Strategies for R&D in emerging economies

ICIS has run several roundtables recently where innovation has risen as a topic, particularly the growing move by chemical majors to carry out innovation in places like China and the difficulties encountered. Now consultancy McKinsey has carried out an industry survey to assess the current situation.

It finds that many companies have not even addressed the issue of doing research and development in emerging economies like China, India and Brazil, even though these are the markets with vibrant growth prospects and the need for localised innovation in products that meet market demands.

McKinsey found that "fully one-third of executives around the world say their companies are not doing any R&D work in emerging economies." However, the good news is that companies that are active are addressing local needs, and not just attempting to shift innovation for developed markets to low cost regions.

Says McKinsey: "Of the two-thirds of respondents whose companies pursue such efforts, the largest shares say their R&D is focused on either global product platforms or local innovation in emerging economies, as opposed to R&D for developed markets only, which respondents say is not a major focus of emerging-market R&D operations. Moreover, companies appear to be aligning their goals, whether it’s seeking lower development costs or gaining better access to customer insights, with their specific R&D focus in emerging economies."

You can read the full report here.

Unleashing Chinese innovation

Two factors are currently spurring Western chemical companies to commit ever-increasing innovation investment to China. One, the country is now the world's largest market for chemicals (according to Cefic figures), and two, the government is shifting the focus to domestic demand to drive growth, rather than it being export-led.


Dow Corning's new China Business and Technology

Center in Zhangjiang Hi-Tech Park, Pudong, Shanghai,

illustrates the company's faith in innovation to support

market growth in Greater China.

Also, as I pointed out in an earlier post on this blog, Chinese innovation as measured by patent filings is maturing rapidly. To win a share of the still-fast growing Chinese market - GDP was around the 10% mark yet again last year - companies are having to bite the bullet on how they can innovate for the local market.

But before investing in research and technical centres in China, fears about intellectual property theft and copy-cat plants and issues surrounding recruitment and retention of talented researchers all need to be assessed and overcome.

Many of these issues were debated in a recent ICIS Roundtable on specialty chemicals and China, held in Frankfurt in association with Booz & Company.

The subject has also recently been discussed by Gordon Orr, a director in McKinsey’s Shanghai office in an article entitled "Unleashing innovation in China". He argues that China's success in innovation has been at best patchy to date but adds that: "There is no reason China shouldn’t aspire to... innovation... The evidence to date shows that, given the right incentives, Chinese scientists, engineers and entrepreneurs are eager to rise to the challenge of developing products for the global market." The challenge will be unleashing this innovation through changes in state policy.

In the meantime, it puts Western players in a strong position to innovate for the local Chinese market as well as using their research base in China as part of their overall global innovation network. Collaborating with the huge Chinese institutes and universities is a good way to tap into the Chinese capacity for innovation. It is no wonder we are seeing major investments now going forward.