Chin r&d Overview

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China R&D Overview

June 2013

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Talent Neuron can help in selecting the right location by providing data, analytics and insights on Locations,

Talent, Cost, Peer Group Footprint & Trends

Location Analysis Understand the capability of each potential

location and make data driven decisions on

setup and expansion

Peer and Talent

Insights

Understand the capability of each potential


setup and expansion

Ecosystem Analysis Understand the capability of each potential


setup and expansion

Source: Talent Neuron Website 3


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CAPABILITIESTalent Neuron has assisted over 100 companies in their global location analysis and site

selection process

Ecosystem Insights Forecasts Industry/DomainWage Inflation

Trends

Company TrackerMarket TrackerSkill Wizard Market Insights

Talent Neuron KEY

FOCUS IS ON THE

TECHNOLOGY INDUSTRY.

OVER 80% CLIENTS AREIN THE PRODUCT

ENGINEERING DOMAIN.

Consulting

Proprietary

Data Sources

Network

Reports

Web Crawling

Expert

Insights

Analytics

Surveys

500+ GLOBAL

CITIES COVERED

Source: Talent Neuron

6 DOMAINS

35 FUNCTIONs

150+ SKILL SETS

4


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PROPOSED APPROACH Data Gathering and Analysis through BIG DataTalent Neuron will use data driven Big data principles (for large data analysis) which will provide

comprehensive insights and transparency on the trends, current realities and opportunities in any locations

100+ Job sites

3,000+ Company

Career Sites

Universities

Social Media/

Public Profiles

Hadoop

Engine

(Big Data

Approach)

=

Over 12,000

Unique Data

elements foreach city

Patent Databases

Publication/

Journal

Databases

Technology

Contributor lists

Community Sites

Connectors (API / Screen Scraping)

SkillAvailability

LocationInsights

Compensationand CostTrends

PeerCompanyFootprint

Source: Talent Neuron Website

* Details not disclosed by the company

Source: Talent Neuron Research and Analysis 5


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520+ Cities~12,000 Unique Data

Points Per City

9 Domains &

400+ Skills

~7,500 Companies &

22 Million Profiles

Module 1: TalentIntelligence Module 2: TalentAnalytics

Location Profiles

Talent Pool (Installed and Fresh)

Salary and Cost

University Peer Companies

Monitor

Role Views

Job Engine

Top Brains

Public People Profiles

HR Data Consolidation

Peer Benchmarking

Decision Support Analytics

Workforce Planning

Skill Circles

Hypotheses Validation

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Talent NeuronTalent Neuron has two module Talent Intelligence and Talent Analytics. Our data spectrum covers

500 cities, 9 Domains and 400+ skill sets


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Talent Neuron, gathers data from multiple sources

Data Mining from Connectors

Job Sites

Company

Career Sites

Social Media/

Public Profiles

PatentDatabases

Community

Sites

Technology

Contributor List

Universities

Publication/

Journal

Databases

Survey Data from

Companies

Data from Govt./

Industry Bodies

Data from Local

Recruitment

Companies

Data on City level

suitability &Ecosystem

Correlated data

on Talent,

Cost, Peer companies

Talent Neuron PrimaryResearch & Interviews

News Articles & Public

Data Crawling Engine

7


8/16Zinnov 8

Note: *MSA Metropolitan Statistical Area

Source: Doing Business in Chengdu; Invest in Chengdu government website; Government of Chengdu. 2011-05-13. Retrieved 2012-03-16;

Government of Suzhou. 2011-03-18. Retrieved 2012-03-18; Doing business in Suzhou

Parameter China

MNC R&D Globalization Market US $7.65 Billion

Market Growth Since FY 2009 15.9%

Total Number of MNCs 1,046

# of Top 1,000 Global R&D Spenders 342

Total Number of MNC Centers 1,300

Total MNC R&D Talent Pool ~152,000

R&D Suitable Fresh Talent Pool ~56,000

Average Cost/ Person/ Year ~US $50,400

MNC R&D Landscape in China

8.3

9.3

10.6

0 5 10 15 20

FY 2009

FY 2010

FY 2011

Year on Year Cost Savings by China R&D

Centers (USD Billion)

Net Saving~USD 28 Bn

China is generating significant cost savings to the Head quarters

CHINA OVERVIEWChina is rapidly evolving in its R&D globalization journey and is competing head on with other

emerging nation

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9/16Zinnov 9

CHINA OVERVIEWThe growth of MNC R&D centers in China has been phenomenal in the last decade

199

363

629

904

1,100

1,300

138

163

266 275

196 200

0

50

100

150

200

250

300

0

200400

600

800

1,000

1,200

1,400

Before '00 01-'02 03-'04 05-'06 07-'08 09-'11

Total Number of MNC R&D Centers (till March 2011) Number of New MNC R&D Centers (till March 2011)

2011

1046 MNCs

1300 R&D

Centers

Note: *A company can have more than one R&D centers

Source: Economist Intelligence Unit (EIU); Ministry of Commerce (MOFCOM), China, Newspaper Articles; Talent Neuron Analysis

Of the Fortune 500 companies worldwide, over 400 already have R&D centers in China

MNC R&D Centers* in China (till 2011)

Microsoft,

Fujitsu,

Ericsson, Intel,

Nortel

Samsung,

Motorola,

Panasonic,

Toshiba, TI

Cisco,

Broadcom,IBM,

Electrolux,

Logitech

nVidia, EMC,Nokia, Kronos,

McAfee

ARM, BritishTelecom,

SanDisk, Avaya

Yahoo, BMW,Eli Lilly,

Foxconn, Esri

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10/16Zinnov 10

Vertical Wise Split of MNC R&D Centers

24%

16% 16%14%

8%

5% 4%

13%

27%

14%16%

13%

8%

5% 4%

13%

Manufacturing* Semiconductor Software Telecom Chemicals FMCG Computer

Hardware

Others**

0%

5%

10%

15%

20%

25%

30%

2008 2011

2011

1046 MNCs1300 R&D Centers

China is increasingly becoming an R&D destination for many of the auto OEMs such as Audi, Toyota, Volvo, because of the fact that it

is one of the biggest market for these OEMs presently

R&D in new technology areas such as Cloud, Mobile/ Telecom and Internet/ e-commerce is prevalent due to a large market, access

to potential customers and increased government support

More and more Pharma Giants (like Pfizer, Novartis etc.) are increasingly expanding their R&D base in China . 15 of the top Pharma

giants have expanded presence in China lately

Note: *Manufacturing includes Automotive, Aerospace & Defense, Industrial & Electronic Equipment ; ** Others include Pharmaceuticals, Construction & Materials, Energy,

Biotechnology, Media & Entertainment, etc.

Source: Ministry of Commerce (MOFCOM), China, Newspaper Articles; Talent Neuron Analysis

CHINA OVERVIEWManufacturing vertical is the single largest contributor towards offshore R&D to China, followed

by semiconductor, software and telecom

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11/16Zinnov 11

Shanghai

DalianBeijing

Guangzhou

Shenzhen

Chengdu

China

Suzhou

Xian

Nanjing

Hangzhou

XiamenFuzhou

Tianjin

Wuxi

Chongqing

Wuhan

Telecom

Electronics

Software

Infocomm

Electronics

IT

Note: This is generic to the technology sector. We will provide the specific details for online technology companies in the f inal report

Source: Ministry of Commerce (MOFCOM), China Primary Interviews, Company web sites and press releases, News Articles, Talent Neuron Analysis

Tier-1 locations

20-30% difference in salaries. Cost of living veryhigh in Beijing, Shanghai

Suzhou and Chengdu have one of the largesthigh tech parks in China

China has the worlds longest High speed rail

(HSR), Wuhan-Guangzhou HSR etc.

Huge sums of money being invested in Tier - IIcities to urbanize the population

Suzhou is the second biggest industrial city afterShanghai

Some Tier-II cities have good Universities. More

talent is migrating into these cities

In addition to the waiver of Corporate taxes,Local taxes (about 3%) are exempted

For the companies which already have centersin Tier I cities, further increase might not be

sustainable. Hence, more companies arelooking to scale in Tier II cities

Cost arbitrage overtier-1 Cities

Improved R&Dinfrastructure

Improved rail-roadconnectivity

Rapid pace of Chinaurbanization

Economic & culturaldevelopment

Availability of talent

pool

Incentives by thelocal governments

Established secondary locations

Emerging secondary locations

Growth Drivers for Emergence of Tier-2

Cities

Scalability

CHINA OVERVIEWChina is witnessing rapid expansion of secondary locations as these are increasingly becoming

viable for MNCs and domestic companies to set up their R&D centers

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CHINA OVERVIEW


12/16Zinnov 12Note: Source: Ministry of Science and Technology (MOST), China, Ministry of Commerce (MOFCOM), China Primary Interviews, press releases, News Articles, Talent Neuron Analysis

Other

Drivers

There is a rapid infrastructure growth in all citiesacross China. In future, moving around in China will

get better and faster. Tier I and tier II cities are

connected by high speed rail links and expressways,

which has reduced the travel time drastically

Certain Tier - II cities are planning their center ofexcellence. For example, Wuxi is focusing on

Nanotech, Shenzhen in Gene Research, Nanjing on

Clean tech, etc. This provides a lot of planning

capability for companies to go to areas of excellence

Tier - II cities have gone all way out to use

solar power and other forms of

renewable energy. They are preparing

well for future energy requirements. A

solar panel is visible in every lamp post

and home in a Tier - II city

Intellectual property-related concerns

have reduced among the MNCs once they

move long-term employees of Chinese

origin back to China

The Suzhou and Chengdu municipal governments

recently released investment incentives to speed up

the economic growth of headquarter enterprises in

the city. The objective is to get more than 200

qualified and competent headquarter enterprises to

set up business operations in the cities by 2015

Incentives for Headquarter Enterprises

Energy Advantage Reduction in IP related concerns

Theme Based FocusRapid Infrastructure Growth

The cities are going out of their way to incubate

startup companies. Nanjing, for example, provides

grant of 10 million RMB for the right kind of

startups. Suzhou government provides incentives

for start-up companies, headquartered in Suzhou.

The aspiration is very high

Rapidly Incubating Startup Ecosystems

CHINA OVERVIEWTier - II cities in China are going out of their way to develop infrastructure, incubate start-up

companies and provide incentives to attract more hi-tech companies

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CHINA OVERVIEW


13/16Zinnov 13Note: S&T *Science and Tehnology

Source: Ministry of Science and Technology (MOST), China, Primary Interviews, Company web sites and press releases, News Articles, Talent Neuron Analysis

Achieved goals in the 11th 5 year plan Projected outcomes in the 12th 5 year plan

Stepping up the development of manufacturing

industry

Leveraging new technologies to develop Chinas

indigenous brands with proprietary IPRs

Priority given to 11 major sectors through Sci.-TechDevelopment Guidelines to encourage innovation

Developing tier-II cities in terms of R&D, givingincentives to companies which set up centers there

To develop seven new strategic industries with favorable

policies focusing on innovation led growth

Successful implementation of the National PatentDevelopment Strategy

Cultivation of human resources via the deployment ofNational Talent Development Plan

To improve the IPR landscape by the introduction ofNational campaigns against IPR infringement activities

5 National S&T* programs engulfed2,500 projects in 2010 with a sum worth

RMB 40 billion

56 National High Tech parks churned out

a combined revenue of RMB 10.6 Trillion

in 2010

Strategic

S&T*

focus of

the Chinese

government

Focus on scientific development,environment and energy efficiency

Concentration of R&D centers from

similar industries in key strategic

locations

Replicating success of tier -1 cities like

Shanghai in tier-2 cities like Suzhou,

Chengdu, etc.

CHINA OVERVIEWThe government has come up with visionary policies and plans to promote R&D activities in tier

II cities

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C t O i

CHINA OVERVIEW


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Zinnov 14Note: Source: Ministry of Science and Technology (MOST), China, Ministry of Commerce (MOFCOM), China Primary Interviews, press releases, News Articles, Talent Neuron Analysis

Government

Support

Income Tax Exemptions &

Reductions

Business Tax Exemptions

Import Duty Exemptions

Depreciation Benefits

Apart from the stipulated 25% Income Tax, the Local state income tax typically 3% is

usually exempted during the preferential period of 5 years in most of the cities

If the annual increase of expenses on R&D is 10% and above, MNC R&D centers enjoy

the deduction of taxable income by 50% of the actual amount in accordance withrelevant regulations in many states

MNC R&D centers are exempt from customs duties and import added value tax for

R&D and up-gradation equipment which is not available in China or the performance

of which cannot meet its requirements

MNC R&D centers can be exempted from business tax on their incomes gained from

the business concerning transfer of technology, technical development and related

technical consultation and services, etc.

Subsidies for certifications

Training subsidies for

personnel

Rental waivers free land for

fixed time period

Special funding schemes

MNCs R&D firms can enjoy preferential treatment in

buying or renting office buildings. Employees of the

enterprises can get preferential treatment in buying

residential property. Preferential treatment includes

waiver of the rentals and lease deposits for a fixed

period of time, In some cases the infrastructure is

also built by the government

MNC R&D centers may obtain scientific and research

projects of governments at all levels and projects

entrusted by social organizations, enterprises and

individuals through competitive bidding and

tendering. Funding and grants are often provided

Country OverviewCHINA OVERVIEWProviding assistance to MNC R&D centers in the form of tax benefits and financial incentives has

been a key functional feature of the government

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T l t N Pl tf


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For Detailed information on Location, Talent, Cost, Risks, University Information

contact [email protected]

TalentNeuron

Global

LocationProfiles

GlobalTalent

Insights

GlobalCost &Salary

Insights

UniversityOutlook

PeerCompanies

Monitor

Role View

JobEngineer

Talent Neuron PlatformTalent Neuron Platform provides granular data for over 500 cities in 83 countries. It tracks over 12,000 unique data

parameters for a city that spans across location attributes, talent pool size (Domain, Function and Skills), Universities,

Salary and Cost etc.

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