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R&D In Emerging Countries Comes With Risks And Rewards

by Marc S. Reisch
March 28, 2012 | A version of this story appeared in Volume 90, Issue 9

Credit: C&EN surveys
Table of research costs
Credit: C&EN surveys

As chemical firms increased their R&D spending over the past decade, many of them enlarged their research capabilities in developing countries. Those overseas investments have helped companies gain market share and increase profits, but they are not without risk.

Credit: C&EN surveys
Table of capital investments
Credit: C&EN surveys

Dow Chemical has about 900 people working in R&D labs in Asia, with the largest contingent, roughly 500 people, in Shanghai. Having experts on the ground in a region that has become a manufacturing powerhouse means Dow can better contour products for the local market, according to William F. Banholzer, the firm’s chief technology officer (CTO). “You can’t solve Asian customers’ problems from the U.S.,” he says.

Just about all of Dow’s researchers in China are native to the region. Their familiarity with local markets has helped Dow develop coatings materials, for instance, that reduce airborne formaldehyde, a lung irritant and probable carcinogen that is still widely used in industrial processes in China.

Banholzer acknowledges that he worries about intellectual property (IP) theft in developing countries in which legal protections may not be as robust as in more developed ones. But he points out that IP theft occurs in developed countries too. For instance, Kexue Huang, a Dow researcher who was based in Indianapolis, recently pleaded guilty in a U.S. court to stealing Dow technology for making the insecticide Spinosad (C&EN, Sept. 26, 2011, page 7).

The best way for a company to protect itself, Banholzer says, is to make sure it has patent protection. Yakov Kutsovsky, Cabot’s CTO, agrees. “We made a conscious decision to patent our products in China,” Kutsovsky says. The commitment will go a long way to developing robust patent protection for all companies operating in China, including Chinese firms, he says.

A smaller company than Dow, Cabot has 50 technical service employees at its Shanghai research center who tweak the firm’s product line to suit the needs of customers in China. Having such a team on the ground in the country is “a major competitive advantage,” Kutsovsky says.

Although Cabot has not had any IP stolen, Kutsovsky says, the company takes a number of precautions in developing countries. For one, the firm takes steps to earn employee loyalty and keep turnover low. It also has protocols in place to safeguard information when it works with third parties. And it brings in critical technology from Europe and the U.S. only on an as-needed basis—and only with appropriate security precautions, he says.

Like Dow, DuPont has a large contingent in developing countries. Combined, well over 1,000 researchers work at major DuPont research installations in Shanghai; Hyderabad, India; and Paulínia, Brazil, notes DuPont CTO Douglas Muzyka. These centers develop products for local markets and act as hubs connected to DuPont’s global R&D infrastructure.

In China, for instance, local researchers developed a composite material strengthened with DuPont’s Kevlar p-aramid fiber for use in pipes that ventilate deep underground coal mines, Muzyka says. New products like this one helped DuPont’s sales in China increase by more than 80%, to $3.3 billion, between 2009 and 2011.

“We are concerned about the environment for patent protection in developing countries,” Muzyka tells C&EN. But “IP challenges exist in both the developed and the developing world.” DuPont has had to deal with a number of well-publicized IP theft cases in the U.S. The most recent one involved charges that five people, including two former DuPont employees and an employee of a Chinese firm, stole DuPont trade secrets for producing the white pigment titanium dioxide (C&EN, Feb. 13, page 7).

Muzyka, who spent four years as president of DuPont China, concedes that operating in China has its IP challenges. “You have to manage IP security the best way you can,” he says. But Muzyka cautions that “companies that withdraw from China because they have had a bad experience make a mistake. Without risk, there can be no reward.”


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