The International R&D Strategies of Chinese Companies- Evidence from Europe By Jieyin Zhang June,

The International R&D Strategies of Chinese Companies- Evidence from Europe By Jieyin Zhang June, 2008 PhD proposal presentation

Why I choose this topic? • Practical significance Along with the globalization of economic competition----the new phenomenon of international R&D operations of the MNCs from emerging countries In such a dynamic global competitive environment, how can the MNCs from emerging countries conduct their international R&D activities globally to obtain the resource and knowledge through their organization setting? • Theoretical significance Limited literatures are about the theoretical explanation of the new phenomenon from the perspective of the organizational arrangement use the framework of double network theory cross-border integration and coordination strategies of Chinese MNCs PhD proposal presentation

What I want to do? • The purpose of this paper is to provide a “window” on the following efforts: • Assess if the Chinese MNCs can pursue effective catching up paths in the area of R&D; • Examine Chinese MNCs’ international R&D activities in term of international R&D organizational arrangement (double network organization) to seek competitive competence (innovation capability); • In a deeper level, I hope to give some suggestions of international R&D strategies for not only Chinese MNCs but also the MNCs from Emerging countries. PhD proposal presentation

Agenda • Introduction: The background of global FDI • 2. Literature Review • 3. Putting forward research questions • 4. Propositions • 5. Data collection and research methodology PhD proposal presentation

1. Introduction: The background of global FDI • Ⅰ.The development in global FDI: FDI from both developed and developing countries • (1) The global FDI situation • Both inward and outward global foreign investment (FDI) flows are increasing in developing countries. • WIR [2006]: • Inward FDI-‘Global FDI inflows rose by 29% to $916 billion in 2005, compared to a 27% increase in 2004, which still remained far below the 2000 peak of $1.4 trillion; Inward FDI in developed countries started to increase in 2004, after three years of significant decline between 2000 and 2003, and Inward FDI in developing countries rose by another 22% to $334 billion, following a 57% growth in 2004.’ • Outward FDI-‘Global FDI outflows in 2005 showed a somewhat different picture than did inflows, declining by 4% to $779 billion. Developing countries are emerging sources of FDI strengthened their global position further in 2005, investing $117 billion in 2005- 4% more than in the previous year.’ PhD proposal presentation Source: UNCTAD

1. Introduction: The background of global FDI • Ⅱ. International R&D by MNCs • International R&D activities are the advanced stage of FDI • MNCs play an important role in R&D internationalization and account for a major share of international R&D • Figure-1 R&D expenditure by selected MNCs and economies, 2002 • (Billions of dollars) Source: WIR, 2005, Figure IV.1. PhD proposal presentation

1. Introduction: The background of global FDI Leading Chinese Companies Investing Overseas, January, 2003 to March, 2006 • Ⅲ .The ODI of Chinese companies PhD proposal presentation

1. Introduction: The background of global FDI • Ⅳ.The innovation system revolution of China-The role of government • 1978: Open Door Policy-Deng Xiaoping committed China to adopting policies which promote foreign trade and economic investment. [Fallon, Steve] • 1985: the first transformation of the innovation system of China- ‘highly systemic’ [Gu,2006] • 2005: the 11th National Economic and Social Development Program (2006-2010)-the strategy of ‘endogenous innovation’ and ‘harmonious development’ • 2006: Chinese government took strengthening innovation capacity and building up innovation-typed state as an essential of National Medium and Long-Term Science and Technology Plan • R&D expenditures of China (1999-2005) Source: http://www.sts.org.cn/ PhD proposal presentation

1. Introduction: The background of global FDI Under the support from government, Chinese corporations play a key role of innovation in China. The source of China’ R&D fund(2001-2005) Implementing Sector of China’s R & D Expenditures Source: China Science and technology statistics (http://www.sts.org.cn/), summarized and calculated by author. PhD proposal presentation

2.Literature Review • Ⅰ. The theories evolution about multinationals from the third world Two waves of MNCs from developing world [Mathews, 2006] (1) The first wave of MNCs from developing countries(1970s-1980s): three basic theories to explain the growth of third world MNCs • Investment Development Cycle theory [Dunning, 1981] • The theory of small-scale technology [Wells, 1977] • the theory of localized technological change [Lall, 1977] (2) The second wave of MNCs from developing countries(1990s-21st century) • The literatures are mainly follow two dimensions: to get the competitive advantages and organizational configuration: • Asserts seeking theory [Deng, 2007; Child and Rodrigues, 2005] • Resource based view (RVB) [Gao, et al., 2006] • Dynamic capabilities perspective (DCP) [Hong and Sun, 2006] • DCP branch: Organizational learning theory [Fan, 2006; Hitt, et al., 2005] • Network theory [Zedtwitz, 2005; Chen and Tong, 2003] PhD proposal presentation

