Print Reference This Reddit This

Development Of Beijing Randd Service Industry Management Essay

Along with the development of knowledge-based economy and the specialization of the division of labor, enterprises increasingly engage in R&D activities by integrating the external R&D resources. The trend of R&D externalization have been quite clear, and firms using external resources to conduct R&D, consequently, leads to the development of the R&D service industry, namely those who provides R&D services to the clients.

In this paper we examine how the R&D service industry has developed in Beijing, with the cases study of Contract Research Organization (CRO) industry and software industry. Through literature researches, we give an introduction into the Conception of R&D Industry, and use the theories of Globalization of R&D and Open Innovation as the theoretical basis to contextualize the R&D service industry in Beijing. For empirical study, we conduct a series of telephone interviews with people from both CRO industry and software industry, and the interviews results reveal how Beijing R&D industry has developed so far, with the illustration from CRO and software industry. Based on the empirical research, we further analyze the current opportunities and challenges of Beijing R&D service industry. At last, we also discuss the industry dynamics that affect the evolution of that industry, and put forward some recommendations for its future.

R&D is a crucial activity in the innovation process. Before the 1980s, R&D used to be viewed as enterprise internal activities and almost all of R&D activities were completed by internal R&D institutions. However, along with the development of knowledge-based economy and the specialization of division of labor, the trend of R&D externalization have been quite clear, that is, enterprises engage in R&D activities by integrating the external R&D resources(). Firms, especially those with high technological content undertake innovation activities through recognizing the value of new information and acquiring knowledge from external source, assimilate them and apply them to commercial ends, and thus maintain their competitiveness and creativity in relation to competitors. The trend of using external resources to conduct R&D, consequently, leads to the development of the R&D service industry, namely those who provides R&D services to the clients.

Research Objective

How has the R&D service industry developed in Beijing - the case study of CRO and software industries?

Background

Innovation occurs through knowledge production derived from the interaction among industry, public sector, universities and R&D institutes. Innovation is the outcome of multiple complex factors combined, like absorptive capabilities, R&D investment, business path dependency, and management processes, which develops from previous efforts on generating and acquiring knowledge from external source, the resources devoted to research and development, and the managerial processes associated with innovation performance. The growing complexity, risks and costs of innovation have risen steadily as consequences of the fierce competitions in global market and the diversification of customer demands; firms engaged in innovation activities are aware of the necessity of establishing R&D cooperation to obtain expertise which cannot be generated in-house. Collaboration with other firms and institutions in R&D is a crucial way to make external resources usable, which offers possibilities of efficient knowledge transfer, resource exchange and organizational learning. Enterprises can directly obtain the new technologies by integrating the external R&D forces. Love J.H and Roper S studied the trend of R&D externalization through their investigation on the cost of R&D activity and argued that the external R&D resources could contribute to the implementation of the global strategy of enterprises. Agreements in well-defined research fields, leaving aside the possibility of competition in the market, allow the stable and comprehensive adaptation of needed resources. Complementary assets and resources can be integrated and pooled, thus generating synergies and cross-fertilization effects. As a result R&D activities are gradually separating from production operations of enterprises and R&D services business has been becoming an independent industry that includes industrial design, engineering services, testing laboratories, computer systems design and related service, and scientific and technical consulting service etc. Therefore, the externalization of R&D gives birth to a new service sector, the emerging R&D service industry. Since entering new century, developing countries with the cost advantage also on skilled labor have been proved to be the fastest growing markets for outsourced R&D activities.

Figure 1-1: The global pharmaceutical R&D outsourcing market, 2001-2010

($bn)

2001

2002

2004

2006

2008

2010

Average

growth rate

2001-2010 (%)

