China may outshine India in R&D offshoring

By SiliconIndia   |   Friday, 30 January 2009, 11:43 Hrs   |    8 Comments
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Bangalore: China is likely to be well ahead of India in terms of R&D offshoring as the Chinese government increasingly extends its support to this segment and the country possesses a large domestic market and huge availability of local workforce, finds a study by Zinnov Management Consulting. As per the study, China is planning to invest 2.5 percent of its GDP in R&D by 2020.

The report on 'R&D Globalisation: A China Perspective said that China has declared financial and policy initiatives and tax incentives to encourage R&D offshoring in the country. "Top Indian offshore business destinations today are facing tough competition from cities like Shanghai and Beijing as favoured offshoring destinations," opined Pari Natarajan, CEO, Zinnov.

The Chinese government has exempted income tax for the first two years for new foreign enterprises. "The companies would have to pay only half of the normally levied tax for the next three years. Local State taxes have also been exempted for these companies," the report pointed out. Moreover, the government provides free rentals, subsidized utilities and lease deposit waiver in acquiring property for three years.

"The availability of a huge domestic market in China is also attracting more and more companies to invest in China. IT spends for 2008 alone were about $54 billion, which is more than twice that of India. The centers in China play an important part in product localization for the China market," mentioned Natarajan.
At present the total R&D offshoring market in China is about $7.7 billion. There are 920 multinational companies that have operations in China, compared with 671 in India. The number of captive centers in China is 1,100, compared with 780 in India.

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