2.Literature Review • Ⅱ. The international organization of R&D: The evolution of network theory applied to MNCs • Inter-organizational network (Ghoshal and Bartlett, 1990) “a network of intra-firm linkage”  “integrated network model” (Hakanson, 1990) ,external network  “double knowledge-based network” (Zanfei, 2000) “metanational corporation” (Doz et al., 2001); • The role of subsidiary (Helble and Chong, 2004; Kuemmerle, 1999; Lehrer and Asakawa, 2002; Pagano, 2006; Piscitello and Rabbiosi, 2006); “The firm’s competitive advantage hinges exist at the subsidiary level” (O’Donnel, 2000;Hakanson and Zander, 1988) • knowledge transfer units  knowledge creation centers (Lehrer and Asakawa, 2002) PhD proposal presentation

(1)Strategic motivation of international R&D (2) International organizational learning pattern (3)International R&D entry mode choice (4)R&D organizational structure centralization degree (5) International R&D control mechanisms 2.Literature Review • Ⅲ. International R&D strategies and organization of MNCs Technology-driven vs. market-driven technology exploration vs. technology exploitation Cooperation with local partners vs. Experiential accumulation Greenfield investment vs. M&As vs. JVs (non-equity based cooperation vs. equity-based cooperation Centralization vs. Autonomy Centralization vs. Formalization vs. Socialization (Informalization) PhD proposal presentation

2.Literature Review • Ⅳ. The latecomer international R&D strategies of Chinese MNCs • Three dimensions of studies: • (1) the internal and external factors that influence the international strategy choice : • motivations [Hong and Sun, 2006; Chen and Tong, 2003; von Zedtwitz, 2005], institutional factor [Child and Rodrigues, 2005], opportunities for improvement in the development of technologies [Gao, et al., 2006] • (2) Innovation capability development • innovation capability development [Gao, et al., 2006; Fan, 2006; Mathews, 2006] • (3) international R&D organization strategy of Chinese MNCs: • Organization structure [Chen and Tong, 2003; Tong and Dai, 2003; von Zedtwitz, 2005], locations & paths [Chen and Tong, 2003] ,control & communication mechanism [Chen, Tong and Jing, 2004] (Chinese) PhD proposal presentation

2.Literature Review • Ⅳ. The latecomer international R&D strategies of Chinese MNCs • Limitations: • 1. The external network is still neglected • 2. The R&D subsidiary role in a double network: • Knowledge transferor or Knowledge creator? • 3. The R&D internationalization patterns of Chinese companies haven’t been investigated deeply (case studies/ interviews) • 4. The control and communication mechanisms to coordinate the ever-dispersing R&D organization and transfer knowledge PhD proposal presentation

2.Literature Review • The innovative issues: • A. Data advantages: Using the evidence from Europe to do a integrated study on the international R&D strategies of Chinese companies. • B. Research methodology advantages: A triangulation approach-both questionnaire and interview based multi-case study • C. Research topic advantages: there are few studies concern the topic about international R&D strategies of emerging countries. I will deepen the research in three aspects: organizational learning, organizational configuration and organizational control and communication mechanisms. I will try to find the strategic differences of the MNCs from China, and bring forward some strategic suggestions for not only Chinese MNCs but also other emerging countries to pursue effective catch-up paths in term of R&D internationalization. PhD proposal presentation

3.Putting forward research questions Mapping the R&D units of Chinese companies in Europe • Research questions will follow a double knowledge network-based theoretical RQ1: Internalization patterns Motivations/learning process Double Network theory Learning channels Autonomy degree RQ2: The international R&D organizational configuration Internal linkages vs. external linkages organizational control and communication mechanisms PhD proposal presentation

Q1: Which are the main international R&D patterns of Chinese MNCs in Europe? 3.Putting forward research questions For this research question, three sub-questions would follow: A. To what extent Chinese MNCs have set up R&D labs in Europe? B. Which are the main motivations for the establishment of R&D labs by Chinese MNCs in Europe? C. To what extent R&D labs by Chinese MNCs involve external actors in their activities? Four patterns of international organizational learning PhD proposal presentation

Q2: Which is the organizational configuration of R&D units set up by Chinese MNCs in Europe? 3.Putting forward research questions For this research question, two sub-questions would follow: A. Which is the degree of R&D organizational centralization of Chinese MNCs? (in term of autonomy degree) B. Which are the main control & communication mechanisms adopted by Chinese MNCs in the management of R&D labs in Europe? C. To what extent Chinese MNCs appoint expatriates for the management of R&D labs? PhD proposal presentation