R&D expenditure, in-house

46.7

50.4

58.6

68.1

79.2

91.3

7.7

R&D expenditure, outsourced

9.3

10.6

13.9

18.8

26

36

16.3

Total R&D expenditure

56

61

72.5

86.9

105.2

127.2

9.6

% R&D outsourced

16.6

17.4

19.2

21.7

24.7

28.3

n/a

Source: Pharmaceutical R&D Outsourcing Strategies

We take R&D activities in pharmaceutical industry as an illustration of R&D externalization. Since 1980s, pharmaceutical R&D efforts had become more complex and competition in rapidly growing therapeutic areas increased. Some researchers resigned from pharmaceutical companies due to their dissatisfactions with redundant layers of personnel and unwieldy bureaucracy in giant multinational firms. And they created independent startups which normally were specialized small companies who could conduct contractual trials quicker and for less money than their former employers. Thus, the concept of Contract Research Organization (CRO) was born. The CRO industry emerged in late 1980s and over past two decades, and the global CROs has grown into a burgeoning service industry reached US$23.5 billion in 2009 that provides supports to pharmaceutical industries in the form of outsourced research services for both drugs and medical devices. CROs offer their clients a wide range of pharmaceutical research services, including “product development and formulation, clinical trial management-preclinical through phase IV, central  laboratory services for processing trial samples, data management services for preparation of an FDA New Drug Application (NDA) or an Abbreviated New Drug Application (ANDA), and many other complementary services” . The clients of CRO benefit from the shorter duration of moving a new drug from conception to FDA marketing approval. CROs have made significant progress in terms of overall quality, scientific expertise and technical capabilities, and over the last decade rising pressure to reduce costs and time-to-market has lead to a rapid expansion of the global CRO industry. The fast-growing offshore outsourcing sites such as China, India and other emerging countries are occupying increasing global contractors in the CRO industry.

Beijing R&D Service Industry Overview

R&D service industries are characterized by high degree of knowledge-intensive and capital-intensive, and are playing an important role in technology transfer and innovation. Developing R&D service industries and further promote other related industrial entities have been regarded as national strategic focus on optimizing and upgrading industrial structure of China.

Services constitute the single most important industry in Beijing's economy, with 75.5% of total gross domestic product (GDP), 73.8% of employment and 38.6% of consumer spending in 2009. Beijing, as the capital city of China boasts abundant scientific and technical resources. In terms of work force, Beijing ranks a leading position throughout China with a population of 274,000 engaged in scientific and technical activities, and scientists and engineers take up 82.8% of the total. Beijing also takes pride in its largest number of government institutions, universities and colleges and scientific research institutions, including 263 of government-run scientific research institutes and 650 of scientific research institutes affiliated with universities and colleges, accounting for 6.5% and 17.6% of the total respectively. Additionally, Beijing takes a nationwide leading position in the scientific and technical investment, the R&D input accounts for seven percent of GDP, which is five percentage points higher than the national average. Massive capital investments have brought Beijing great rewards. The applications for patents and grants maintain national champion position for twenty years. The transaction value of technology trading markets surpassed US$15.6 billion in 2009, which occupied 38 percent of national tech trade volume. Since 1999, the technical trade volume in Beijing has long been the first place nationwide. Furthermore, Beijing’s urban function, namely political and cultural center, determines that it is unsuitable for a large-scale manufacturing industries. Therefore, developing R&D service industry is both the comparatively advantageous and inevitable choice.

Depending on the nationwide predominance of scientific and technical resources, biopharmaceutical contract R&D industry and software contractual development services business have begun to take shape in Beijing, and they have undertaken a large number of R&D projects both from domestic and overseas. Beijing has more than a hundred CROs full service providers, ranging from structural biology and modeling studies, compound synthesis and screening, samples formulation and preparation experiments, preclinical pharmacology and toxicology researches, clinical trials as well as regulatory services; and the revenue of CRO industry exceeded US$160 million in 2010.

Increasing globalization of software market spurs the robust growth of R&D outsourcing in ICT industry. Among the major offshore outsourcing destinations, China is one of the most attractive country in the world for Foreign Direct Investment (FDI) in the information technology R&D sector. Relying on the rich resources in IT infrastructures and talents, Beijing are dominating the commanding lead in the field of software development across the country. In addition to the traditional multinational software or service companies such as Microsoft, Oracle and Cisco engage in-house R&D activities in Beijing, the booming R&D subcontract companies that provide outsourcing services for software development or other software-related peripheral activities are also exerting significant influence in the software arena. By the end of last year, there has been over 3,500 enterprises engaging in software outsourcing R&D activities, businesses ranging from embedded system design, platform development and value-added services, software test, professional technology consultation and management etc., and the sales revenue of software outsourcing reached US$35 billion in 2010. The vast majority of the vendors geographically congregate around Zhongguancun area, and have initially formed an industry clustering which achieves economies of scale and scope in a certain extent.

