In contrast to the home-grown IT industries of Japan and South Korea, two-thirds or more of those exports are from partly or wholly foreign-owned plants. Chinas state-owned companies spend relatively little on R D and have almost no international brands or distribution networks, a drawback acknowledged by Lenovos purchase of IBMs barely profitable PC business.
Ah, say the China-boosters, but all that is mere prologue. Chinas abundant cheap brainpower, energy and determination to succeed make it only a matter of time before it grows into a formidable knowledge economy. Again, appearances may deceive. R D effort is only a rather crude measure of input. Its economic value depends on the quality of output and how it is commercialized. On both counts, China still has much to prove.
Its engineers high calibre and low cost have spurred western companies such as General Electric and International Business Machines to set up laboratories there. But Chinas state-owned enterprises seem less adroit at exploiting those assets. The OECD last year gave most SOEs low marks for innovation and for training and organizing researchers. McKinsey, the management consultancy, says Chinas software industry lags behind Indias, because of its fragmented structure and poor management. That may change as more foreign-trained IT engineers with business experience return from abroad. However, they face big barriers to disseminating technology across industry. Not only are foreign companies operating in China increasingly careful to keep core technologies to themselves but Chinese companies collaborate little with each other or with universities.
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