Many have noticed that functions previously held in Western countries are now being transferred to countries with cheaper labor such as IT support now done in India (neoIT, 2007) and the People’s Republic of China is nowadays by some referred to as ‘the factory of the world’ (Chang 2006). China’s WTO accession accelerates the trend giving hope for a greater market access and a more predictable commercial environment.
In 1984, 3M established its China branch and was the first foreign-invested enterprise established outside the Shenzhen special economic zone. Then, the US multinational 3M Company developed its business and worked on ...view middle of the document...
II. Reasons and Strategy for R&D Transfer to China
The business environment of today is to a large extent influenced by change at a constantly increasing pace. Over the last decade, European companies have increased their globalization, and globalization itself is changing the competitive environment (Meyer, 2006). The companies anticipating the change and exploiting its effects can generate a competitive advantage (Sengupta et al., 2006). The figure 1 shows 3M global R&D development. Gammeltoft (2005) proposed 6 types of motivations for internationalization of R&D: market-driven, production-driven, technology-driven, innovation-driven, cost-driven or policy-driven.
Many foreign players in any number of industries got its start in China by selling goods to the Chinese government – the only possible customer before the era of economic reform – and then began selling high quality equipment to the private sector as a premium segment of the market emerged. Then, Multinationals and local ﬁrms are now squaring off in China’s rapidly growing middle market – a critical staging ground for global expansion and the segment from which world-beating companies will emerge (Gadiesh et al 2005). That’s where some of this foreign R&D focus was occurring, on that challenge. Originally, 3M has been trying to dumb its products down a little bit to make them cheaper so it can boost sales volume in the faster-growing emerging markets and move to a “innovation in China” strategy which emphasizes local development of innovative technology and products adapted to local clients and market, and creating values for clients, community and the general public by its unique innovation mechanism and company culture. A high degree of customer co-operation and product adaptation are then required, leading to the development of local units in the foreign market. Hence, companies like 3M seek to exploit research and development (R&D) abroad in order to seek new technologies and secure more market driven R&D During the past five years, 3M has opened or expanded its R&D capacity in emerging countries, including Russia, Malaysia, China, Brazil and India, to enhance and develop technologies that meet the needs of customers in other parts of the world.
3M claimed that during the year 2011, its revenue from the emerging markets will account for 33% of the total revenue of the company, much higher than the ratio of 17% in 2000. There’s no question that the center of gravity for 3M and other MNCs is shifting overseas (Terry Darling Goldman Sachs & Co) where the growth is (emerging markets). For example, Asia-Pacific sales increased 54 percent in the quarter, compared to sales growth of only 11.6 percent in the United States. Asian consumer per-capita spending is at a very low level, but once it scales up, it will be “a big needle mover” for 3M”. 3M’s growth in China is providing a double lift to the US conglomerate, both revenue growth and...