Served as a new business mode of modern service industries and backed up by the superior scientific and technical resources as well as innovative cultural environment, Beijing R&D services industries have experienced rapid development during the past decade, and also have made outstanding contributions to optimizing and upgrading regional industrial structure, enhancing self-directed innovation, and promoting Beijing’s economy towards comprehensive, coordinated and sustainable development.

Literature Review

This section summarizes theoretical literatures on R&D globalization, the conception of R&D industry and open innovation which exert as theoretical underpinnings for this research. The conception of R&D industry acts as illustration of the industrial characteristics, and theories about R&D globalization and open innovation contribute significantly to the theoretical foundation for the evolution of the R&D service industry.

Globalization of R&D

Over the past two decades, there has been a substantial transfer in the global innovation landscape. Multinational corporations (MNCs) from developed countries are increasingly globalizing their R&D activities, which are decentralizing their R&D organizations and shifting towards emerging economies; the main Asian destinations of offshore R&D facilities are China, India, and South Korea. The globalization of R&D has become a crucial issue for MNCs of the developed countries. Relevant surveys reveal that the motives of technology-seeking over the past ages has significantly contributed to decentralize R&D by multinational enterprises in R&D intensive industries like pharmaceuticals, consumer chemicals as well as sophisticated instruments and equipments. MNCs either cooperating with foreign firms or investing in a foreign country aim to exploit these national advantages in their international innovation strategies; and technological complementary is a key driving force for joint R&D, while the technological competence of the partner is the main rationale for foreign direct investment in R&D. MNCs may set up offshore R&D labs also in an attempt to capture overseas market and accumulate production experiences of the host country. In addition, MNCs undertaking overseas R&D can benefit from localized technology for the development of new products and technologies, and even emerging markets could be sources of innovation. The sectors with a high presence of foreign firms are those national excellence of the host country, and MNCs extend their R&D internationally to acquire the know-how which is lacking at home, rather than replicate research and innovations in the sectors where their home country is already strong. Moreover, it is increasingly important for MNCs to relocate their foreign R&D intending to exploit local low-cost R&D manpower and enjoy local R&D spillovers. Comparing with the conventional R&D primarily engaged in adapting established group products for the local markets, the modern knowledge seeking R&D labs of MNCs draw upon differentiated frontier technology geographically with the purpose of maintaining technological world-class leading status, and support the longer term core competitive edge of the MNC group at the world technology frontier. This strategy optimizes the balance of cost and capability access as well as access to natural resources, and it also synergizes with commercial development of a wider range of local markets.

Furthermore, host countries are devoting their efforts to attract MNCs’ offshore R&D facilities, and have implemented a set of favorable policies to encourage R&D investments by both domestic and foreign companies; and firms of emerging economies through learning from collaborating with MNCs and leveraging on the support from their governments are beginning to catch up in certain technology sectors, and are promoting their innovation capabilities to achieve the transformation from imitation to innovation.

Conception of R&D Industry

The study of R&D service industry and its relevant theories may date back to late 20th century. As a young and dynamic industry, the R&D service industry receives growing attention among worldwide scholars and researchers. So far, there is no consensus of the conception of R&D industry, but most acknowledge it mainly involves science and technology performance which is based on the high professional training, and provides professional knowledge and skills for the target clients, such as R&D cooperation, test development and R&D services, technology consulting services, industrial design services, etc. North American Industry Classification System (NAICS) defines the R&D service industry as “the Scientific Research and Development Services industry, which refers to that industry group comprises establishments engaged in conducting original investigation undertaken on a systematic basis to gain new knowledge (research) and/or the application of research findings or other scientific knowledge for the creation of new or significantly improved products or processes (experimental development). The industries within this industry group are defined on the basis of the domain of research; that is, on the scientific expertise of the establishment”. Some researchers further proposed the conception of "R&D Industrial Cluster", and interpreted it mainly includes computers science, software, pharmaceuticals, scientific instruments, etc. Chinese scholars have in recent years begun to use the term of R&D industry in the literatures, which refers to the R&D enterprises aggregation that provide technological innovation of products or services by means of the integration and development of professional knowledge of nature, engineering, society and humanities etc.

