The UK must react to Chinese R&D threat

Sometimes the figures just don’t match the hype. Take outsourcing to China, for example.

Despite the current high profile of the country as a key global sourcing destination, just five per cent of leading UK IT organisations are currently using China as a base for offshoring, according to independent advisory firm EquaTerra.

So much for China as the new home of outsourcing, especially when you consider 100 per cent of UK businesses that use offshore outsourcing send all or part of their IT functions to India.

China, then – ­ to paraphrase Edwin Starr – what is it good for? Well, absolutely lots of things, most notably research and development (R&D).

A recent survey by the European Commission found Europe’s R&D spending has been declining since 2000, standing at just 1.9 per cent of gross domestic product (GDP) and almost half that in China.

Chinese telecommunications specialist Huawei invests 10 per cent of its revenue in R&D, a comparable proportion to Western IT providers.

But lower staff costs mean 48 per cent of the firm’s 62,000 employees work in R&D, a percentage no Western firm can match.

Where do such commitments to R&D leave UK innovation? How can we compete long-term with China, especially when Europe spends just 1.9 per cent of GDP on R&D?

The historic importance and inherent talent of UK IT professionals are all well and good.

But if Chinese firms dedicate 50 per cent of their workforce to R&D, the UK’s lead in innovation will disappear.

Last week researcher Library House revealed that venture capital investment in Europe’s next-generation media technology sector took a nosedive at the end of last year, falling 52 per cent in just three months.

The government’s trade and investment arm, UKTI, wants a national strategy for marketing the IT sector overseas to boost UK firms’ international business and attract inward investment.

The IT sector represents 6.4 per cent of UK GDP, second only to financial services at 7.5 per cent.

With the commitment to R&D from Chinese firms and a potential recession in the West, now is an ideal time for government and business to help guarantee the UK’s position at the heart of global innovation.

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