5. Data collection and research methodology • Ⅰ. Research methodology • This research would be multi-case studies based qualitative method combined with empirical analysis based quantitative method. The mixing methods would be from a quantitative pilot study to in-depth cases. Questionnaire and interviews would be used to collect data and test hypothesis. • Reasons: • 1. The international R&D activity of Chinese MNCs is a quite new phenomenon for academic research • 2. The limited samples of R&D subsidiaries of Chinese MNCs in Europe • 3. The consideration of a low cooperative rate of Chinese companies in academic research (Chen and Tong, 2003; von Zedtwitz, 2005) PhD proposal presentation

5. Data collection and research methodology • Ⅰ. Research methodology • This research investigates the overseas R&D units of Chinese companies and the international R&D strategies of Chinese companies. With regard to the cases selection, this research focuses on the overseas R&D units of Chinese multinationals in Europe. • There is a two-fold reason to choose the R&D subsidiaries in Europe as the research samples. Firstly, Europe is deemed as one of most popular ODI destination by emerging countries, including China, and a lot of R&D subsidiaries of Chinese MNCs have conglomerated in Europe; secondly, there are many developed countries with diversified technological advantages concentrated in Europe to attract R&D investment of different industries. • Considering the limited samples of R&D subsidiaries of Chinese MNCs in Europe and a low cooperative rate of Chinese companies in academic research [Chen and Tong, 2003; Von Zedtwitz, 2005], multi-case studies based qualitative method combined with empirical analysis based quantitative method would be used in this research. • As an exploratory study, in-depth Interviews with R&D managers and an assistant questionnaire would be the main method to collect the necessary data. PhD proposal presentation

5. Data collection and research methodology • Ⅱ. Data collection • Firstly, I draw the research samples from the database-locomonitorTM (LOCOmonitorTM contain the data of investments projects for filter China in Europe from Jan. 2003 to Aug. 2007.) and open sources such as written documentation, newspapers, and internet. • Secondly, I would contact the regional headquarters in Europe, subsidiaries in Italy and R&D units by fax, Email or telephone, and send them a cover letter with a description of the research project and a recommendation from Professor or university to make sure if the R&D units really existed and would accept my survey. At the same time I would fix the interviewees that are supposed to be the top managers in the R&D units. In this step, 16 R&D units established by Chinese companies in Europe are identified, 5 of which have accepted to cooperate with this research. • Thirdly, I do face to face or telephone interviews interviewees, most of who are senior R&D managers of the R&D unit. Before the interview, I let the respondents to do a questionnaire for the quantified questions that is ‘used for pre-testing the survey instruments’ [Helble and Chong, 2004] and enhancing the validity of the interviews’ findings. • Fourthly, I integrate the data and information from both questionnaire and interviews. With regard to the issues not be answered clearly, I contact the respondents again as follow-up research. • Fifthly, With regard to the information and data that I can not get directly from some company, I also turn to secondary sources, such as LexisNexis®Academic (http://www.lexisnexis.com/), Factiva (http://www.factiva.com/) and official websites. PhD proposal presentation

International R&D units of Chinese companies in Europe PhD proposal presentation

Preliminary evidence Preliminary results in the course of interviews in Europe are suggesting that Chinese companies are planning their R&D subsidiaries in Europe driven by technology exploration and they try to achieve a good external cooperation. At the same time, through the interaction with local partners, the R&D units go through a maturation process, progressively increase the level of sophistication of the activities they perform. They are learning in both internal and external networks, and gradually becoming the independent knowledge creators. PhD proposal presentation

Preliminary evidence • According to two main dimensions: motivation/learning processes and learning channels, we identify four types of learning patterns: (1) Cooperative-exploratory learning; (2) Experiential-exploratory learning; (3) Cooperative-exploitative learning; (4) Experiential-exploitative learning, which are corresponded by four different roles of R&D subsidiaries: (1) “Observation outposts”; (2) “remote enters of excellence”; (3) “market gatekeepers”, and (4) “market colonizer”. In our cases, most of the R&D subsidiaries more close to the role of “Observation outposts” • we find 3 possible R&D internationalization evolution paths of Chinese companies: (1) The traditional evolution path from HBE to HBA; (2) The evolution path from HBA to HBE; (3) The evolution path from cooperative learning to experiential learning. In particular the latter two evolution paths seem to be more feasible for the emerging MNCs according to the developing process of our cases. PhD proposal presentation

Thanks! PhD proposal presentation

The International R&D Strategies of Chinese Companies- Evidence from Europe By Jieyin Zhang June,