Based on the characters of that industry we mentioned above, we believe that the R&D industry refers to the aggregation of the organizations engaging in R&D business activities, providing intellectual innovation achievements, technical development service as well as modern commercial services. The organizations can be independent R&D enterprises or institutions engaging in R&D activities in university, scientific research institutes or enterprises. The implement of contractual R&D activities and the technology transfer are the main business model of the R&D industry.

Open Innovation

Open innovation is used to describe an innovation paradigm shift from a closed pattern to an open innovation model, which characterizes by the use of purposive inflows and outflows of knowledge, resources and talents to both accelerate internal innovation and expand the markets for external use of innovation. The fundamental premise of open innovation is opening up the innovation activities. According to Chesbrough’s theory, we are experiencing a paradigm transformation in how companies organize and manage their innovation activities. In contrast to the closed innovation model that considers R&D as an intrinsic part of a vertically integrated system within firms, an open innovation model treats R&D as an open system in which companies combine their R&D activities with outside institutions, and commercialize their technological achievements through external development, manufacturing, and distribution processes as well as internal resources. Gassman acknowledges that the transition process from closed to open innovation often begins with outsourcing to contractual service organizations, and followed by more strategic modes of open innovation. Relevant developments in the larger innovation circumstances involve social and economic changes in working modes, elaborate labor division results from globalization, improved market institutions for trading ideas, and the emergence of new technologies collaborating across geographical distances. Leading tendencies such as outsourcing, agility, and flexibility has already compelled companies to reconsider their strategies and activities in other areas, and to become network organizations; whereas ‘firms which do not cooperate and which do not exchange knowledge reduce their knowledge base on a long-term basis and lose the ability to enter into exchange relations with other firms and organizations’.

There are three types of open innovation that differentiated by core processes: inbound open innovation, outbound open innovation and integrated open innovation. Inbound open innovation is an outside-in process involving opening up the innovation process to knowledge exploration (acquisition of knowledge from external sources), and companies enrich their own knowledge through the integration of suppliers, customers, and external knowledge sourcing that can increase a company’s innovativeness. Many multinational pharmaceutical companies acquire a substantial proportion of their technologies from external partners such as CROs firms. The outbound open innovation is an inside-out process relating to opening up the innovation process to knowledge exploitation (commercialization of technological knowledge), and it is used to describe companies making profits by bringing ideas to market, licensing intellectual property, and transferring technologies to the outside environment. For instance, Philips Electronics has recently collected several hundred million dollars licensing fees annually. The integrated open innovation is a coupled process which indicates firms combining outside-in and inside-out processes to co-create with complementary partners. Multinational enterprises especially those with high technological content increasingly rely on combining with complementary partners through alliances, cooperation, and joint ventures to improve their innovative capabilities .

Research Methodology

This section is based on a series of telephone interviews with people from both CRO industry and software industry. It is also informed by several additional informal discussions among R&D employees who were not formally part of the interview series. To gain deep insight into of present situation of Beijing R&D service industry, we choose the interviewees from both industry level and firm level. However, given the limited timeframe of the study, this study focuses on qualitative surveys only, a more accurate result requires further in-depth researches that are possible with financial and academic supports.

Interviews

This research consists of a series of open interviews with people from technology alliances and managers of companies; they work in CRO industry and software industry respectively. In total four formal telephone interviews were conducted, each lasting about 30 minutes. All the interview answers were formulated to bring about the aggregation, analysis, and validation of information as well as enabled us to investigate the evidence collected from other sources. (Interview templates see Appendix 1 and 2)

Description of the cases study

As far as the industrial structure of high-tech industry is concerned, Beijing has formed the structure which is led by ICT industry, supplemented by biopharmaceutical, optical-mechanical-electronic integration, new materials and clean energy, and environment protection industries. We selecting CROs industry and software industry for this investigation is because they are two of the earliest emerging R&D service businesses and both have developed into large scales. In terms of industries spatial distribution, these companies geographically agglomerate at Zhongguancun Technology Park and Yizhuang Science Park, which not only synergize with established companies corresponding to pharmaceutical industry and ICT industry to improve the structure of the industry chains, but also together with up and downstream corporations forming industrial clusters.

