Uncertainties, Imitative Behaviours and Foreign R&D Location: Explaining the Over-concentration of Foreign R&D in Beijing and Shanghai within China

Abstract

This study examines the location of foreign research and development (R&D) establishments in China and reveals that such facilities are overly concentrated in Shanghai and Beijing, the two first- tier cities. We argue that the spatial concentration of R&D in Shanghai and Beijing is more intense than what can be expected based on the spatial concentration of foreign investment, science and technology resources and general economic activities. The spatial concentration is also greater than what is observed in more developed countries. This degree of concentration cannot be convincingly explained by the conventional, rational choice model that relies mostly upon factors such as market size, labour costs and infrastructure, among others. Our analysis suggests that site location decisions are also the product of imitative behaviours among decision makers faced with uncertainties and multiple risks, particularly in a transitional economy such as China's. We further discuss the implications for second-tier cities in competition for foreign R&D investment, suggesting that these cities should aggressively market their cities to foreign investors in order to reduce the perceived risks undermining their ability to attract R&D. We also speculate that as foreign investors become more knowledgeable about the rest of China, more companies will begin to establish R&D facilities in such second-tier cities.

Keywords:

• China
• Beijing
• R&D globalization
• location
• second-tier cities
• Shanghai

Acknowledgements

This research is funded by the grant from the National Science Foundation (BCS-0214042). Results of this study were originally presented at the conference ‘Global R&D in China’, Nanjing, China, 27–28 May 2005. A presentation was also made at the 2006 annual conference for the Association of American Geographers at Chicago. We wish to thank Dr Steve Graves and three anonymous referees for their very useful comments and suggestions, which improve previous drafts significantly. The authors are also very grateful for the generosity of many R&D managers who spent the time and shared their insights with us.

Notes

¹ There is no consensus on the definition of first-tier and second-tier cities. In Chinese, similar concepts are provincial or sub-provincial cities. Provincial cities include the four cities (Beijing, Shanghai, Tianjin and Chongqing) that are directly administrated by the central government. Sub-provincial cities include 15 cities (Harbin, Changchun, Hangzhou, Dalian, Shenyang, Chengdu, Qingdao, Xi'an, Ningbo, Wuhan, Jinan, Guangzhou, Nanjing, Shenzhen and Xiamen). It is interesting to note not all provincial capitals are included in the sub-provincial cities and such examples include Fuzhou (Fujian Province), Zhengzhou (Henan Province), Changsha (Hunan Province) and Nanchang (Jiangxi Province), among others. Meanwhile, some cities that are not provincial capitals are included in the list and examples include Qingdao, Ningbo, Shenzhen, and Xiamen. For convenience, we include Beijing and Shanghai as the two first-tier cities while the 15 sub-provincial cities and two provincial-level cities Tianjin and Chongqing (17 in total) are included as the second-tier cities.

² We were not able to obtain the complete list of foreign R&D establishments in China, though it has been reported that more than 700 such facilities have been established. Von Zedtwitz created a list of 202 foreign R&D facilities. Through Internet search and other sources, we obtained more than 200 foreign R&D facilities' information independently. Pulling these two sources together, we got a list containing 309 foreign R&D establishments and we believe that this is the most complete list thus far. Unfortunately, we were not able to collect the contact information of all the establishments in the list. Among the 309 establishments, we got contact information (telephone, fax, emails or mailing addresses) for 180 of them. Through contacts of various kinds (phone calls, faxes, emails and others), 37 foreign R&D centres/laboratories from 33 companies agreed to do interviews. Consequently, we conducted interviews with 46 managers/directors from these 37 foreign R&D centres. Among the 37 foreign R&D laboratories/centres, 33 are large multinational corporations, and four are pretty small. In this study, we will focus the discussion on the 33 laboratories /centres from these large multinational corporations.

³ As one reviewer kindly pointed out in the comments, it would be very useful if we could further compare the pattern in China with those from other countries such as Japan, India, and the United Kingdom. Unfortunately, such data is not readily available.

⁴ Interview conducted in Beijing on July 19, 2004.

⁵ Interview conducted at Nanjing on June 14, 2004.

⁶ Interview conducted in shanghai on July 2, 2004.

⁷ Interview conducted with the manager at Beijing on July 21, 2004.

⁸ Interview conducted with the site manager of Lucent Technologies at Nanjing on June 14, 2004.