Product development centers aren’t extremely expensive as investments, but they carry a much higher level of prestige for developing countries due to their status as cutting-edge centers for innovation. Against that backdrop, major new R&D moves by global corporate giants Adobe Systems (Nasdaq: ADBE) and Visa (NYSE: V) certainly don’t look too good for China. In the former case, software giant Adobe has announced it will shutter its China R&D facility, resulting in the loss of hundreds of jobs. In the latter, financial services giant Visa has also snubbed China by announcing a major new global technology development strategy that includes a new center in neighboring India but not in China.
As a longtime China tech watcher, I can say that neither of these 2 moves surprises me too much. Despite its huge potential as a consumer market, China has failed to gain much prowess as a hub for innovation and instead enjoys a reputation as a center for copycats. That failure has led big names like Apple (Nasdaq: AAPL) to overlook the market for R&D centers, even as they sell huge amounts of their products there.
China’s poor innovation climate has also led to the disappointing performance of a number of IT outsourcing companies that were seeking to copy the India model perfected by big names like Tata Teleservices (Mumbai: TTML) and InfoSys (Mumbai: INFY). Most recently, the disappointing growth prospects for the field have seen 2 former IT outsourcing high-flyers, Pactera and Camelot Information Systems, privatize and de-list their shares from New York over the last year.
According to the latest headlines, Adobe’s decision to shutter its China R&D center in Beijing is part of a broader ongoing company plan to consolidate its product development centers around the world. (English article; Chinese article) That drive has already seen Adobe reduce its global count of R&D centers over the last 2 years to 56 from a previous 80. The company didn’t say how many people worked at its China operation, but local media said around 400 people were notified of a meeting in Beijing to announce the cuts. Reports also noted that Adobe had no concurrent plans to reduce its China sales team.
Meantime, Visa’s new announcement was noteworthy for what it didn’t say about China, rather than any positive developments. The world’s largest credit card company and operator of a massive global financial transactions network announced a plan to add 2,000 new technology jobs globally, along with a concurrent plan to open a new technology development center in India. (company announcement) It said the new India center would focus on application development interfaces, and most of the jobs under the broader initiative would come in India, Singapore and the US.
It’s not hugely surprising that China was excluded from the list, as Visa has had a frustrating experience with the market over the years. Despite its attempts to expand in China, Beijing has repeatedly thwarted much of Visa’s efforts as it favored homegrown player UnionPay, which is owned by the nation’s biggest banks. In 2012 the World Trade Organization ruled that China was unfairly limiting Visa and rival MasterCard (NYSE: MA) in the market, though it doesn’t seem like much has changed since then. (previous post)
Another noteworthy headline on the R&D front came just 2 weeks ago, when the head of Asia R&D for Microsoft (Nasdaq: MSFT), one of the biggest foreign investors in China-based R&D, quit his job to go to homegrown online search giant Baidu (Nasdaq: BIDU). (previous post) It’s probably too early to write off China as a future center for global innovation just yet. But all of these recent signs and the newest moves by Visa and Adobe certainly don’t look too promising for the country’s prospects to become a leading global R&D hub.
Bottom line: Adobe’s decision to close its China R&D lab and Visa’s selection of India for a new R&D center mark the latest setbacks for China’s hopes to become a global innovation center.