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Volume 84 Issue 34 | pp. 15-22
Issue Date: August 21, 2006

Cover Story

R&D Takes Off In Shanghai

Chemical and drug companies rush to set up corporate laboratories, straining the availability of qualified scientists
Department: Business
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Labor-Intensive
WuXi PharmaTech runs this high-throughput screening lab in Shanghai. The company expects to double its Chinese scientific staff this year to 1,700.
Credit: WuXi Pharmatech
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Labor-Intensive
WuXi PharmaTech runs this high-throughput screening lab in Shanghai. The company expects to double its Chinese scientific staff this year to 1,700.
Credit: WuXi Pharmatech

What was a fad is now a craze. Just three years ago, a handful of chemical companies were setting up small R&D facilities in China, primarily in Shanghai. But now, it has become commonplace for chemical and pharmaceutical companies to establish labs in Shanghai, employing hundreds of people. The influx of new facilities is straining what was thought to be China's practically infinite pool of scientists.

Next year, Dow Chemical will inaugurate an R&D center that it says will employ 1,000 people by 2010. Honeywell employs 350 R&D people in a facility that started operating in November 2004, and the company is hiring more. Degussa is building additional space for 60 new scientists at its R&D facilities because the lab it opened in 2004 for 100 scientists is fully utilized. And Japan's Toray Industries expects to grow its pool of scientists in China to 350 people by 2008, up from 200 currently.

Just a few years ago, DuPont was not even considering a major R&D facility in China, but the big company's thinking has quickly changed. "China is the world's fastest growing market for DuPont," says Guo-Hua Miao, DuPont's director and general manager for R&D in China. "We need to provide better technical support, and we need to develop new products to meet the rapidly changing needs of local customers."

DuPont's physical R&D infrastructure in Shanghai is impressive. Opened nine months ago, the company's R&D center is a well-lit four-story building with interior decoration that makes abundant use of construction materials manufactured by DuPont.

Much of the facility houses temporary sales, marketing, and administrative offices that have little to do with R&D. Miao tells C&EN that only 100 R&D staff currently work in the building, although that number will eventually climb to 400 as the non-R&D staff moves out.

The center is being fitted with a gigantic, $3.5 million film bloom extruder to develop new grades of plastic films. Other areas of focus are seeds, nutrition, new chemicals, and protective clothing. "China wants to become a center for innovation, not just manual labor," Miao says. "We're a science company, so we can help." A molecular biologist, Miao conducted agricultural biotechnology research at DuPont subsidiary Pioneer and industrial biotechnology research at DuPont's central research lab before coming to Shanghai.

DuPont's facility is located in the Zhangjiang Hi-Tech Park, which is a mere 20 minutes by car from the central office district of Pudong. Pudong, on the eastern side of the Huangpu River that bisects Shanghai, is where most of the city's new industrial and office development takes place. Puxi, the old Shanghai on the western side of the river, is where most people still prefer to live. Those living there can easily commute to Zhangjiang by subway or bus.

Andreas Tschirky, Roche's head of R&D in China, says many companies opt to place their R&D operations in Zhangjiang because it is becoming China's foremost scientific hub. In addition to multinational companies, leading Chinese organizations, both private and public, are moving into the park. These include the new Shuguang Hospital and the Institute of Materia Medica of the Shanghai Institute of Biological Science. "Zhangjiang is the most prominent biotechnology park in China," Tschirky says.

With a floor area of 5,000 m2, the Roche center was inaugurated in 2004 and now employs 65 people, 56 of them scientists. The building can accommodate 120 people, and new labs were being fitted out when C&EN visited in July. The facility is staffed by a core group of a dozen Chinese scientists who conducted advanced scientific research outside China for several years.

Growing The Business
Seed development is among DuPont's R&D activities at its facilities in Shanghai.
Credit: DuPont
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Growing The Business
Seed development is among DuPont's R&D activities at its facilities in Shanghai.
Credit: DuPont

Seeking to dispel the notion that R&D centers in China merely do the bidding of the main research labs of multinational companies, Tschirky says that "we are a real research center, with access to Roche's global knowledge database." Many research centers restrict the data their scientists in China can access, sometimes because of restrictions imposed by the U.S. government and sometimes for other reasons.

The holder of a Ph.D. in pharmacy from Paul-Scherrer Institute in Zurich, Tschirky did postdoc research at China Pharmaceutical University in Nanjing before joining Roche in 1999. He describes the work of researchers in the center as medicinal chemistry. "This includes synthetic chemistry, 3-D modeling, coming up with novel structures, and finding the synthesizing steps. The in vitro analysis is done abroad because we are still building the infrastructure for that." The quality and abundance of equipment at the lab do indeed suggest that sophisticated research takes place there.

