7
Multinationals’ Experience

STEP board member Mary Good of the University of Arkansas at Little Rock welcomed participants to the second day of the conference with some observations on the speed of the changes taking place in Asia. Between 1985, when she worked in India as vice president of technology at Allied Signal, and her return there in 1994 as a government official, spectacular changes had occurred which could not have been predicted. Business and governments often have different perspectives on conditions that promote innovation; but one point on which they can agree, and in Asia acted aggressively, is that competition and innovation create paths for prosperity.

Bruce Stokes of the National Journal, who served as the moderator of the first session on multinational companies (MNCs), posed a perennial question: where do MNCs’ interests and nation states’ interests converge and where do they diverge? Is foreign investment in China and India producing results or is it still a bet on the future? Many variables can affect the answers to those questions, but ultimately the perceived self-interests of global firms will play a major role in determining the success of China’s and India’s efforts to develop their economies’ innovation capacity.

INTEL’S PERSPECTIVE

James Jarrett, director of global public policy for Intel Corporation and former president of Intel China, Ltd., observed that 80 percent of the firm’s global sales are outside the United States, with 60 percent in Asia. In 2006 the Asian market represented $35.4 billion in sales. Moreover, while conducting R&D in 64 labs worldwide, Intel entered China and India relatively early, in 1985 and 1988, respectively. The scale of R&D operations, however, is vastly different. The company’s investment in China ($4 billion) dwarfs its investment in India ($700 million). In terms of market share, China will have 34 percent of Intel’s global market in 2008 while India’s share will be 11.8 percent. In short, said Jarrett, “In our business you must get China right.”

Intel’s Shanghai software laboratory, established in 1994, continues to adapt Intel designs to China’s demands. The Bangalore Intel laboratory works on advanced semiconductor prototypes such as the tera-scale prototype wafer. The company’s needs for middle managers continue to be filled by U.S. nationals for the most part, but Intel is contributing to the pipeline of local technical talent by

  • training schoolteachers in 40-hour courses and using computers with 1.6 million K-12 teachers;

  • building active relationships with more than 100 research universities; and

  • producing textbooks such as Multi-Core Programming to help build a capability capacity for leading-edge processes.

Jarrett reiterated the point made earlier that another source of talent for trans-Pacific countries is their diasporas, which are being engaged at a distance but also lured home in greater number. “I think you’ll see more and more of that in the future,” Jarrett said.

Intel’s experience in China exhibits one multinational company’s responsiveness to government investment inducements. The company’s chip manufacturing operation is its largest in Asia, and the firm recently broke ground on a large-scale wafer fabrication facility in Dalian that will use 90-mm technology and



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7 Multinationals’ Experience relatively early, in 1985 and 1988, respectively. STEP board member Mary Good of the The scale of R&D operations, however, is vastly University of Arkansas at Little Rock welcomed different. The company’s investment in China participants to the second day of the conference ($4 billion) dwarfs its investment in India ($700 with some observations on the speed of the million). In terms of market share, China will changes taking place in Asia. Between 1985, have 34 percent of Intel’s global market in 2008 when she worked in India as vice president of while India’s share will be 11.8 percent. In technology at Allied Signal, and her return there short, said Jarrett, “In our business you must get in 1994 as a government official, spectacular China right.” changes had occurred which could not have been Intel’s Shanghai software laboratory, predicted. Business and governments often have established in 1994, continues to adapt Intel different perspectives on conditions that promote designs to China’s demands. The Bangalore innovation; but one point on which they can Intel laboratory works on advanced agree, and in Asia acted aggressively, is that semiconductor prototypes such as the tera-scale competition and innovation create paths for prototype wafer. The company’s needs for prosperity. middle managers continue to be filled by U.S. Bruce Stokes of the National Journal, who nationals for the most part, but Intel is served as the moderator of the first session on contributing to the pipeline of local technical multinational companies (MNCs), posed a talent by perennial question: where do MNCs’ interests and • training schoolteachers in 40-hour nation states’ interests converge and where do they diverge? Is foreign investment in China and India courses and using computers with 1.6 producing results or is it still a bet on the future? million K-12 teachers; Many variables can affect the answers to those • building active relationships with more questions, but ultimately the perceived self- than 100 research universities; and interests of global firms will play a major role in • producing textbooks such as Multi-Core determining the success of China’s and India’s Programming to help build a capability efforts to develop their economies’ innovation capacity for leading-edge processes. capacity. Jarrett reiterated the point made earlier that another source of talent for trans-Pacific countries is their diasporas, which are being INTEL’S PERSPECTIVE engaged at a distance but also lured home in greater number. “I think you’ll see more and James Jarrett, director of global public more of that in the future,” Jarrett said. policy for Intel Corporation and former Intel’s experience in China exhibits one president of Intel China, Ltd., observed that 80 multinational company’s responsiveness to percent of the firm’s global sales are outside the government investment inducements. The United States, with 60 percent in Asia. In 2006 company’s chip manufacturing operation is its the Asian market represented $35.4 billion in largest in Asia, and the firm recently broke sales. Moreover, while conducting R&D in 64 ground on a large-scale wafer fabrication facility labs worldwide, Intel entered China and India in Dalian that will use 90-mm technology and 31

