Like a lot of global plastics companies, Ticona Engineering Polymers is significantly stepping up its research and development activity in China, as the company sees more product development work shifting to Asia.
Ticona expects to open in December a development center for more than 400 employees in Shanghai, significantly expanding its capacity for research with more extrusion lines, molding equipment and other capabilities.
Other executives and analysts see a trend toward stepped-up R&D in emerging markets, as those economies try to move from being low-cost labor centers to product design/development spots.
China, for example, became the world's leading producer of chemical invention patent applications in 2009, according to Chemical Abstracts Service, part of the Washington-based American Chemical Society.
Research and development spending in China, including what foreign firms spend there, is expected to hit 2 percent of gross domestic product this year, up from 1 percent in 2000, according to Research-Works, a Shanghai investment research firm.
At that level, spending as a percentage of GDP would still trail Japan (3.3 percent), South Korea and the U.S. (2.6 percent), but would be higher than the European Union, Research-Works said.
Of course, patent applications don't automatically translate to innovation. Simply spending money doesn't necessarily produce innovations that meet customer needs and grab market share.
Both foreign and Chinese industry officials said they are investing more R&D dollars in China.
For example, Sabic Innovative Plastics unit in Pittsfield, Mass., last month announced plans for a new R&D center in Shanghai.
Ticona decided on its Shanghai expansion because customers' design work on new components is moving to Asia.
“We believe very strongly that you need to do R&D in the market where most of your customer's technology development takes place,” said Roeland Polet, general manager for Florence, Ky.-based Ticona.
Ticona is “100 percent convinced that the center of gravity” for new design “has gradually and will increasingly shift to Asia.”
Polet said it's important for the company to develop Asia-specific products for Asia, and not simply bring products already used elsewhere. He cited the growth potential of markets like automotive, where Chinese cars use less than 25 percent of the engineering plastics that Western models use.
China had only 100 foreign-invested R&D operations in 2000, but has more than 1,600 today, according to Research-Works.
In a May survey from the EU's Chamber of Commerce in China, 26 percent of more than 500 EU respondents had R&D centers in China in 2010, up from 17 percent in 2009. Chamber officials said the change reflects increased R&D spending locally as companies seek to adapt products to the Chinese market.
One plastics industry analyst said Chinese firms also have stepped up R&D.
Roger Young, Asia-Pacific vice president for Akron, Ohio-based consulting firm Robert Eller Associates LLC, said research institutes funded by the Chinese government have “really accelerated R&D programs,” and companies like Guangzhou Kingfa Science and Technology Co. have taken advantage of available money in areas like advanced materials.
He said R&D growth in China and India is being driven by low costs and large numbers of technical graduates from its universities.
Chinese additives maker Shandong Rike Chemical Co. Ltd., for example, boosted its R&D spending from 1 percent of revenues in 2003 to 31/2 percent a year from 2007-09, said Thomas Saloom, senior vice president of R&D with the Weifang, China-based firm.
Rike is part-owned by U.S. distribution firm Performance Additives LLC. Saloom is also executive vice president of Yardley, Pa.-based Performance Additives.
He said Rike sees cost advantages in Chinese R&D and wants to keep development work nimble.
“We know that Rike is in a different phase of development than more-established, mature markets such as Japan, Europe and the U.S.A.,” Saloom said. “We constantly try to avoid the errors that have caused these cultures to become overpriced, reluctant to change, top-heavy and unable to adapt quickly.”
Research-Works said that while some Chinese R&D may yield questionable returns, at current trends R&D spending will hit 21/2 percent of GDP by 2020, according to an April article from a principal in the firm, Philip Bowring, published in the Hong Kong magazine China Economic Review.
Some executives question whether China does enough of the right kind of R&D.
Helmar Franz, executive director with China's largest injection press maker, Haitian International Holdings Ltd. in Ningbo, said the country lacks the tight-knit joint development work that goes on among plastics processors, machine makers and materials suppliers in Europe.
Franz said too much product development in China's plastics machinery sector involves copying the competition, rather than talking to customers and foreseeing future needs.
“The drivers of innovation in the machinery sector are mainly the competition, not so much the customer,” said Franz, who was CEO at Swaig, Germany, press maker Demag Plastics Group before joining Haitian in 2005. “The people look at what the competition is doing, do the same thing and think it's great. [But] if you see it in the competition, it's already gone.”
“If you want to be a leader, you have to have upfront knowledge and you need to have the direct contact with the customers to anticipate their plans and projects,” he said. That advice also applies to contact with resin suppliers, he added.
Still, Franz said he believes China's plastics machinery sector is closing its technology gap with competitors in Europe, North America and Japan, in part because those firms have been forced to slow down R&D spending in the economic crisis.
However, countries like the U.S., Japan and Switzerland will remain ahead in technology innovations such as solar and wind power and bio-based materials, according to Balaji Singh, president of Houston consultancy Chemical Market Resources Inc.
“Since the existing advancements in plastics started over 40 years ago, they are almost reaching maturity,” he said. “It is logical for the global migration.”