Tschirky expects that Roche may eventually employ as many as 250 drug discovery scientists in Shanghai, but he cautions that staffing will grow in a "step-by-step" way. "If you grow too fast, you cannot groom effective people," he says.

U.S. and European companies aren't the only ones flocking to Shanghai. Toray set up its second Chinese R&D facility in Shanghai to harness "high-level human resources" available in the country, says Toru Nishimura, general manager of the firm's Shanghai polymer materials research lab.

The company's two R&D facilities in the country support business in China but also conduct research on new products for the global market. For example, its research staff in Shanghai works with Tsinghua University in Beijing and Tongji University in Shanghai to develop leading-edge water treatment technologies.

Toray's first R&D center in China opened in 2002 in Nantong in Jiangsu province. It employs 150 people who mostly conduct fiber and textile research. The Shanghai facility, inaugurated in 2004, employs 50 people and conducts research on polymers and water purification. Takuji Sato, head of all of Toray's R&D operations in China, expects to be leading a Chinese R&D staff of 350 by 2008, 120 of whom will be based in Shanghai.

That Shanghai is rapidly turning into China's high-technology hub is important in itself, but R&D managers cite additional reasons for going there. Michael Dröscher, Degussa's Düsseldorf-based senior vice president of corporate innovation, says Shanghai is the only city in China that has the sophistication to support the R&D that Degussa does.

Inaugurated in April 2004, Degussa's R&D center serves two main purposes. What concerns most of the staff is developing new applications for Degussa products for the Chinese market. "To be strong in China, we need an applications development center," Dröscher says. Its other vocation is to serve as the management center for Degussa's relationships with universities and institutes in China. "The school system is very competitive in China," Dröscher says, "and we want to have access to the top people coming out of that system."

He notes that the physical infrastructure in Shanghai is the best in China. Moreover, it's the place in China where foreigners feel most comfortable. There are 30,000 Germans living in Shanghai, Dröscher says. The R&D center is managed by expatriate staff on three-year assignments, some of whom speak Chinese and some of whom don't.

Chinese who have spent time abroad also appreciate Shanghai's worldliness. Samantha Du, managing director of Hutchison MediPharma, says she could not live in a Chinese city other than Shanghai. Du is a U.S. citizen born in the northeast China city of Changchun. She holds a Ph.D. from the University of Cincinnati and was a research scientist and manager at Pfizer for eight years until Hutchison recruited her in 2001. She sends her two children to an international school and believes the quality of schooling in other Chinese cities would not be as good.

Du's brainchild, Hutchison MediPharma, is the drug discovery subsidiary of Hutchison Whampoa, a giant business group from Hong Kong that runs everything from wine shops to shipping terminals. Launched in 2002 in Shanghai, Hutchison MediPharma employs 120 people in a center that is large enough for 350.

Du claims that her management team is world class and was hired from major drug companies including Pfizer, Amgen, and Johnson & Johnson. MediPharma has a drug undergoing Phase II clinical trials in the U.S., an achievement that makes it the leading drug discovery company in China, she says. The company's initial mission was to study the pharmacological properties of plants native to China, but it has since broadened its horizons to include partial and total syntheses.

The drug discovery firm Bicoll is another company that was established to conduct pharmaceutical research in China. With a staff of 25 scientists in Shanghai and four in Germany, Bicoll was launched in 2001 by three chemists-two of them Chinese-who were at the time doing postdoc work in Munich.

Kai Lamottke, one of the founders, tells C&EN that the firm studies the drug properties of Chinese plants. Its unique methodology involves dividing a plant into 180 fractions and observing whether any of the fractions initiates a reaction on a target such as a cancer cell or a whole organism. Bicoll then isolates the compound causing the reaction, typically for drug company customers in the U.S. and Europe.

Like many R&D managers in Shanghai, Lamottke expresses little concern over the standards of intellectual property protection in China. "IP is a concern, but it would also be a concern elsewhere in the world," he says. It's a sentiment echoed by Hutchison's Du. She figures that even in the worst-case scenario of an employee leaving the firm with company secrets, little damage would occur. "Lack of IP protection is more a problem where there is an actual commercial product to copy," she says.

At Rohm and Haas, the company's chief technology officer, Gary Calabrese, says that "IP theft happens worldwide, to all companies." In Shanghai, he says, "we're putting special procedures in place, as we have at other locations."

