Chinese foreign acquisitions to date have largely centred on low tech industries such as mining and oil. But that is about to change. China is looking to move up the value chain.
According to Professor Peter Williamson of Cambridge Judge Business School, the next round of acquisitions will be small, high tech companies in Europe—companies with excellent R&D capabilities.
“The Chinese are excellent at volume manufacturing and low cost,” says Professor Williamson. “What they are lacking to move up the value chain and improve the quality of their products is technology and R&D capability. By buying companies in Europe with those strengths, they can actually complete the puzzle.”
As someone who works with pharmaceuticals companies, I see another trend: large US and European pharmaceuticals companies investing heavily in R&D facilities in China. Novartis, for example, is investing $1.25 billion in two R&D centres in China. The Swiss drug giant’s R&D centre in Shanghai is now the firm’s third largest after its facilities in Cambridge, USA and Basel, Switzerland.
Novartis is by no means unique. Most of the big western pharmaceuticals companies are investing in China. It is seen as a market with excellent long-term growth prospects. Not only is China the fastest growing large economy, it has a rapidly rising middle class with ever more disposable income to spend on healthcare. And from an R&D perspective, China has a large pool of highly skilled, low cost scientists.
The pharmaceuticals industry, like most other industries, has undergone rapid globalisation. It is not uncommon for a drug to be developed across several international locations—and sometimes even in collaboration with firms that are competitors on other drugs—with the subsequent clinical trials being outsourced to a contract research organisation in different geographies.
With the cost of clinical trials running at $1 million per day, communication needs to be fast, efficient and, from an intellectual property perspective, secure. Tools such as unified communications (UCC) and telepresence run over high speed, secure networks help to underpin this collaboration. It doesn’t matter if you’re a Chinese firm establishing a foothold in Europe or a European firm establishing a foothold in China, embedding these kinds of enabling technologies within your organisation is increasingly critical for effective collaboration in a global innovation environment.