Foreign firms take R&D lead in China

18 May 2012

BEIJING: Overseas companies are significantly outperforming their local counterparts when it comes to successful innovation in China, analysis from Nielsen has suggested.

The insights provider argued billions of dollars are spent in this area in sectors like household goods, packaged food and soft drinks annually, and that it takes a year to develop and launch a product.

More specifically, new lines deliver 75% of annual growth, or RMB56tr, per year. Within this, however, international firms yield value sales that are 70% higher than those of their indigenous competitors.

One reason for this is because 56% of roll outs from Chinese enterprises are "me-too" offerings copying something already on sale, versus 10% for foreign corporations.

Some 63% of the items bought to market by businesses securing meaningful revenues from their innovation pipelines are also incremental improvements to existing brands, whereas 14% were "me-too" additions.

"With the big focus right now on driving domestic consumption, innovation becomes a key part of how China evolves as an economy," said Karthik Rao, managing director of Nielsen Greater China.

Among the other core differences identified by the analysis was that 43% of Chinese organisations did not have a formal innovation team, falling to 18% for multinational operators.

Similarly, only a third of domestic players had a consistent process with predetermined "stage gates" in place, a figure hitting 62% for companies based outside China.

The importance of established procedures should not be underestimated, given that firms boasting such a protocol generate revenues that are 53% above the average.

Organisations dedicating more time to early phases of the R&D cycle - like "ideation" and effectively picking "white spaces" - also enjoy value sales that are 20% higher than the norm.

Elsewhere, companies which have regularly used a knowledge management system containing information about past launches received 12% greater revenues from their new introductions.

According to the National Bureau of Statistics, the government agency, research and development spending climbed by 21.9% in China last year, thus reaching a value of RMB861bn.

Data sourced from Nielsen; additional content by Warc staff