying too much attention to the export market.  “They’re not looking inwards to their own country’s demands and directing research dollars there,” she notes.

Another potential problem is the inability of central governments to plan and regulate rapid macroeconomic growth when local governments are wooing foreign investment. In summer 2006, China ‘s central government, for instance, shut down a power plant in Inner Mongolia and issued a warning to officials who had combined local autonomy with personal gain, Xinhua News Service said.

Allowing transnational corporations to dictate where to invest can also result in geographic clustering. The benefits of foreign technology investment often end up concentrated in urban areas far away from where 1.5 billion of the 2.3 billion residents of China and India who survive on less than $2 a day are located.

But experts agree the overall prognosis for innovation in developing Asia is strong, as long as national investment, technology and industrial policies continue to create an effective nexus of labor, academia and the private sector.

 

Bill Marcus, a veteran broadcast and print journalist based in Shanghai, contributes regularly to The Shanghai Daily as well as various technology publications.

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