Research & Development in China. ”The next big thing”? By Claus Lønborg, Head of Innovation Center Denmark, Shanghai

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Why do we need an Innovation Center in China?
Danish companies and research institutions want to gain easier access to the world’s leading innovation environments. This is why Helge Sander, the Danish Minister for Science, Technology and Innovation was present at the opening of ”Innovation Center Denmark, Shanghai” on 27 September, 2007. The Innovation Center is a cooperation between Trade Council Denmark/Ministry of Foreign Affairs and the Danish Ministry for Science, Technology and Innovation.

Today – 4 months after the opening – the Innovation Center has 11 employees working on three different fronts:
- Commercial Innovation: Assist Danish companies with establishing R&D cooperation with Chinese partners or with the implementation of development projects or inventions in China.
- Research and Education: Help establish contacts and joint research projects between Danish and Chinese universities and research environments.
- Invest in Denmark: Help Chinese companies establish themselves in Denmark with a view to generating new jobs and strengthening the innovative environments in Denmark.

We have been met with an overwhelming interest from Danish companies and organisations and there is no doubt that the opening of an Innovation Center in China was perfectly timed. A number of Danish companies are already established in China with production, sourcing or sales and quite a few are now considering R&D as the next step in their development. But many questions have to be answered before the decision of establishing R&D in China can be made – and this is where the Innovation Center is often able to help!

Four Good Reasons for Establishing R&D in China

During the last few years China has been investing heavily in education and research and is now very close to changing its role as the world’s production center to becoming a serious player on the international, innovative scene.

Today China has the second highest R&D budget in the world and the country educates far more candidates and PhDs than any other country.

When you ask Danish and other western companies why they wish to establish R&D in China, the answer you get typically fall into one or more of the following four categories:

1) Access to talent
With a labour market in dire need of hands, an increasing number of companies are finding it extremely difficult to recruit talent. China’s educational system is well-developed and there is a number of highly respected universities which each year generate a total of about 600,000 new candidates and PhD’s.

2) An increasingly interesting market
With China’s extraordinary growth over the last few years, Danish companies now see the possibilities for producing FOR China and not only IN China. This however often requires local development – or at least adjustment of the company’s products in order to be competitive with the local players.

3) Access to research results
As a result of China’s focus on innovation and the R&D investments of international companies in China, an increasing number of impressive innovation results are seen every year. Today China ranks as number five in the world in terms of the annual number of patents taken out. This figure grows by 17% per year!

4) Labour cost
In terms of cost it is still attractive to employ Chinese researchers and developers (compared with Danish employees) and this is of course an important factor. However, it is not the decisive factor for the companies. In relation to R&D, companies are more focused on value increment than cost (some would say ”but of course!”).

Large multinational companies such as Phillips, BASF, Microsoft and others have already established themselves within the area of innovation. Danish companies such as Grundfos, Danfoss, Novo Nordisk, and Novozymes were among the first to take the step into R&D in China and based on conversations that I have had with several Danish companies, I have no doubt that many more are about to take the plunge.

IPR: Intellectual Property Rights
You can hardly talk about R&D and China without mentioning ”IPR”. China is notorious for copying any success and by far the majority of counterfeits stopped at EU borders originate in China. I have often been asked by Danish companies whether it is too risky to establish R&D in China. After all, the companies put their future livelihood at stake. There is no doubt that companies should take IPR protection very seriously and they should think IPR into their business plans and make sure that all legal and operational precautions are included. However, I do not think that the IPR issue in itself should deter companies from working in China. By staying away you risk being overtaken by the rapid development which is taking place in the country. If companies really wish to take advantage of the possibilities of ”globalisation”, they have to be there - right where this development is happening. A way to get started is to establish R&D within well-defined areas which are not easy to copy or use and then use your experience from there to proceed. In addition it is always a good idea to take contact to other Danish companies with experience in the subject area. The Innovation Center can of course help you with this.

Where are the good brains?
Companies which have already established production in China may be disposed to place their R & D under the same roof. This is not necessarily a good idea. Where companies often look for ”low cost”, it is still essential that you are later able to create ”high value” in relation to R&D. Therefore you should consider the following issues:

1) Are you able to obtain qualified labour? (If the production facilities are placed in a remote place, it can be difficult to attract talent from the big cities).

2) Will it possible to build relations and enter into networks with the most important innovation environments (e.g. universities, research parks etc.)?

3) Are there any other companies in the area which work with innovation and is it possible to exchange experience and knowhow?

How to get started?
There is probably not a universal answer to this question but you may be able to use the following procedure to get started. The Innovation Center will gladly help you through the entire process or part of it:

R&D Capability Analysis
What can China deliver within R&D for your company? How strong are their research environments and where are the competances located? Such an overall screening should provide you with the answers you need in order to decide whether it is relevant to consider China as a R&D country and it will also define the areas where you need to search.

”Fact Finding and Match Making”
Most companies will probably be pleased to get into contact with established research environments – private as well as public. A visit to China to have meetings with selected companies, universities, investors, government offices etc. is necessary. It will also provide an in-depth answer to whether establishing your company in China is an attractive proposition.

Networking – Innovation Community
If you have reached the decision that R&D in China seems to be interesting for you, then a number of challenges will undoubtedly arise. Make sure that you participate in a network and enter into active dialogue with other companies in the same situation. You can get a lot of help there.

Shanghai Platform: The first innovation bridge head to China

The Innovation Center offers companies the possibility of renting offices at the center in order to provide a smoother start in the foreign culture. We can help you with practical issues and can serve as a door opener which will help you connect with new cooperation partners.

A lot of things have to be considered and a lot of challenges have to be overcome. But as someone with experience with the innovative process once said, ”Innovation is 1% invention and 99% transpiration”. Enjoy the road ahead!

Contact information:

For further information please visit www.innovationcenterdenmark.cn

or contact Claus Lønborg on +86 21 5497 2000

or e-mail: claus@innovationcenterdenmark.cn

Facts about Denmark’s Innovation Centers

The establishment of international innovation centers is part of the Danish Government’s globalisation strategy. The first Innovation was opened in June 2006 in Silicon Valley. The second innovation center was opened in Shanghai on 27 September 2007 and the third will open in Munich, Germany in spring 2008. The Innovation Centers are established by Trade Council Denmark/Ministry of Foreign Affairs in cooperation with the Ministry of Science and Technology. The Innovation Centers are to function as Denmark’s bridge head to innovative environments, companies and capital in the foreign environments where they are located. Each innovation provides an incubator facility making it possible for companies to rent offices for a limited period and thereby getting an easier start to their company’s activities in the new country and culture.

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