Case Study of Beijing CRO industry

Beijing owns the richest domestic clinical resources and a plenty of trained human resources. There are more than a hundred CRO service providers in Beijing, and the revenues maintained rapid growth over the past few years. In order to have a thorough knowledge of CRO industry, we chose Mr. Jingang Wang, the committee of Zhongguancun Bio-pharmaceutical R&D Outsourcing Alliance as our first interviewee. Zhongguancun Bio-pharmaceutical R&D Outsourcing Alliance was founded in 2006, it is a member-based organization composed of leading R&D service providers in Beijing, which devote to provide high quality, efficient and cost-effective R&D services. The alliance owns more than fifty members, many of which provide integrated R&D solutions, and it aims to connect the biopharmaceutical industry of Beijing with the world.

We also did an interview with Dr. Xinyi Huang, the Molecular Biology Department Executive Director of Beijing Pharmaron Limited Company, which is the leader of R&D service provider for the biopharmaceutical industry in Beijing. Pharmaron founded by an overseas returnee entrepreneur who served as the Director of Research in a US life-sciences company prior to founding Pharmaron. Pharmaron provides high quality R&D service across a number of disciplines including chemistry, biology, pharmacology, toxicology and chemical development to international pharmaceutical and biotech companies. As one of early established CRO companies in China, Pharmaron has witnessed the rise of R&D outsourcing services industry in Beijing. 

Case Study of Beijing Software Industry

With the fast development and extensive application of information communication technology, software and information service industry has already become a strong dynamic driven force for Beijing’s economic growth and is becoming a backbone industry in regional economy. By the end of 2010, there has been 3,500 enterprises engaging in software outsourcing R&D activities in Beijing; the amount of employees has approached 420,000; and the annual revenue of software industry last year reached US$36 billion, accounting for 14.3% of total GDP.

For the sake of having a further investigation of software industry, we interviewed Ms. Jing Han, a counselor of Beijing Software Industry Association (BSIA). BSIA is an organization voluntarily formed by enterprises and institutions which engaged in computer software research and development, sales, training and software industry service and counseling. BSIA acts as the bond between members and government, through market survey, information exchange, counseling, evaluation, the protection of IPR and policy research to strengthen the cooperation and exchange of companies and institutions in the software industry. And now BSIA has approximate 800 members, which account for more than 22% of registered software companies.

In addition, we selected Mr. Yu Dong, Project Manager of Legendsoft International Technology. Ltd. (Litsoft) as our last interviewee. Litsoft is an member of BSIA, it is also a leading providers of high-end outsourced software services in China, which is headquartered in Beijing and have a software development center in Wuhan. Litsoft were founded in 1996 as the in-house software development unit for the Lenovo Group, and spun off as an independent company in 2004 to take advantage of the explosive growth in China's software outsourcing market. It continues to serve as the primary software service vendor for Lenovo, and has built up an impressive base of clients and partners including Microsoft, France Telecom, China Netcom, PetroChina, etc.

Empirical Results

This section summarizes the results of all interviews conducted. In addition, we analyze the present situation of Beijing R&D industry and discuss its evolution in term of industry dynamics, and at last attempt to give some recommendations.

Interview Findings From Cases Study of Beijing CRO Industry

In the telephone interview with Mr. Wang, he tells us that CRO industry emerged in China as market required since China became a full member of the WTO in 2001 and strengthened the drug supervision and management. During the last decade, the turnover of CRO industry in China increased by 25 percent annually on average, and reached US$260 million in 2010, but comparing with the global US$36 billion CRO market, China relying on the advantages of low cost and well trained talents only occupies a slight share. He informs us that CRO firms in China are grouped according to their clients into three classes, the first class is transnational CRO firms which specialize in the orders of multinational pharmaceutical companies; and the second class is joint ventures which mainly serve small foreign companies and large domestic enterprises; and the third class provides services to domestic companies; and the overwhelming majority are domestic firms, whereas transnational and joint venture CRO firms only take up a small proportion. However, domestic CRO firms are still in their infancy, and only a few of firms can provide comprehensive and internationally unmatched professional services. Moreover, while rapid growing driven by the market demands, Chinese CRO industry are suffering homogeneity of products and services and serious oversupply, and thus make the whole industry involved in low-price competition, which directly result in less attentions to this industry by venture capitals, and the investment value of CRO industry gradually decrease that inevitably adversely affect its development.

