China Law Blog

Business Week has an interesting article touting innovation in China and the other BRICs (Brazil, Russia, and India). (h/t to China Challenges) The article is entitled, "China and India: New Innovation and Talent Forces" and it is subtitled, "China and India are catching up quickly with Western nations in providing homegrown talent as well as heavy investment in R&D." It is written by Arindam K. Bhattacharya, an India-based partner of the Boston Consulting Group, and its thesis, which can hardly be disputed, is that innovation is increasing in the BRIC countries and Western companies are not moving fast enough to take advantage of the scientific and technological talent in those countries. I can only say that of my law firm's clients doing research and development in China, all have been pleased with the results.

The article sets out the following four "rules" for those planning to do R&D in China and other developing countries:

1. Globalize your research and innovation, not just your low-value engineering activities. If possible, establish research collaborations with local universities and laboratories.

2. Devise a "talent strategy" up front. Successful companies do not focus only on the cost of talent in China and India; they have a comprehensive talent strategy. Some have approached this "problem" by investing first in a well-established innovation hub, adding additional satellite centers within the country later to leverage the cheaper workforce.

3. Protect intellectual property. (Yes, it can be done.) Although IP protection can be challenging, companies have developed proven tactics to prevent know-how leakage. One pharmaceutical company, for example, includes rigorous employee training programs to instill respect for IP; restricts access to sensitive data; maintains research files on site, which can only be accessed on site; and does what is sometimes both the easiest and most difficult thing of all: works hard to retain the company's experts so they don't take their expertise—and knowledge—someplace else.

4. Shift R&D responsibilities away from your home country to global centers. Successful companies in the future will globalize their R&D activities, creating international centers where this work gets done. This is already starting to happen. A U.S. telecommunications-equipment company, for instance, plans to have 30% of its R&D executives outside the U.S. by 2010. This is the model of the future.

Excellent advice.