My hosts, German chemical company BASF, are investing heavily in R&D in China. This multi-acre campus, already crowded with showrooms, manufacturing facilities and labs, is about to become more crowded with a new €55 million ($75 million) research facility and a new headquarters. The company expects to employ 450 professionals at the site when it opens next year.
Even before the new facility comes online, research is already underway. The company manufacturers both high-tech plastics and polymers─chemical additives that make cement more water-resistant, say, or paint dirt-resistant─here. White-coat-clad Chinese technicians fine-tune chemical mixtures based on customer requests, making incremental tweaks to existing products. This is the ‘development’ in R&D.
The first question is, Why, given the challenges, China? Mr. Dreher says it’s because ‘you need to do R&D where the customers are.’ Old-fashioned proximity is a crucial way of collecting market intelligence and responding quickly to customer demands. Similar considerations are driving an uptick in BASF’s R&D investment in India, Malaysia and even Indonesia. Projecting strong economic growth here, BASF and other companies conclude they can’t not do research in China.
China produces a much-vaunted army of science grads, but the education system often leaves them unprepared to work in a modern research center. Mr. Dreher notes that despite recent improvement, too many grads still focus too narrowly on one branch of chemistry, for instance, depriving themselves of the broader scope successful research requires. Lack of English fluency is a big problem, especially for foreign companies whose China-based researchers must be able to collaborate with scientists around the world.
Then there’s personnel management. High staff turnover plagues many companies and will not be easily fixed. It’s not only salary competition. Mr. Dreher cites fundamental differences in corporate culture as a big culprit.
In the West, a researcher measures career progress not only in terms of job title but also with less tangible metrics such as whether he’s able to take on greater levels of informal leadership responsibility over time. Chinese hires tend to be much more concerned about prospects for rapid promotion up a well-defined hierarchy. Western companies struggle to accommodate that mentality.
This in turn is the main source of concern over intellectual-property protection─the fear of what inside knowledge workers take with them when they leave. Mr. Dreher notes that China is better at protecting intellectual property today than it was five years ago. And staff turnover is an IP danger anywhere in the world. But Mr. Dreher says he has to be more careful in China simply because of the high volume of turnover. The design of the new innovation center has included consideration of how to manage workers’ access to various kinds of information to limit the leakage when any one worker leaves.
Mr. Dreher raises one other challenge, and it’s the most surprising one of all: the government. Despite Beijing’s stated support, Mr. Dreher notes that at a practical level building the innovation center has been challenging simply because of the red tape involved in building anything in China. He points to the hassle of securing building permits and other licenses from various levels of local government.
Nice piece on MNE’s perspective on doing R&D in China: market driven, had to do it! Personnel issues of bad narrow education, desire for promotion rather than self accomplishment and finally turn over rate heeding the first sign of better opportunity