After ten years development, Mr. Wang says that there are over a hundred CRO firms in Beijing, and enterprise scales range from thirty staff to a thousand, and most of them agglomerate at Zhongyuancun Technology Park and  Yizhuang Science Park. Beijing CRO industry is experiencing the transition from low-price competition to value adding movement. But a serial of problem such as absence of professional team, corporation size too small and lacking international experience are still prevalent in the Beijing CRO industry, especially the defective quality standard system has seriously impeded its progress to take one place on the international market.

In the interview of Pharmaron, Mr. Huang reveals that CRO industry is proceeding vertical integration which starts a wave of merger and acquisition in recent years. Some large firms have been invested by venture capitals, thus have realized scaled operation and industrialized management, and also have risen the standards for admittance into this industry. However, small enterprises are still obsessed by hard fund-raising resulting from absence of intellectual property, even are confronting with the plight of being eliminated by peers. Furthermore, Mr. Huang believes that due to large firms have established strategic cooperation relationship both with foreign and domestic pharmaceutical corporations, hence small enterprises have to explore the niche markets to form complementary advantages with stronger opponents if they wish to undertake contracts from large pharmaceutical manufacturers. At last, Mr. Huang adds that in the long term, the business model of CRO can advance in limited space; because foreign companies attach great importance to the protection of intellectual property rights, thus they only outsource the standardized and procedural researches to offshore markets, and undertake core technical procedures in-house. Therefore, when domestic CRO market tends to be saturated in a few decades, CRO firms are bound to face transformation, but by that time, CRO enterprises will have accumulated a large amount of capital and skilled people to develop towards pharmaceutical corporations.

In the additional informal discussions with R&D employees, we find that in the biopharmaceutical R&D activities, many service providers are universities and scientific research institutes. They are actively guiding the CRO firms working on R&D, and are also simultaneously promoting academic institutions to take advantage of excess scientific resources to undertake commercial researches. Additionally, we recognize that employees have weak consciousness of IPR protection, and due to the IPR protection measures were not carried out efficiently in China in the past years, not only did foreign companies refuse to outsource their crucial tasks to China, but also domestic pharmaceutical corporations concerned about externalizing their R&D activities.

Interview Findings From Cases Study of Beijing Software Industry

In the interview of Ms. Han, she mentions that IT industry has made great progress in Beijing during the last few decades. In recent years, a considerable number of multinational companies have established their R&D institutions in Beijing successively, and domestic software companies have also made rapid progresses, and further have promoted the developments of many other fields. She considers the foreign direct investment as an important impetus for technology diffusion and industrial structure upgrading.

Ms. Han points out that there are over three thousand software companies in Beijing Zhongguancun area, but the majority are small firms, and large domestic software companies can be counted on one's fingers. She believes that the lack of talents who both understand technology and management results in Beijing software firms unfulfilling large-scale operation and incompetence in global market, rather than the absence of professional programming experts. Thus in the respect of cultivating talents and scaled production, India is worthy to be learned by China. She emphasizes that software is a knowledge-intensive product, and its value is embodied by intellectual property that has been a vital matter for software companies’ survivals. Therefore, intellectual property protection significantly influences the software industry, and even national security and image. Although government has intensified efforts to combat with piracy, China still has a long way yet to travel.

In the interview of Mr. Dong, he explains that the unfulfilled scaled production and industrialized management of software industry is attributed to technical education disjoint with enterprise demands. He mentions that with the purpose of filling the gap, in the last few years some famous enterprises cooperated with universities and educational institutions to build vocational training bases, making students work in real commercial environment and participate in contractual projects, which have accelerated the transformation from students to engineers, and have supplied unceasing flow of well-trained scientific and technical personnel.

Discussion

Based on above findings, we make attempts to analyze the opportunities and challenges to interpret present situation of Beijing R&D service industry, and also discuss the formation and development driven by its industry dynamics, and at last put forward some recommendations for its future.

Since the modernization reforms of 1980s, China has been an ideal destination of FDI, and has been the global production base of MNCs, which mainly engaged in labor intensive, simple processing and assembly operations. However, due to the restriction of natural resources and environment, adverse effects of extensive economic growth mode of world factory have already exposed, especially the excess consumption of resources and the deterioration of the environment. Therefore, adjusting and upgrading the industrial structure have been an emergent problems in China.

