Japanese Enterprises and R&D Activities by Multinational Enterprises in China

No.270
July 2006
Senior Research Fellow Jianmin Jin

1. According to a 2005 UN survey, China ranked as having the third highest number of foreign-owned R&D bases, behind only the US and the UK. Moreover, China was cited as the most attractive region for establishing R&D bases in the next five years. According to statistics from China's Ministry of Commerce, there were 750 R&D bases established in China by foreign enterprises as of July 2005. In contrast to these trends, however, Japanese enterprises have been wary of fully engaging in R&D activities in China due to fears of technology leakage and personnel loss.
2. This report presents case studies of a total of eight enterprises (two from Europe and three each from Japan and the US) with local establishments in China in order to investigate the state of R&D activities by multinational enterprises in China. While there is no great difference in the motivations of Japanese, US and European enterprises' R&D forays into China, US and European enterprises combine strategies for the Chinese market together with R&D, while Japanese enterprises employ minimal coordination between their R&D and market strategies. There are also differences in the way Japanese enterprises handle localization and human resources strategies within the organization and personnel of their R&D centers.
   
   It should be noted, however, that the job separation rate at R&D centers in China is never much higher than 10%. Furthermore, R&D centers in China are also actively working toward the improvement of copyrights for research results as well as enhancing systems for protecting enterprise secrets. Additionally, there have been no confirmed cases of intellectual copyright infringement or technology leakage due to job separation.
3. Intellectual copyright infringement and technology leakage due to the loss of personnel have not become an issue in China, and enterprises should not confuse the problems faced by production and sales bases in China with those of R&D bases. Enterprises must clarify the role of R&D centers in China and create human resources and organizational strategies that match these roles in order to attract talented personnel. It is also necessary for enterprises to create a bright research environment by including a mix of employees with varying academic backgrounds and experiences in order to lower the job separation rate at R&D centers. One measure that is indispensable in lowering the job separation rate of employees is to establish a system of institutionalized intellectual copyright protection in place of surveillance by individuals. Fair and balanced results can be achieved if enterprises throw out the preconceived ideas that "China has weak enforcement of intellectual copyrights" and instead take firm action in the case of infringement. Furthermore, enterprises should avoid making local business-academic collaboration their goal; instead, contracts should clearly reflect a strategy of research results ownership-rights from a cost performance perspective.

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