Du Yonggang is elated with his elite team.

A wireless communications research programme, headed by Du, at Philips Research East Asia in Shanghai, produced 90 patents last year.

That is amazing: It amounts to three patents per person on average. And nearly half of the team's members are Chinese.

The achievements may best describe the rewards of Philips' efforts to build a research and development (R&D) network in China.

It also underlines the rapid rise of China as a global corporate R&D base - and as a major source of innovation.

Foreign technology firms, which have long been looking at China as a major manufacturing workshop and a big market, are now aggressively tapping the nation's scientific brainpower.

The world-class lab where Du works employs more than 80 researchers or scientists, 90 per cent of whom are Chinese.

Philips has 15 R&D centres in China, which, combined, employ about 1,000 people. Most of those workers are Chinese.

Xu Chengkai, vice-president at Philips' China, said the firm plans to recruit about 1,500 people in China next year.

That would represent a 120-per-cent increase over the number of workers recruited in China by the firm last year.

A number of the new employees will work on R&D.

"What we need most are employees who majored in semiconductors," Xu said.

Rapid business growth is driving the recruitment, the vice-president said recently during an interview with China Business Weekly.

Philips' revenues in China, composed of sales in the country and exports from the country, surged nearly 12 per cent last year, to reach US$7.5 billion.

And Philips's business has grown even faster this year: Its revenues in China soared more than 30 per cent, year-on-year, in the year's first three quarters.

"The huge size of the local market and the talent pool are also reasons for our expanded recruitment in China," Xu said.

Philips this year also plans to recruit numerous graduates from leading Chinese universities to quench its thirst for talent.

China's universities, spurred by better education and the nation's rapid economic growth, are now producing an increasing number of talented engineers, who are being courted by foreign firms.

"It is noteworthy that the number of university graduates, majoring in engineering with a bachelor's degree in China, is already larger than the combined total of Japan and the United States," said Josephine Cheng, director of IBM's China Software Development Laboratory (CSDL).

"China is producing a greater number of brilliant talents."

CSDL plans to recruit 200 more software engineers in China by year's end, Cheng said. That will raise the lab's headcount to 2,000.

CSDL is one of IBM's top five software laboratories in the world.

IBM earlier this month said it plans to recruit 400 graduates from top-notch Chinese universities. That, if accomplished, will be a record number.

It will also double, from last year, the number of IBM's recruitment on campuses in China.

University graduates are expected to account for half of the firm's total recruitment this year in China.

Industry professionals said many university graduates in China prefer to go abroad, but they are also inclined to work in China for foreign companies.

To lure Chinese students, foreign technology firms have tied up with leading Chinese universities in such initiatives as making donations to improve education and co-establishing institutes.

For example, Cisco Systems has spent US$38 million since 1998 to set up university training centres for software programmers in China.

Meanwhile, Philips has been co-operating with several major Chinese universities on numerous technology projects.

Xu said Philips will send its new employees to Asian and European countries for various training programmes.

The training could involve a great deal of investment.

Siemens plans to more than double, to 800, the number of engineers in its mobile phone R&D centre in Beijing next year.

And the firm will spend approximately 200,000 euros (US$260,000) each to train the 500 engineers, Wolfgang Klebsch, vice-president and head of the company's Beijing R&D Product Development Centre, told China Business Weekly.

John Chambers, Cisco System's president and chief executive officer, said China's excellent infrastructure, large pool of talents and business-friendly policies implemented by the country's government have prompted Cisco to increase its R&D activities in China.

Chambers announced last September that Cisco will open a US$32-million R&D centre in Shanghai. It is scheduled to open next year.

The centre will employ about 100 people.

Cisco is now localizing both its R&D and manufacturing in China, due in part to fend off competition from local players.

"What we're trying to do is outline an entire strategy of becoming a Chinese company," Chambers said.

In addition to Philips, some other technology giants have begun reaping the benefits of localized R&D in China.

About 30 per cent of Siemens mobile phones sold globally are based on models developed in its Beijing R&D centre.

And 40 per cent of the handsets sold by Nokia's Mobile Phones Business Group globally are designed and developed in its Beijing Product Creation Centre.

"China has become a very important part of Nokia's global R&D network," said David Ho, president of Nokia (China) Investment Co Ltd.

"Our deepened localized R&D effort is already bearing fruit."

Nokia earlier this month said it would double the headcount at its global R&D centre in Hangzhou, capital of East China's Zhejiang Province, within 18 months.

The centre is focusing on the R&D of third-generation (3G) mobile communications technology.

Some technology firms - concerned about the difficulties in protecting their intellectual property rights (IPRs) - had resisted the temptation to move their R&D facilities to China.

But now many are running full-scale labs that work on their most-advanced products.

A report released by the European Commission last Thursday said China is emerging as a low-cost rival to the European Union in high-skill industries.

The commission attributed China's success, in a large part, to the government's policy to actively encourage investment which allows it to tap into foreign technology.

Ericsson last Thursday announced it had begun providing European customers with 3G WCDMA wireless base stations. The stations are fully researched, developed and manufactured in China.

The firm said 15 per cent of its employees in China are working on R&D, and its investment in R&D in the country has been growing 25 per cent annually since 2000.

Impacts

US and European technology firms are facing criticism and opposition in their home countries for increasing R&D activities and expanding recruitment efforts in China.

Some critics feel such moves by the firms are leading to job losses in the United States and Europe.

Many technology firms are increasing employment in China and India, but cutting jobs in their home countries.

German Chancellor Gerhard Schroeder has verbally attacked German firms that have moved jobs abroad. Reuters has quoted Schroeder as calling the firms "unpatriotic."

But China remains a magnet.

For example, increasing R&D staffing will help Siemens cut substantial costs in an increasingly competitive market.

Gerard Kleisterlee, chief executive officer of Philips, said productivity per dollar labour cost was five times higher in China than in Germany.

"It is such a big advantage to conduct R&D in China," Klebsch said.

In responding to critics of outsourcing jobs, Kleisterlee said people should "stop clinging to outdated standpoints."

"Many people in this part of the world still seem unable to grasp the full implications of the dramatic rise of dynamic growth economies in Asia, such as China and India," Kleisterlee has been quoted by Reuters as saying.

"In order to remain competitive, companies are shifting jobs from the West to Asia. Initially it was in manufacturing, but increasingly it has come to include support functions in services and research and development.

"(China) is quickly becoming the electronics factory of the world. Increasingly, however, it is also becoming a base for research and development, driven by the availability of a vast number of highly educated engineers and scientists."

Xu said it is natural for businesses to seek low-cost talents, and China is a market that multinationals cannot afford to ignore.

"But you know the average salary of Chinese people has also been increasing very rapidly in recent years," he said.

"Maybe in 10 years, China will not be the country with the lowest labour costs."

Kleisterlee said his firm will "step up R&D activities, hire more R&D engineers and transfer more business management activities to China."

The firm plans to employ or nurture 100 more senior Chinese executives by 2007, Xu said.

Currently, Chinese account for 30 per cent of Philips' management team in the country. By 2007, the figure will exceed 50 per cent.

That is in line with a vision outlined by Kleisterlee, who has said Asian people should account for at least 10 per cent of the firm's top managers.

Localization of its management team in China is also expected to boost the firm's business growth in China.

Philips has been aiming to increase its annual revenues in China, to approximately US$12 billion by 2007.

(Business Weekly 11/30/2004 page16)