Diverse R&D models develop in China

04 October 2011

BEIJING: Unilever, PepsiCo and Nestlé are among the major brand owners pursuing innovative R&D models in China, a study by McKinsey has indicated.

Writing in the Harvard Business Review, the consultancy's Max Magni and Yuval Atsmon argued that multinational FMCG manufacturers have invested over $5bn on R&D in China during the last five years, and that this figure is set to rise going forward.

In channelling the expenditure, many firms have built dedicated R&D centres delivering goods serving local needs and incomes, as well as providing access to low-cost, expert talent and the chance to forge closer bonds with Chinese authorities.

One distinguishing feature between the strategies adopted by different companies is whether to create items solely for the Chinese market, or if their outlook is more international.

For example, the Shanghai R&D hub run by Coca-Cola, the soft drinks giant, crafted the blueprint for Minute Maid Pulpy Super Milky and Sprite Tea, offerings that are now both "hits" across Asia.

A similar trend was also witnessed by Hazeline, Unilever's shampoo, and Gillette, Procter & Gamble's shaving brand, has one of its two global R&D centres in China, a site is already responsible for discovering items which have achieved a worldwide reach.

By contrast, PepsiCo's equivalent operations have largely focused on generating new lines just for Chinese buyers, like Tropicana Guo Bin Fen, a mix of tropical, citrus and melon juices.

Equally, P&G and Unilever have added Chinese herbs to products such as toothpaste and even skin whitener, reflecting the findings of consumer research.

"Building a winning R&D organization requires a conscious effort to embed consumer and shopper insights into the innovation process," Magni and Atsmon said.

Open innovation programmes and partnerships with third parties - tactics that have been employed by General Electric - can also yield profitable results.

Elsewhere, Nestlé's Research Center in Beijing has formed a tie-up with Jiaotong University, based in Xi'an, to undertake studies into metabolic health.

Other suggestions made by McKinsey include setting challenging tasks rather than product "tweaks", and purchasing local firms with strong R&D credentials, although regulatory concerns and a lack of viable targets often make this latter approach difficult.

Data sourced from Harvard Business Review; additional content by Warc staff