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Invented in Shanghai? Chemical R&D in China
Posted on December 16th, 2015 by Dr. Kai Pflug in Chemical R&D
The period of about 2005-2010 saw a huge increase of chemical research done by multinational companies in China, particularly in Shanghai, where dozens of companies opened R&D centers. However, the last few years were characterized by stagnation rather than by further progress, with foreign companies no longer increasing but occasionally even decreasing their R&D budgets and headcounts, and local researchers expressing frustration rather than hope. Partly this is just an indication of the overall global economic tightening. But it also reflects some disillusionment related to the initial experiences of conducting chemical R&D in China.
Some foreign companies such as Dow and many of the Japanese players never fully committed to conducting basic research in China, partly for fear of their intellectual property. However, those with a more open mindset have also become somewhat disillusioned. In particular, a point that is often made is the limited capability of Chinese researchers to conduct truly self-motivated long-term research. On the other hand, Chinese researchers find multinationals too bureaucratic and lacking a true understanding of the Chinese market and its requirements, while at the same time being unwilling to empower local staff. As a consequence, research conducted by multinationals is too slow and not targeted enough towards the requirements of the local market.
In contrast, local chemical companies are generally well aware of local market requirements. For them, the main issue is more to obtain internal resources for longer-term research (as Chinese companies tend to be short-term oriented). Particularly in smaller companies, this is a struggle, though some of the bigger companies such as Kingfa and Wanhua now have fairly ambitious R&D programs with at least a mid-term perspective of 3-5 years. These companies generally also benefit from good cooperation with local universities and the increasing pool of researchers with working experience in foreign companies. As a result, in areas such as carbon fiber or polyaramide local companies have made substantial progress, narrowing the gap in product quality compared to the global players.
For both foreign and local companies, a major obstacle for commercially successful R&D is the transfer of the laboratory results to the market. This includes both practical aspects (such as the lack of scale-up facilities and expertise) and more immaterial issues such as the general lack of market understanding among R&D staff. As a consequence, chemical companies struggle to find good markets for chemical products developed in the laboratory. In essence, it is probably one symptom of a larger issue. Setting up a complete R&D value chain is a process that requires the successful cooperation between many different functions and capabilities, and thus takes a long time to establish. This is similar to the situation in Japan or Korea decades ago, which eventually also turned into successful locations for chemical R&D. While there is limited doubt about China reaching the same point eventually, the more interesting question is whether the local or the foreign companies will dominate chemical R&D in the country.
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Dr. Kai Pflug
CEO, Management Consulting – Chemicals
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