The developments of globalized production and marketing forced MNCs to expand R&D investment in their worldwide manufacturing places to reduce costs and promote local production and product development. Over the last two decades, ICT has greatly facilitated the R&D globalization, not only breaking the limitation of communication distance and R&D resources exchange, but also lowering the costs of R&D coordination and control. Under these circumstances, after China's accession to WTO in 2002, thousands of MNCs have invested large amounts of R&D resources in China, which provide an excellent opportunity for China to transform the economic growth pattern.

Beijing was the first region that formulated a host of incentive policies to attract foreign investment in R&D activities; and hundreds of MNCs have built R&D establishments over two previous decades in Beijing. R&D activities are increasingly present the features of cross-discipline, and thus become more complex, resulting in the higher R&D costs and risks. In addition, the professional division of labor makes R&D activities more independent and gradually separate from firms’ internal institutes and become new businesses. Especially since entering 21st century, market and product competitions have moved forward to technology competition. Many firms have only concentrated on R&D of core technologies that concern competitiveness and future development, but outsourced non-core R&D projects and related research processes to contractual R&D venders. This strategy raises the R&D efficiency, and optimizes the cost and innovation capability access, thus support firms to maintain their longer term core competitive edges at the technology frontier. Rapid technology progress and shorter period of technology achievements commercialization push the innovation paradigm shifting from a closed pattern to open innovation, and enterprises rely on more external sources of knowledge, resources and talents. Thus R&D businesses gradually evolved into the R&D service industry in Beijing.

Technology achievements can supply new solutions and tools to R&D activities, which provide Beijing R&D industry with a technical base and a trading platform. And the social influences of technology diffusion and commercialization have laid a good societal foundation for the development of R&D industry; and technology progresses have attracted more people undertaking R&D activities, and enlarged the population of R&D professionals. With the intention of satisfying the market needs, Beijing R&D firms continuously invent new technical solutions and improve know-how. While undertaking the contracts, they are also pushing incremental advancement and maturity of technologies; and technology progresses in turn promote the development of market, and encourage people to explore new businesses and solutions, thus to discover latent demands. Through market mechanism, R&D supply and demand have formed a virtuous circle, and R&D firms can receive an abundant financial supports. Meanwhile, the rise of market demands lead to the influx of venture capitals into R&D industry, and increase the amount of demanders, therefore in a certain extent reducing the risks of R&D providers. Competition also drives R&D firms to persistently improve the qualities of products and services, as well as creates incentive for investing in intellectuals, market power, and physical infrastructure that are conducive to building firms’ competitive advantages.

In addition, national strategies also exert greatly on the development of Beijing R&D industry. On the one hand, governments determine R&D projects according to national strategies plan, and delegate to enterprises, universities and research institutes by means of contracts. Also, government procurement of R&D achievements effectively guarantees the inputs of science and technology, and maximally motivates the R&D industry’s initiatives. On the other hand, governments through implementing large-scale programs and projects prompt the construction of scientific research infrastructures and the improvement of national quality standard systems, both of which have created basic conditions for the growth of R&D industry. And government demands significantly influence the formulating and implementation of scientific and technological policies that directly affect the R&D industry.

Beijing has prioritized the development of ICT and biopharmaceutical industries, and in terms of industries spatial distribution, two regions have taken initial shape of high-tech industrial clusters, which respectively are Zhongguancun Technology Park that agglomerated by IT firms and biopharmaceutical companies, and Yizhuang Science Park gathered by biopharmaceutical corporations and manufacturing enterprises. Clusters have created favorable conditions for R&D service businesses that correspond with those industries to conglomerate around the industrial districts, which have filled the vacancies of high-end sector in the industrial chains. And their demonstrative effects have contributed to encourage those R&D service businesses related to other sectors.

However, Beijing R&D industry is also confronting with a number of challenges. Firstly, R&D enterprises lacking self-directed innovative capabilities results in the phenomena of services homogeneity and oversupply appear in the market, and a large number of small firms are not marked by competitive edge. Secondly, the basic scientific research does not arouse enough attention both from academe and government. The proportion of Beijing R&D funds for basic research lowers than the average level of developed countries, and the growth rate of basic research lags behind the incremental speed of R&D funds. Thirdly, the financing channels for the SMEs have some defects, new startups commonly have trouble in funding at their early stages. Only a few of R&D firms can receive venture capital due to the immaturity of investment channel, and there is a large gap between the funds demand and monetary supply. Also, due to the redundant and excessive administrative procedures for examination and approval, many technology-based SMEs have to give up applying for government funds. Fourthly, some domestic quality standard systems fall short of international standards, which hinder a large number of R&D firms from participating in more international competition and cooperation. Lastly, Beijing R&D firms are mainly occupied with mid-and low-end R&D activities due partly to laws failed to adopt effective enforcement of IPR protection in China over the past decades, and MNCs excluded China from their offshore destinations of core researches outsourcing, which impair the technological progress of the overall R&D industry.

