The report discusses about China being an lucrative destination for setting up R&D facilities

1. China R&D Overview
June 2013
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5. Zinnov 5
Note: *MSA – Metropolitan Statistical Area
Source: Doing Business in Chengdu; Invest in Chengdu – government website; Government of Chengdu. 2011-05-13. Retrieved 2012-03-16;
Government of Suzhou. 2011-03-18. Retrieved 2012-03-18; Doing business in Suzhou
Parameter China
MNC R&D Globalization Market US $7.65 Billion
Market Growth Since FY 2009 15.9%
Total Number of MNCs 1,046
# of Top 1,000 Global R&D Spenders 342
Total Number of MNC Centers 1,300
Total MNC R&D Talent Pool ~152,000
R&D Suitable Fresh Talent Pool ~56,000
Average Cost/ Person/ Year ~US $50,400
MNC R&D Landscape in China
8.3
9.3
10.6
0 5 10 15 20
FY 2009
FY 2010
FY 2011
Year on Year Cost Savings by China R&D
Centers (USD Billion)
Net Saving
~USD 28 Bn
China is generating significant cost savings to the Head quarters
CHINA OVERVIEW
China is rapidly evolving in its R&D globalization journey and is competing head on with other
emerging nation
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6. Zinnov 6
CHINA OVERVIEW
The growth of MNC R&D centers in China has been phenomenal in the last decade
199
363
629
904
1,100
1,300
138
163
266 275
196 200
0
50
100
150
200
250
300
0
200
400
600
800
1,000
1,200
1,400
Before '00 01-'02 03-'04 05-'06 07-'08 09-'11
Total Number of MNC R&D Centers (till March 2011) Number of New MNC R&D Centers (till March 2011)
2011
1046 MNCs
1300 R&D
Centers
Note: *A company can have more than one R&D centers
Source: Economist Intelligence Unit (EIU); Ministry of Commerce (MOFCOM), China, Newspaper Articles; Talent Neuron Analysis
Of the Fortune 500 companies worldwide, over 400 already have R&D centers in China
MNC R&D Centers* in China (till 2011)
Microsoft,
Fujitsu,
Ericsson, Intel,
Nortel
Samsung,
Motorola,
Panasonic,
Toshiba, TI
Cisco,
Broadcom,
IBM,
Electrolux,
Logitech
nVidia, EMC,
Nokia, Kronos,
McAfee
ARM, British
Telecom,
SanDisk, Avaya
Yahoo, BMW,
Eli Lilly,
Foxconn, Esri
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7. Zinnov 7
Vertical Wise Split of MNC R&D Centers
24%
16% 16%
14%
8%
5%
4%
13%
27%
14%
16%
13%
8%
5%
4%
13%
Manufacturing* Semiconductor Software Telecom Chemicals FMCG Computer
Hardware
Others**
0%
5%
10%
15%
20%
25%
30%
2008 2011
2011
1046 MNCs
1300 R&D Centers
• China is increasingly becoming an R&D destination for many of the auto OEMs such as Audi, Toyota, Volvo, because of the fact that it
is one of the biggest market for these OEMs presently
• R&D in new technology areas such as Cloud, Mobile/ Telecom and Internet/ e-commerce is prevalent due to a large market, access
to potential customers and increased government support
• More and more Pharma Giants (like Pfizer, Novartis etc.) are increasingly expanding their R&D base in China . 15 of the top Pharma
giants have expanded presence in China lately
Note: *Manufacturing includes Automotive, Aerospace & Defense, Industrial & Electronic Equipment ; ** Others include Pharmaceuticals, Construction & Materials, Energy,
Biotechnology, Media & Entertainment, etc.
Source: Ministry of Commerce (MOFCOM), China, Newspaper Articles; Talent Neuron Analysis
CHINA OVERVIEW
Manufacturing vertical is the single largest contributor towards offshore R&D to China, followed
by semiconductor, software and telecom
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8. Zinnov 8
Shanghai
Dalian
Beijing
Guangzhou
Shenzhen
Chengdu
China
Suzhou
Xi’an
Nanjing
Hangzhou
XiamenFuzhou
Tianjin
Wuxi
Chongqing
Wuhan
Telecom
Electronics
Software
Infocomm
Electronics
IT
Note: This is generic to the technology sector. We will provide the specific details for online technology companies in the final report
Source: Ministry of Commerce (MOFCOM), China Primary Interviews, Company web sites and press releases, News Articles, Talent Neuron Analysis
Tier-1 locations
20-30% difference in salaries. Cost of living very
high in Beijing, Shanghai
Suzhou and Chengdu have one of the largest
high tech parks in China
China has the world’s longest High speed rail
(HSR), Wuhan-Guangzhou HSR etc.
Huge sums of money being invested in Tier - II
cities to urbanize the population
Suzhou is the second biggest industrial city after
Shanghai
Some Tier-II cities have good Universities. More
talent is migrating into these cities
In addition to the waiver of Corporate taxes,
Local taxes (about 3%) are exempted
For the companies which already have centers
in Tier I cities, further increase might not be
sustainable. Hence, more companies are
looking to scale in Tier II cities
Cost arbitrage over
tier-1 Cities
Improved R&D
infrastructure
Improved rail-road
connectivity
Rapid pace of China
urbanization
Economic & cultural
development
Availability of talent
pool
Incentives by the
local governments
Established secondary locations
Emerging secondary locations
Growth Drivers for Emergence of Tier-2
Cities
Scalability
CHINA OVERVIEW
China is witnessing rapid expansion of secondary locations as these are increasingly becoming
viable for MNCs and domestic companies to set up their R&D centers
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9. Zinnov 9Note: Source: Ministry of Science and Technology (MOST), China, Ministry of Commerce (MOFCOM), China Primary Interviews, press releases, News Articles, Talent Neuron Analysis
Other
Drivers
There is a rapid infrastructure growth in all cities
across China. In future, moving around in China will
get better and faster. Tier I and tier II cities are
connected by high speed rail links and expressways,
which has reduced the travel time drastically
Certain Tier - II cities are planning their center of
excellence. For example, Wuxi is focusing on
Nanotech, Shenzhen in Gene Research, Nanjing on
Clean tech, etc. This provides a lot of planning
capability for companies to go to areas of excellence
Tier - II cities have gone all way out to use
solar power and other forms of
renewable energy. They are preparing
well for future energy requirements. A
solar panel is visible in every lamp post
and home in a Tier - II city
Intellectual property-related concerns
have reduced among the MNCs once they
move long-term employees of Chinese
origin back to China
The Suzhou and Chengdu municipal governments
recently released investment incentives to speed up
the economic growth of headquarter enterprises in
the city. The objective is to get more than 200
qualified and competent headquarter enterprises to
set up business operations in the cities by 2015
Incentives for Headquarter Enterprises
Energy Advantage Reduction in IP related concerns
Theme Based FocusRapid Infrastructure Growth
The cities are going out of their way to incubate
startup companies. Nanjing, for example, provides
grant of 10 million RMB for the right kind of
startups. Suzhou government provides incentives
for start-up companies, headquartered in Suzhou.
The aspiration is very high
Rapidly Incubating Startup Ecosystems
CHINA OVERVIEW
Tier - II cities in China are going out of their way to develop infrastructure, incubate start-up
companies and provide incentives to attract more hi-tech companies
9

