China climbing value chain

WSJ profiles Matsushita's (Panasonic) activities in China: ...built or invested in five high-technology product development and research centers across China, hiring hundreds of local engineers to work in areas ranging from car electronics to mobile technology, mostly for cellphones... Matsushita President Kunio Nakamura has called China the company's future "engine of growth."

...Matsushita's efforts to go upstream also are partly an attempt to win support from the Chinese government, which is eager for foreign companies to transfer more high-end operations and technology into China.

"Right now, the real competition in China is for human resources," Matsushita HR manager Mr. Nakamura says. As foreign companies engage in more sophisticated activities such as software development and product design, and local concerns try to raise their levels of expertise, companies are fighting over graduates of the top universities.

And then there is the uniquely Japanese hurdle of a reputation for low salaries, long hours and slim career prospects. A survey conducted by ChinaHR, a major online recruiter, ranked Matsushita No. 46 among the most popular companies to work for in China. U.S.-based International Business Machines Corp. and Microsoft Corp. ranked No. 2 and No. 5, respectively, while the highest-ranking Japanese concern was Sony Corp. at 26.

A related article discusses how the Korean government is actively concerned about "essential technologies" like LCD or plasma screen manufacturing finding their way to China via acquisition or industrial espionage.

As discussion usually centers around China's growth as a low-wage manufacturing base, I believe many will be surprised at the rate at which China climbs the technology value chain. Recent WSJ articles have covered Siemens moving parts of their cellphone R&D to China, as well as Vodafone's likely decision to start sourcing 3G equipment from Huawei and others. The Matsushita article makes it clear that foreign companies are under pressure to demonstrate technology transfer and R&D activities in China. Yesterday's WSJ had a piece on outsourcing pharma research to Chinese labs. Korea and Taiwan are in danger of losing their leads in key areas like LCD or semiconductor fab, and other developing countries (SE Asia, Mexico, etc.) have already been leapfrogged.