The Time is Now for China R&D

The importance of a well-designed China R&D game plan

As multinational executives consider their China R&D strategy, local companies are already penetrating into their key markets at an astonishing speed. The time is now for multinationals to take action on their China R&D game plan, whether that means increasing existing R&D capabilities or initiating an entry plan, failure to act now will risk missing out on a tremendous opportunity. Skepticism will always prevail but overcoming that will require thorough and strategic thinking.

Define your R&D strategic goal

Defining a clear goal for your China R&D center is vital for success. Many MNCs often find their current R&D center is not effective enough to sustain revenue growth, or current operations face challenges related to cost, talent pressure, and regulatory barriers. This is likely because a clear strategic objective was not properly defined at the very beginning. FSG proposes four types of objectives that an R&D center can achieve based on your business’ maturity:

• Market Entry: During market entry, MNCs should consider outsourcing the manufacturing function to China by monetizing cost arbitrage. By establishing a local supplier network, China sites will help MNCs become a cost leader in the global market.
• Early Stage: As time goes by, headquarters may allocate more responsibilities to China R&D such as developing the full range of project management competencies. R&D centers at this stage will begin to conduct relatively complete modules of the development process rather than just low value added manufacturing.
• Late Stage: Given that local market is becoming more attractive, China R&D centers may be elevated to develop a local product/brand to cater to the domestic market. Organizations will also evolve from a centralized model to a decentralized model.
• Established: At the next level, companies can consider expanding their China R&D center to serve similar Asian or even global markets. The benefits are obvious; to improve China R&D centers’ scalability by converting them into global resource integrators. This upgrade will also help to enhance the bottom line, as revenue is increased by leveraging China R&D center for Asia/global and cost is reduced by consolidating duplicated resources across pan Asia/global wise.

Though this framework is not a one-size-fits-all solution it is a great starting point for MNCs needing to enter or ramp-up their R&D efforts in China. FSG has done in-depth research assisting multinational executives to consider deepening their China R&D plans. Eventually, the R&D offices in China can play a larger role, i.e. manage some global product innovations or help in launching products which can be optimally used across Asia.