10. Zinnov 10Note: S&T – *Science and Tehnology
Source: Ministry of Science and Technology (MOST), China, Primary Interviews, Company web sites and press releases, News Articles, Talent Neuron Analysis
Achieved goals in the 11th 5 year plan Projected outcomes in the 12th 5 year plan
Stepping up the development of manufacturing
industry
Leveraging new technologies to develop China’s
indigenous brands with proprietary IPRs
Priority given to 11 major sectors through Sci.-Tech
Development Guidelines to encourage innovation
Developing tier-II cities in terms of R&D, giving
incentives to companies which set up centers there
To develop seven new strategic industries with favorable
policies focusing on innovation led growth
Successful implementation of the National Patent
Development Strategy
Cultivation of human resources via the deployment of
National Talent Development Plan
To improve the IPR landscape by the introduction of
National campaigns against IPR infringement activities
• 5 National S&T* programs engulfed
2,500 projects in 2010 with a sum worth
RMB 40 billion
• 56 National High Tech parks churned out
a combined revenue of RMB 10.6 Trillion
in 2010
Strategic
S&T*
focus of
the Chinese
government
• Focus on scientific development,
environment and energy efficiency
• Concentration of R&D centers from
similar industries in key strategic
locations
• Replicating success of tier -1 cities like
Shanghai in tier-2 cities like Suzhou,
Chengdu, etc.
CHINA OVERVIEW
The government has come up with visionary policies and plans to promote R&D activities in tier
– II cities
10

11. Zinnov 11Note: Source: Ministry of Science and Technology (MOST), China, Ministry of Commerce (MOFCOM), China Primary Interviews, press releases, News Articles, Talent Neuron Analysis
Government
Support
• Income Tax Exemptions &
Reductions
• Business Tax Exemptions
• Import Duty Exemptions
• Depreciation Benefits
• Apart from the stipulated 25% Income Tax, the Local state income tax typically 3% is
usually exempted during the preferential period of 5 years in most of the cities
• If the annual increase of expenses on R&D is 10% and above, MNC R&D centers enjoy
the deduction of taxable income by 50% of the actual amount in accordance with
relevant regulations in many states
• MNC R&D centers are exempt from customs duties and import added value tax for
R&D and up-gradation equipment which is not available in China or the performance
of which cannot meet its requirements
• MNC R&D centers can be exempted from business tax on their incomes gained from
the business concerning transfer of technology, technical development and related
technical consultation and services, etc.
• Subsidies for certifications
• Training subsidies for
personnel
• Rental waivers free land for
fixed time period
• Special funding schemes
• MNCs R&D firms can enjoy preferential treatment in
buying or renting office buildings. Employees of the
enterprises can get preferential treatment in buying
residential property. Preferential treatment includes
waiver of the rentals and lease deposits for a fixed
period of time, In some cases the infrastructure is
also built by the government
• MNC R&D centers may obtain scientific and research
projects of governments at all levels and projects
entrusted by social organizations, enterprises and
individuals through competitive bidding and
tendering. Funding and grants are often provided
Country Overview
CHINA OVERVIEW
Providing assistance to MNC R&D centers in the form of tax benefits and financial incentives has
been a key functional feature of the government
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