In a recent web conference, I talked about how the manufacturing landscape is changing. We are seeing a shift from cost control to a focus on expansion – expansion into adjacent processes, expansion of process competence, and geographic expansion.
One of the areas that prompted a lot of questions during the conference was the notion that China and other parts of Asia are investing significantly into Research & Development (R&D). There are a number of interesting dimensions to this.
Firstly, we are seeing governments around the region put increasing emphasis on developing R&D capabilities and seeking to increase the amount of knowledge work that is being conducted in-country. This is being pushed due to a number of drivers. One, to provide stimulus to create and grow start-up companies that have IP as a key asset, and two, to provide a skilled labor force to attract and retain foreign companies.
Secondly, we are seeing the local, indigenous manufacturers place higher and higher importance on IP. Asia has continued to grow through the recession, making it attractive to foreign companies, with many looking to their Asian operations to offset the stagnation and/or shrinkage of their traditional markets in Europe and the U.S. With this increased competition, consumers in the region now have a much wider choice of products. This has caused a growing need for local manufacturers to differentiate themselves, or at least, be able to provide the same/similar product features and functions as their Europe and U.S competitors. This has also led them to increase their investments in R&D and product development. Coupled with the heightened competition is the growing need for compliance, especially the need to meet customer requirements which tend to be even stricter than legislative requirements. The need to meet these requirements, especially for companies that export, is driving increased investment into R&D.
Thirdly, we are increasingly seeing Western and Japanese companies set up R&D centers in Asia. As manufacturing is moving to this region, so is their R&D, especially since companies need to make modifications to the products they sell in the region. One company that has been particularly good at this is Siemens which has a "Designed in China", "Made in China", "Sold in China" policy for its numerical control systems, drives, HMI and PLC from its Nanjing plant. Foreign companies are also taking advantage of lower R&D cost , and the larger pool of engineers available in Asia. A good example is Toyota who reportedly opened up an R&D center on the outskirts of Shanghai, the first fully self-funded R&D facility outside of Japan, taking advantage of the lower cost of engineers, the availability of engineers and the need to gain insight into local market requirements. The Toyota center is expected to open this year.
Having covered the drivers for increased R&D in Asia, another question that was asked, was what are the R&D areas that Asia is investing heavily in. To a certain extent, Governments can drive the type of industry they want to support by providing funding. Funding can take many forms. For example, grants to companies to establish R&D operations, development of centers of excellence for R&D in specific areas, whether it be university or research institute based, etc. This type of approach requires the country to put in place a strong roadmap . The country must also be committed to implement the roadmap. Taking Singapore as an example, the government has identified a number of key industry sectors, and funding has been put in place to establish R&D centers, train manpower, and encourage the set-up or start-up of companies. In Singapore, amongst a long list, one of the key industry sector that has been identified is aerospace engineering and alternative energy. Typically, what we have seen is that R&D government funding is pushed into industries where the country has some history. For example, Taiwan invests in electronics research, but also looks for adjacent type areas such as "lab on a chip". The more visionary countries identify areas where they would like to be in a number of years and look to establish competency in that area. An example would be Singapore moving into clean fuels.
One of the issues that concern many companies as they set up R&D operations is the protection of IP, especially in China. China has been making great efforts to show that it is respecting IP. The recent ruling that two Chinese companies infringed the rights of Strix in the UK, shows that IP is being recognized, although there is still some way to go. However, with the influx of western companies setting up R&D centers, this can be taken as a sign that the state of IP protection is improving.
In the longer term, I expect more and more "knowledge" work to be done in Asia. From the demand side, this is where there is an increasing growth in the form of consumers, and from the cost and capacity view, that there are a large number of young engineers, working in lower cost countries as compared to the west.