Scientists and technicians are moving this month into Rohm and Haas's new facility in Zhangjiang. Like most companies setting up R&D facilities in Shanghai, Rohm and Haas already had extensive operations in the city. The new facility will consolidate under one roof offices that are scattered throughout Shanghai.

The new building will initially house 500 people, 100 of whom will work in R&D. But eventually, Calabrese expects the facility to accommodate 1,500 people, a third of whom would be researchers. Rohm and Haas now employs 2,000 R&D staffers worldwide.

Rising Star
Toray researcher Wu Tong (right) examines experimental data at the company's polymer materials research lab in Shanghai. Wu will present his research results on a hybrid structure of a polymer and a silica at the ACS national meeting in San Francisco in September.
Credit: Jean-François Tremblay/C&EN
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Rising Star
Toray researcher Wu Tong (right) examines experimental data at the company's polymer materials research lab in Shanghai. Wu will present his research results on a hybrid structure of a polymer and a silica at the ACS national meeting in San Francisco in September.
Credit: Jean-François Tremblay/C&EN

Echoing Degussa's Dröscher, Calabrese says Shanghai is the best place in China to hire technologically sophisticated people. "Shanghai is becoming a mecca for high-tech students and for recruiting people who want to be in a high-tech area," he says.

The China Center will provide technical support for customers in China and the rest of Asia, Calabrese says. It will also develop products for the global market. China's construction and circuit board industries both make use of pioneering technologies that are best developed in China itself, he adds.

While China's semiconductor industry is still in its infancy, Calabrese notes that its circuit board manufacturers are world-class. For this industry, Rohm and Haas has a line of metal-containing liquids that enable multiple circuit board layers to connect. "Some people think that circuit board technology is kind of static, but it's really not the case," Calabrese says. "There is new material science that goes into making circuit boards, and we've established a presence in Shanghai to do the innovation."

Probably the biggest challenge R&D managers face in Shanghai is to secure qualified staff. By entering Shanghai almost at the same time, these R&D centers have nearly dried up the pool of qualified scientists who can manage projects and lead teams. Scientists with English-language capabilities are particularly in high demand.

Hong Wang, Honeywell's director of technology in Asia and head of the company's Shanghai R&D facility, says, "There are a lot of good engineers and scientists in China, but it's difficult to find experienced people who can play a leadership role." Wang says Honeywell has been hiring locally trained Chinese as well as Chinese who studied abroad. "My first recruit is a returnee, and my second is not; they both do fine work," he says.

Opened in November 2004, Honeywell's R&D lab in Shanghai is one of five specialty materials research centers the company runs worldwide. It is located on the top floors of a building in the Zhangjiang High-Tech Park where Honeywell employs a total of 600 people. Staffing at the center is growing by 50% every year, Wang says.

China Base
Honeywell (top) conducts research at this two-year-old building in Shanghai; headed by a Chinese-speaking Swiss and staffed with many Chinese who studied abroad, the Roche facility in Shanghai (bottom) collaborates with Roche labs in Switzerland, the U.S., and Japan. Tschirky (left) confers with researchers.
Credit: Jean-François Tremblay/C&EN
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China Base
Honeywell (top) conducts research at this two-year-old building in Shanghai; headed by a Chinese-speaking Swiss and staffed with many Chinese who studied abroad, the Roche facility in Shanghai (bottom) collaborates with Roche labs in Switzerland, the U.S., and Japan. Tschirky (left) confers with researchers.
Credit: Jean-François Tremblay/C&EN

The R&D staff consists of 350 people who conduct research on a broad selection of Honeywell's specialty materials, auto control systems, and transportation systems. The center in particular can address the unique needs of China's mobile phone industry or, say, develop new products to satisfy Chinese demand for energy-efficient traffic lights. It's not always the case that the Chinese want what the U.S. started using five years ago, Wang notes. Researchers decide what projects to work on after meeting with Honeywell's marketing staff.

Credit: Jean-François Tremblay/C&EN
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Credit: Jean-François Tremblay/C&EN

As is the case at Honeywell's center, most corporate R&D facilities in Shanghai fill many key positions with Chinese scientists who studied or worked abroad. But the pool of such people is limited, and it's increasingly commonplace to hire staff directly from abroad. The practice is most obvious at Shanghai's leading contract pharmaceutical research providers, WuXi PharmaTech and ChemPartner, which operate the largest privately run chemistry labs in Shanghai.

At WuXi PharmaTech, where there are now 1,100 scientists out of 1,500 employees, Senior Director of Strategic Planning Mi Hai says the company has become "an equal-opportunity employer" where knowledge of Chinese is no longer requisite. "As long as the candidates have the skill set we need, we will consider them," he says. Mi himself lived in the U.S. before joining WuXi. "Our client base is international, so there is no definite need for the recruits to speak Chinese."