Additionally, Beijing R&D industry is still at primary stage, and also under the competition pressure from other provinces and regions. Taking the country as a whole, Pearl River Delta Region and Yangtze River Delta Region adopt more open policies to attract foreign investments, and both of their industrial structures and manufacturing levels are ahead of Beijing, thus put Beijing production based R&D industries at a disadvantage. Owing to historical reasons, the mechanism of talent mobility has long been restricted by societal system and institutional obstacles like labor personnel system, household registration system, wages and welfare system as well as evaluation of professional titles; all of which make it difficult for imported talents to work at Beijing permanently or start up their own businesses.

Above argumentations systematically discuss the evolution and situations of Beijing R&D industry. Some recommendations for developing this industry are also proposed as follows:

Upgrade the Sizes of R&D Service Companies

Numerous mergers have already successfully taken place in many business areas in China. Through mergers, small groups of resources could be integrated into major source of strength in global competition.

Follow International Standards and Improve Industry Standard System

The improvement of industry standard system is one of crucial measures for sustainable industrial development. A company need to adopt widely-accepted international standards if it wishes to become a competitive player in the international market, and they should also actively participate in improving national standards internationalized as well.

Strengthen R&D Investment

Government is supposed to strengthen efforts on guidance and support to synchronize the trend of R&D industrial development. Moreover, the government not only should continuously increase R&D investment and diversify investment and financing channels through rational guide and allocation of fiscal funds, but also strengthen basic research work to promote the formation of the core competitiveness and self-directed innovation capabilities.

Enforcement of Intellectual Property Protection

During the past years, Beijing has enacted various laws and regulations protecting intellectual properties, but the enforcement of these laws are still frequently criticized by other countries. Therefore government need to on the one hand conduct vigorous propaganda about the significance of intellectual property protection, and on the other hand, strengthen the enforcement of the laws and regulations already established.

Establish R&D Public Service Platform and Cultivate Industrial Cluster

Government is expected to lead the establishment and operation of the R&D public service platform, which can facilitate positive interaction of governments, enterprises, universities, research institutions, non-profit organizations and the public. The platform will encourage the open sharing of equipment and the integration of information resources and services, which can greatly improve the allocation of scientific and technological resources and cultivate industrial clusters.

Conclusion

Along with the trend of globalization of R&D, Beijing depending on its scientific and technical advantages have attracted a great many of MNCs building R&D establishments in Beijing over the past decade. The externalization of R&D led to the emergence of the R&D services industry in Beijing; and due to having undertaken a large number of R&D projects outsourced from MNCs, Beijing R&D service industry has also experienced rapid development. But the R&D service industry is still at its primary stage, and are confronting with lots of challenges, such as lacking self-directed innovative capabilities and services homogeneity and oversupply; insufficient investments in basic scientific research; defects in financing channels for the SMEs; domestic quality standard systems falling short of international standards; and the absence of high-end R&D involvement, as well as inefficient IPR protections.

Based on the discourse on the origin and current situation of Beijing R&D services industry, we take a further discussion about the evolution and development of R&D industry in terms of its industry dynamics, including technology push, demand pull as well as competition drive. Technologies push the transformation of innovation paradigm and the commercialization R&D achievements; and demands pull the incremental advancement and maturity of R&D industry resulting from continuous inventions of technical solutions and know-how; and competitions not only drive the quality improvements of products and services, but also lead to enlarged R&D investments and externalization of R&D activities.

For the better development of Beijing R&D services industry, we has proposed some recommendation: upgrading the Sizes of R&D service companies; following international standards and improving industry standard system; strengthening R&D investment; enforcement of intellectual property protection; and establishing R&D public service platform and cultivating industrial clusters.

Need help with your literature review?

Our qualified researchers are here to help. Click on the button below to find out more:

Literature Review Service

Related Content

In addition to the example literature review above we also have a range of free study materials to help you with your own dissertation: