Why General Motors is developing new electric vehicles in China

In November 2012 General Motors (GM) opened its new GM China Advanced Technical Center in Shanghai, as part of its global network of Research and Development (R&D) labs. This new research centre employs 300 scientists to conduct research on lightweight materials and battery cells for the development of hybrid, plug-in hybrid, and electric vehicles, such as the new ENV 2.0.

[This article has been published on the Insight Blog of the Green Growth Knowledge Platform]

The example of General Motors illustrates the recent trend toward increasing globalization of R&D. In the last decades, multinational corporations (MNCs) are increasingly conducting R&D – and at the same time green R&D – outside their home countries. Such globalization of R&D by MNCs firms might actually be good news for the international diffusion of green technologies. After all, multinationals are large innovating firms – in 2005, the 700 largest multinationals accounted for more than 70% of world private R&D expenditures (UNCTAD, 2005) – which play a key role in technology transfers to emerging and developing countries. By having face-to-face interactions with the scientists from General Motors located in Shanghai, many local Chinese suppliers and manufacturers will increase their knowledge about hybrid and electric vehicles technologies.

In a recent paper we provide new empirical evidence on the geographic location of green R&D for a sample of 1,200 MNCs.  Using information on inventors’ addresses as stated in firms’ green patents applications, we find that about 17% of our sample of patents have been developed by inventors overseas. China attracts the largest number of foreign green R&D patents, in particular in the field of energy-efficient lightings, solar and wind technologies. Not only General Motors but also  Philips and Vestas, respectively leaders in lightings and wind technologies, have nowadays R&D laboratories located in China. For the rest, most of the top-20 destination of foreign green R&D activities by MNCs are composed of OECD countries (see Figure 1), with India and Taiwan entering in the last positions.

 

So why are MNCs conducting green R&D abroad? And if attracting MNCs green R&D is important for technology transfers and green growth, what can policymakers do about it? In the press, Kevin Wale, Director of General Motors stated that the new Chinese technical center “will ensure that GM keeps up with the needs of our local customers through the development of cutting-edge automotive technology that is cleaner, more efficient and affordable.” John Du, Director of the technical center, motivated further the decision to open this new R&D lab in China by the abundant supply of scientists and engineers in China (“China now ranks first in the world in the number of PhD candidates, and these are talents we want to attract into the GM R&D and engineering workforce”), the proximity to Asian companies in Korea and Japan leading the world in electric car battery research, China’s resources of magnesium used for batteries and light-weight steel, and the presence of a large number of producers of automobile parts in China.

The international business literature generally identifies two main motives for MNCs to conduct green R&D abroad: 1) technology-sourcing (to source local knowledge which is not available at home) and 2) adaptive R&D (i.e. the need to adapt products to specific markets to support local sales). Conducting an empirical investigation on the determinants of MNCs to offshore green R&D, our results give indeed support to both motives. On one hand, we find that MNCs are attracted by a good supply of scientists and engineers, stringent IPRs and strong technological capabilities in the host country. These results emphasize the role of technology policy in enhancing the local R&D infrastructure. Costs of R&D also matters as we find MNCs R&D investments are attracted by lower wages for R&D workers. On the other hand, we find that countries where MNCs can expect higher sales – due in particular to a larger market size or a higher cultural or geographic proximity – also tend to attract MNCs R&D activities. Most importantly, our results show the pivotal role of local environmental policy in attracting foreign green R&D investments – both to develop specific local technological capacities and to create a market for green products. Since Beijing wants 500,000 electrics and hybrids on the road by 2015 and five million by 2020, General Motors is at the right place to develop the next generation of vehicle battery systems.

Reference:

Noailly, J. and D. Ryfish (2015) Multinational firms and the internationalization of green R&D: A review of the evidence and policy implications, Energy Policy, In Press.