At ChemPartner, General Manager Michael Hui says he's increasingly hiring both Chinese and non-Chinese people from the U.S. His company, which gets its work from multinational drug companies, already employs 650 people, 500 of them scientists. He says one of the benefits of hiring Americans is to "facilitate communications with clients." He adds that experienced people in Shanghai are "basically unavailable" because their current employers recognize their value and hold on to them.

Recent graduates are far easier to find, and most Shanghai labs are heavily staffed with them. But they present a specific challenge, according to Sato, Toray's China R&D manager, who headed his company's global carbon fiber research until a few months ago. Compared with that job, he says, the main difference of his new post is the large number of inexperienced employees he has to train, manage, and motivate in China. Some are trained in Japan for as long as two years.

ChemPartner's Hui says his firm provides new recruits with extensive training, from basic training in skills such as purification to underwriting employees seeking advanced degrees. In addition, some employees are selected to be posted at clients' locations in the U.S., a stint that serves as an additional opportunity for personal development. "You have to spend the resources," Hui says.

With so many companies trying to meet their staffing needs from the same pool of potential recruits, job turnover has become a worry at R&D centers in Shanghai. At Toray, managers say turnover exceeds 10% a year. Sato says the company's human resources policies will have to be modified because they are adopted from Japan, where loyalty to one's job is taken for granted. But he adds that the high turnover at Toray may be the result of the company's practice of mostly hiring fresh graduates, who perhaps don't have a clear idea of what they want.

Tightness in the scientific labor supply in Shanghai is also reflected in rapidly rising salaries. Roche's Tschirky estimates that labor costs are rising at about 7-8% annually. It's not a worry for Roche, he says, because salaries are still lower than in the U.S. and Europe, and Roche did not come to Shanghai to save money. But the fast-rising salary bill is a problem for contract research companies like WuXi and ChemPartner. Their attractiveness to their customers is in part based on their ability to offer competitively priced research services.

Both firms are responding by establishing new labs away from Shanghai. "Our new recruits can no longer afford the rising cost of living in Shanghai," WuXi's Mi says. WuXi has selected the northern city of Tianjin for its future expansion. According to Mi, the Tianjin Economic Development Area where WuXi is setting up labs is a self-contained community with suburban homes, international schools, and even golf courses.

In October, WuXi will open its first facility there in a building large enough for 400 scientists. "We will still be mostly a Shanghai company, but Tianjin will grow in importance for us," he says. He notes that WuXi hopes to employ a total of 1,700 scientists in China by the end of the year, double its head count at the end of 2005.

Drug Discovery
Lamottke (left), cofounder of Bicoll, with laboratory assistant Yijun Zhou, at the firm's Shanghai lab. The pharmaceutical company conducts all its R&D in Shanghai.
Credit: Jean-François Tremblay/C&EN
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Drug Discovery
Lamottke (left), cofounder of Bicoll, with laboratory assistant Yijun Zhou, at the firm's Shanghai lab. The pharmaceutical company conducts all its R&D in Shanghai.
Credit: Jean-François Tremblay/C&EN

In a move similar to WuXi's, ChemPartner has selected the southwestern city of Chengdu in the province of Sichuan for a new facility that is opening this month. "It's possible that some of the people we've hired from the U.S. won't want to live in Chengdu, but we already have people here who are from Sichuan," he says. He expects that the facility will employ 100 people in its first year of operation. "We have to go where there are universities and the costs are lower," Hui says. He recalls that earlier this year, several graduates from schools in Chengdu turned down job offers at ChemPartner because they did not want to leave their city.

That Shanghai's largest privately run chemistry research labs are fleeing the city's rising costs could be a sign that multinational companies have mistimed their move to the city. But that is not how research managers at foreign companies see it.

"Innovation is a matter of focus, not a matter of cost reduction," Roche's Tschirky says. "If costs are rising in Shanghai, then the city needs to perform at a higher level."

And the city is indeed becoming a center for high-level talent, attracting the best people from around China. Dow says it considered costs, availability of talent, infrastructure, transportation, and government policies at various sites in China and decided that "Zhangjiang is a great location."

Shanghai's preeminence as a center for corporate R&D seems poised to rise. The increasing number of companies establishing R&D facilities in Shanghai motivates other firms to do the same thing, if only not to be left out. Degussa's Dröscher sums it up best. "If we don't use the scientists in China," he says, "they will just work for the competition."

 
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