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32 THE DRAGON AND THE ELEPHANT in Chen’s personal judgment, “MNCs have begin operations in 2010. Manufacturing in limited positive effects.” Yet movement toward India had been hampered by infrastructural a more collaborative innovation paradigm can limitations of power supply and an “awkward” shift the balance from a modestly positive to a incentive structure but now is moving forward. substantially positive contribution to domestic Asked about key factors in Intel’s decision technological capacity. If MNCs were to deepen to locate a major new facility in less-developed their collaboration with local firms, then both Dalian, Jarrett said that the Chinese government the firms and China would benefit. had made a decision to diversify industrial growth away from its traditional areas of concentration by a policy combining the restrictions on new facilities in older areas and DISCUSSION “world-class” incentives for locating in less In the discussion session, Gail Pesyna of the developed ones. Alfred P. Sloan Foundation sought clarification of China’s and India’s investment incentive policies. Jarrett replied that in India they take CHINA’S EXPERIENCE WITH the form of cash grants and tax incentives. MULTINATIONAL CORPORATIONS Chen noted that last year China adopted a new scheme, called “Innovation-oriented Country by Jin Chen of Zhejiang University described 2020,” which includes 60 measures for how MNCs create links between China and promoting R&D, including facility set-up, tax international capital networks. At the end of incentives and infrastructural investments. 2004, foreign direct investment (FDI) in China Jarrett added that these policies have a new stood at $562 billion. With the Chinese social value emphasis and indigenous government positioning itself as a “learning development focus. For example, VC government,” the level of FDI has risen quickly. investment incentives are geared to domestic Scale expansion and R&D growth have been markets rather than the global market. rapid. From 200 R&D centers in 2001 the Addressing the balance between proprietary number more than quadrupled in five years, to and more open, collaborative work, Jarrett said 980 centers. MNC operations are still that the company’s strategy varies from country concentrated in Beijing (primarily in IT), to country depending on the distribution of Shanghai (chemical, auto and pharmaceuticals), technological capability, the host’s intellectual and Shenzhen (telecom), with a second tier in property regime, government requirements, and Guangzhou and other cities. other factors. In China, Intel is actively MNC research in China is largely focused pursuing collaborations. An example is its work on adaptive R&D, with less devoted to basic with Tsinghua University to develop a compiler. research. MNCs, according to Chen, are In India, on the other hand, “we are doing some perceived in China to have both positive and very proprietary work.” Jarrett observed that negative effects on indigenous technology spillover benefits are as much a function of the development. They contribute to broadening movement of human capital as of the open or and deepening the overall level of technology. closed nature of corporate research projects. As But they can establish strong monopolies on in the United States, in both China and India certain closely held technologies that crowd out there is considerable turnover in information R&D in Chinese firms, and siphon off top talent technology fields, with skilled employees that might otherwise be available to domestic leaving to create startups in software and firms. computing. Intel views this not as a loss for the Chen expressed his ambivalence about the company but rather a natural phenomenon that fact that seven of his eight recent top graduate contributes to ferment in the field. students were hired by multinationals. Overall,