Recalibrating EU companies’ R&D strategy in China | Business | Economic and financial news from a German perspective | DW

EU companies have tended to adopt two strategies when dealing with the often opaque and highly politicized world of business in China, according to “China’s innovation ecosystem: good for many, but not for all “, a report by the European Union Chamber of Commerce. in China.

“For European businesses, understanding how to maximize the value of China’s vibrant innovation ecosystem is imperative, but so is mitigating the risk of technology leakage,” the report said.

While China accounts for 20% of global research and development, spends 2.4% of GDP (compared to the OECD average of 2.5%), and the United States decouples American companies from China, the report asks if this represents an opportunity for EU companies.

He notes a general concern that EU companies can often, unwittingly or unwittingly, strengthen Beijing technologically.

“This is a compelling story from the front lines of the state of world trade,” says co-author Mikko Huotari. “We have to weigh the risks and the benefits,” he said. “Involuntary transfers to Chinese state and military companies are a concern, with a clear tension between politics and business.”

Two strategies

The report notes that China is very keen to dissociate itself from the United States, but asks if the EU can benefit.

“Certainly not. They don’t want to become dependent on another partner, who might not be reliable. This ship has sailed. Beijing might actually call more companies strategic,” said Jeroen Groenewegen-Lau, head of the Science Program, Technology and Innovation Policy Team at MERICS.

This means, as the report notes, that EU companies will have to recalibrate their strategies for China. He notes that to date, foreign companies have tended to adopt one of two strategies: all-in or hedged betting.

“There are red carpets and superimposed rivalries,” said Jeroen Groenewegen-Lau. “Some European companies are treated to the red carpet, especially when Beijing sees an advantage for China in inviting foreigners.”

Groenewegen-Lau notes that Beijing’s treatment depends on whether Beijing views the domestic industry or company with which a foreign entity wishes to cooperate in R&D as strategic or non-strategic. In what the report’s authors call the “bunker,” Beijing is unlikely to roll out red carpets anytime soon. “Beijing will be more interested in weeding out non-Chinese companies where Chinese companies have closed the technology gap with the West.”

The “all-inclusive” approach

The “all-inclusive” approach has two prongs, the first views the Chinese R&D ecosystem as so dynamic that companies engage fully despite the threat of intellectual property (IP) theft. They accept and manage risk to make the most of China’s entrepreneurial spirit, its pool of scientists and researchers, and its ability to bring innovations to market faster than anywhere else in the world. For many, this type of R&D environment allows them to develop products in China that can then be deployed globally.

The second part tends to be in industries that are crucial, but not considered high-tech, often operating in niche technologies.

The “hedge betting” approach

Companies that “hedge bet” recognize the importance of developing products for the Chinese market, but consider the risks of undertaking full R&D to be too great, with innovation of only their core technologies in their well-guarded national markets. Instead, they are focusing on localization in China and looking for complementary local technology to enhance their local and global product offerings.

Industries identified as being in the “bunker” – facing growing protectionism and a state-led preference for domestic suppliers, such as in network equipment and services, and companies focused on digital and telecommunications services – were almost entirely absent from the survey and interviews, the report notes.

What interests?

“Another key question is whether EU companies will be able to export globally from their operations in China in the future,” Ms Groenewegen-Lau asked. “That often means cooperation on the model of Chinese software with European hardware.”

Jacob Gunter, a senior analyst with MERICS’ economic research team, spoke of a layered decoupling after the United States imposed export controls. “There is growing uncertainty and distrust of foreign R&D. Non-Chinese companies integrated into Chinese supply chains in China may find their global R&D ambitions somewhat hampered,” he said. added.

China is not Russia

“Russia is a three-product economy, while China is a major innovation leader. We would cut ourselves off from new technologies if we dissociated ourselves from China. We must differentiate between China and Russia,” Gunter warned. .

“China’s business class needs and wants us, especially in climate change technology. We would delay this process if we pull out. Also, China’s economy is struggling and will be this year. It’s important that China’s deepening position of self-sufficiency means it cuts itself and us off from innovation that could help save the planet,” Gunter added.

Edited by: Hardy Graupner