Western Firms Move R&D, Other Assets To Growing China

You might have noticed a big moving van with the words "China" parked outside some U.S. companies these days.

Growing numbers of U.S. and other foreign firms are shifting key operations to China — including R&D centers, regional offices and other corporate units. The list includes tech, drug and bank giants.

The idea is to move some key facilities and activities to take full advantage of what analysts say will be the world's largest and fastest- growing consumer market. Firms also want to tap China's lower cost base and the rising expertise of Chinese scientists and engineers.

Chinese employees work at a Hewlett-Packard call center in Dalian, China, in 2007. Growing numbers of U.S. and other foreign firms are shifting key.

"It's a question of moving from supply to demand," said Keith Rabin, a New York-based Asia business consultant. "China used to be a supply platform where U.S. companies made things to ship back here. Now, the (real) demand is in China. U.S. companies without a China distribution presence are going to miss the boat."

Tom Manning, a Hong Kong-based private equity adviser, predicts Western companies might be doing a third to half of their R&D in China in 10 years as confidence in the country's economy and talent base grows.

"I think we're likely to see China mushroom as a haven for Western R&D investment," he said.

Drugmakers Dive In

Some U.S. and foreign drug giants have already made the move.

New York-based Pfizer (PFE) said last month it's expanding R&D operations in Wuhan, China. At the same time, it's closing a big R&D center in New London, Conn., and consolidating research at its Groton, Conn., lab. Pfizer is also sharply expanding its R&D facility in Shanghai and raising drug output in Dalian, in Liaoning Province.

Britain's AstraZeneca (AZN) said in late November that it's moving all British production of "active pharmaceutical ingredients" to China.

Swiss drugmaker Novartis (NVS) said Nov. 3 it's investing $1 billion in Shanghai to build what's billed as China's largest pharmaceutical research plant. Novartis also is investing $250 million in a second R&D and drug production facility in Changshu, in eastern China.

Microsoft (MSFT), Google (GOOG), Motorola (MOT) and other U.S. tech leaders already run large R&D centers in China. Big U.S. tech firms will likely keep expanding their China-based research.

The main reason to shift some operations to China is because the nation's middle class of 300 million already matches the entire U.S. population in size. If an annual income of at least $9,000 is considered middle class in China, then it could double to more than 600 million by 2015, according to the official People's Daily Online.