China may overtake India in MNC R&D investment: study

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SME Times News Bureau | 09 Jun, 2011
A recent study by consultation firm Zinnov reveals that China is likely to take over India in terms of investment in research and development in the next few years as it is driven by various government incentives, schemes and high level of innovation.

So much is the interest in Chinese markets that of the Fortune 500 companies worldwide, over 400 already have R&D centres in China, according to a study by management consulting firm Zinnov. The country plans to increase its investment in R&D to 2.5% by 2020 from 1.45% of GDP in 2006.

On the other hand, India is home to only half of the Fortune 500 companies’ R&D centres. In fact, this growth may become a threat for India. Global firms’ R&D investment in China stands at $7.65 billion, which may soon overtake India’s market, whose size is estimated at $7.75 billion. India had a clear edge over China till a few years ago but now China is competing head-to-head with India, the study says.

Moreover, the fresh R&D talent pool availability in China has also increased over the years and Chinese centres are rapidly expanding their headcount base. The fresh talent pool in China is estimated at 56,000 while that of India is at 45,000 - a gap which will soon become narrow. Also, unlike India, tier-II cities in China are expanding fast and aiming at a significant share of the MNC R&D pie.

“While the Chinese MNC R&D subsidiary market is growing at 16% annually, more than India’s 11%, the market has also undergone a transformed innovation process where the market growth and competition from local companies made MNCs to review their business models. This reverse innovation process, coupled with constant innovation, played a significant role in the evolution of the Chinese R&D ecosystem. China today hosts one-third of the global 1,000 R&D spenders with their R&D subsidiary centres,” said Praveen Bhadada, manager-consulting, Zinnov Management Consulting.

R&D subsidiary refers to centres other than the company’s headquarters. A firm can have multiple centres in a country. Significantly, China is increasingly becoming an R&D hub for many of auto companies such as Audi, Toyota and Volvo. Besides, its secondary locations now account for nearly 50% of the MNC R&D centres.

Bhadada added that manufacturing was the single largest contributor to the R&D in China followed by semiconductors, software and telecom.