Strong R&D Centers – The difference between good and great
By Amir Gal-Or
What separates those companies who do well from those that do great and are long lasting? What can make the difference, in the long term, for businesses aiming to be the best and with an interest in maintaining that status? The short answer: at first glance, perhaps proper branding; however, a more thorough look at the issue reveals, unequivocally, strong R&D centers.
It is widely agreed, including by the top leadership in China, that strong R&D centers are central to the substantive and sustained growth of a company. Critics argue, however, that R&D centers create a cost that hurts a company’s financial performance and reduces its private equity rate. They say that it works just as well to take existing ideas and products and simply improve them. Moreover, they contend, that if a company is publicly traded or wants to be, every RMB spent from the bottom line would cost 40 RMB on the valuation. And, as many companies have a natural tendency to operate on an as needed basis, R&D centers generally do not fall on their top ten lists of necessary initiatives.
In my opinion, if a company has a sincere interest to be long lasing, this is a mistake and the wrong way to approach long term and sustained growth, and especially from the point of view of branding. A strong R&D Center not only affords a company the ability to stay updated, fresh and to regularly introduce new products to the market, it also provides for “protection” in the event of a down turn. For example: imagine your competitor comes up with a new product that changes regulation and opens or shuts down the market. A strong R&D center would help drive the spirit of your team and strengthen confidence both internally as well as externally by securing favorable opinions from the analysts.
From a macro perspective, it is clear that the opening or acquisition of R&D Centers is actually an ongoing and growing trend, both in and outside of China and in a variety of sectors. For one, Chinese companies are buying or establishing R&D centers in the U.S., Europe and of course at home in China.
Take for example Chongqing headquartered Changan Automobile Group, which announced in January 2011 its plans to open a research and development (R&D) center in the US city of Detroit. This made Changan the first Chinese automaker to have a research base in the U.S. The Detroit center reportedly will specialize in automotive chassis technology, including performance development, computer-aided engineering and manufacturing process research. Chassis technology, seen as one of the core and most difficult automotive technologies, is, according to Changan Chairman Xu Liuping, the key to the success of its future high-end auto projects. Changan currently has overseas R&D centers in Italy's Turin, Japan's Yokohama and Britain's Nottingham.
As reported by China Daily, Xu said, "The US R&D center will play an important role in improving our global product development system and in capturing global auto technology trends."
Another prime example, of a company that has made R&D a high priority and has grown to become a long lasting world leader because of it, is the privately held Chinese company Huawei, a leading global provider of commercial telecom networks. According to its website, as part of its worldwide integrated product development processes, Huawei operates a global network of 20 R&D facilities. 46% of Huawei's employees are engaged in R&D activities and Huawei invests an average of 10% of annual revenues into R&D. Today, Huawei currently serves 45 of the world's top 50 telecom operators. Huawei's products and solutions are deployed in over 140 countries and support the communication needs of one-third of the world's population.
Chinese companies are also establishing R&D Centers in their own back yard in the western part of China, which, by the way, is an area of the country on which many have set their sights. Establishment of R&D Centers, and in the western part of China, not only furthers the develop of product pipelines but also supports the further development of that part of the country, a trend in its own right.
On May 10, 2011, TCL Communication Technology Holdings Limited, headquartered in Shenzhen and the world’s seventh largest mobile phone manufacturer, opened its first R&D center in central and western China in Chengdu’s Tainfu Software Park.
TCL Communications CEO Dr. Guo Aiping said in a press release that "The establishment of TCL Communication Chengdu R&D Center is an important step to further enhance the product and technology R&D capability of TCL Communication and perfect its R&D strategic layout in West China. The Chengdu R&D center will focus on the development of Android-based mobile intelligent terminals. This will greatly enhance the company's core competence in the area of medium and high-end products."
U.S. companies are right there alongside the Chinese companies with their interest of establishing R&D Centers, not only in China, but also in the western part of the country. In April 2011, U.S. cloud computing technology company EMC Corporation (NYSE: EMC) opened not its first, not its second, but its third R&D Center in China, also in Chengdu Tainfu Software Park, following those opened in Shanghai and Beijing.
Dr. Ying Li, EMC Vice President and General Manager of EMC China COE was reported to say, "The new China COE site in Chengdu adds strength to the already highly talented R&D team in China, and it underscores the importance of innovation for EMC's longer term growth in China."
Allow me now to cite some examples from my own repertoire of anecdotes and share some additional insight regarding why strong R&D centers are central to the future success of a company and can make the difference between good and great and staying at the top of the game for a long time.
Intel opened its R&D center in Israel in the 1980's and attracted strong talent which developed the best chip Intel had for years. IBM opened labs and R&D centers which gave IBM a long lasting stream of ideas and products. HP's R&D center created relationships which resulted in access to two important acquisitions in the printing arena.
In 2005 the Chinese company Johnson Electric bought 51% of our company Nanomotion. It enabled the company to have a high end R&D center alongside its unique products in the small motor arena.
These days, we are in the final stages of a deal in the software sector where a Chinese company is buying a team and product in a market sector in which they would like to enter.
Such a move gives them, in one shot, an advanced R&D team, a global product and a strong differentiation via its competitors in China.
In summary, top people can become part of your family if you respect R&D and act to give it both high importance and priority. It could make the difference between winning and losing.
