Tech's Faster Boat to China

When Harry Shum arrived in Beijing seven years ago to start a research center in China for Microsoft (MSFT), he had low expectations about what he would be able to achieve. Shum, who was born in Shanghai and grew up in Hong Kong, knew that skeptics considered it an impossible mission. "At that time, very few people believed we could do first-class research here," he says.

Among the critics was the man whose job it was to launch the center -- Shum. "I myself didn't believe," he says. "The level of research when I grew up here was very, very low. Technology innovation is not something that China has been known for."

Today, Microsoft's Beijing center has 200 people -- 40 from overseas and the rest from China -- working on a range of advanced technologies. Among them: a digital pen that allows composers to write their music on paper but have the composition immediately appear on their PC, and a new type of software that lets computer gamers appear in the game, courtesy of a video camera which inserts their images in real time into the computer's reality.


  Microsoft's Beijing engineers are also working on new ways of organizing digital photos and searching online videos, among other cutting-edge projects. Now Shum boasts about the capabilities of his Chinese staff. "I'm so confident that we can do first-class research in China," he says. "In a few years, we've been able to train a generation who can compete on a global stage."

While Shum and other Microsoft officials have good reason to talk up their Beijing operation -- the hope is that Chinese officials will crack down on software piracy and help boost Windows sales in the world's biggest country -- other companies are similarly bullish about China's potential as an R&D hot spot. As the government pushes to build an innovation economy, its leaders are looking to companies such as Microsoft to help clear the way.

Barely a week goes by without a multinational unveiling ambitious plans to expand its R&D presence in China. Last week, for instance, German software giant SAP (SAP) announced its intention to build a Chinese R&D operation. On Mar. 23, Motorola (MOT), which already has 16 centers in China, announced it was opening yet another, this one focused on wireless technology, in the eastern city of Hangzhou.


  One reason for the activity is the support that local and multinational companies have been receiving from Beijing, says Roger Li, Oracle's (ORCL) manufacturing director for North China and general manager of telecom industry for Greater China. "We are seeing strong encouragement from the government. In the last two years we've seen big momentum," he says.

Oracle now has development centers in Beijing, Shenzhen, Xian, and Guangzhou, and has more than doubled the number of employees in China, to over 800, since 2002. Li even believes that China has an edge over India, despite the growth of world-class Indian IT services companies like Infosys (INFY), Wipro (WIT), and TCS. Unlike the Chinese, he says, the Indians aren't concentrating on coming up with software of their own. "China is really trying to push to create its own software industry," says Li. "That's one of the main differences with India, which is focused on outsourcing."

Intel (INTC) is active, too. It recently opened a new R&D center in Shanghai. Intel's Beijing center has 80 researchers and will grow another 20% this year, according to John Du, director of the Intel China Research Center in Beijing. "Because China is the leading emerging market, China is a very good, strategic place for Intel to understand the user model trends," he says. "Having a lab here provides the huge advantage of access to the local requirements."


  According to Du, Intel doesn't see its China labs at the forefront of breakthrough technology. That is the domain of the U.S. engineers. "Rather than developing fundamental technology, as in the U.S., we want to move up and be the people who understand Intel's fundamental technology and take it to the next level of innovation that enables the next usage model."

For instance, he points to the importance of Internet cafes in China. Since a large number of China's 110-million Net users depend on PCs in such cafes to do their Web surfing, those locations are far more important to the overall Net environment in China than in the U.S.

"Our sales and marketing guys look at the Internet cafes and say there's a huge opportunity to address problems doing upgrades and maintenance for [them]," says Du. "The sales and marketing guys go back to the software service solutions group in Shanghai to develop a solution to help Internet cafes to do upgrades, monitor their PCs, and do maintenance."


  Despite the growth of R&D centers in China, Intel doesn't have a problem finding top people for its lab. "There's hype that R&D centers are growing like mushrooms in China," says Du. "But the majority of them are still doing local product-enabling and localization work."

Nor does finding Chinese workers present a problem, according to Du. "Once you get into this level [of research], there aren't so many companies that actually do this kind of research in China," Du points out. "And we all do sort of different things. We don't feel we are grabbing the same people [as IBM and Intel]."

Microsoft's Shum isn't so sure. "So many companies are rushing into China and doing R&D," he says. He has received visitors from two dozen other outfits interested in learning about Redmond's experience in the Chinese capital. "The talent war is really heating up -- and eventually that will drive the costs up," he observes.

Shum, the onetime skeptic, believes that China has a "huge talent base." As more multinationals expand their Chinese R&D teams, the expectations that other executives have for their Chinese labs will keep increasing.

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