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Multinational corporations (MNCs) have increasingly located research and development (R&D) in developing countries like China and India since the 1990s. On the one hand, governments in developing countries are eager to attract R&D to their local economies; on the other hand, developed countries are concerned about losing their competitive advantages due to R&D offshoring. At the same time, intellectual property (IP) protection is a growing concern considering the weak IP institutions that developing countries typically have.

Presenting both survey findings in Beijing and several case studies on individual MNC R&D labs, Dr. Quan examines MNC R&D labs' activities in China and puts forward a 'hierarchical modular R&D structure' as means of IP protection in weak IPR regime countries.

Quan has extensive research experience in the areas of technology & innovation management, international business, strategy, entrepreneurship, and regional economic development. Besides her recent publications on the Chinese software industry and on Chinese and Indian immigrant professionals in Silicon Valley (with Saxenian), she also has a number of publications in Chinese academic core journals such as "China Industrial Economy." Quan holds a PhD from the University of California at Berkeley, an M. Econ. degree and a B.S. degree both from Beijing University, China.

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Xiaohong (Iris) Quan Speaker
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As President Bush continues his tour of Asia, Pantech Fellow and San Jose Mercury News columnist Daniel Sneider observes in YaleGlobal that growing regional cooperation threatens U.S. preeminence in East Asia.

On the surface, President Bush's week-long swing through Northeast Asia has been a strong contrast with his recent stormy (and, some say, stumbling) excursion into Latin America.

There was little sign of overt anti-Americanism. And no Asian leader will openly oppose American leadership in the flamboyant manner of Venezuela's Hugo Chavez. Even prickly China swallowed President Bush's barbs about lack of democratic freedom in China, quietly acknowledging the two powers' differences. In contrast to the meeting of leaders from the Americas, the annual summit of the Asia Pacific Economic Cooperation (APEC) forum in Korea will embrace the principles of free trade.

Beneath the polite appearance, however, there is no less a challenge to American leadership in Asia. While Washington fiddled, a powerful momentum has been building up in Asia toward the formation of an East Asian Free Trade Area or, more ambitiously, an East Asian Community, modeled on the European community. Led by China, the East Asian grouping pointedly excludes the United States.

The APEC agenda focuses on an initiative to counter the spread of avian flu and to offer a common push at the WTO meeting in Hong Kong next month to revive the Doha Round of global trade talks. The Bush administration has its own agenda for the APEC meeting: to reposition itself as a leader of economic growth and integration in the region. For this, APEC has the virtue of being a more open organization than those behind the disappointment at the American summit. Its 21 members span the Pacific Rim, bringing together nations from Chile and Mexico to Russia, China and Southeast Asia. But this attention to APEC may be a case of too little, too late. The momentum to give the amorphous APEC an ongoing institutional role, beyond its annual summit meetings, has slowed in recent years. Its pledges for mutual tariff reduction exist almost entirely on paper.

Until this year, the Bush administration barely addressed regional economic issues at APEC. It preferred to use the meetings to promote a post-9/11 security agenda of anti-terrorism. U.S. trade policy has focused more on reaching free trade agreements with a few selected "friends" in that war, such as Singapore and Australia.

Meanwhile a Chinese-sponsored move to hold an East Asian summit offers the most visible expression of a trend of declining American influence in Asia. That meeting will take place in Malaysia in mid-December. The gathering groups the 10-member Association of Southeast Asian Nations, Japan, China, South Korea, India, Australia and New Zealand. Pointedly not invited is the United States.

This meeting is an outgrowth of the ASEAN Plus Three (APT) process - an annual dialogue of ASEAN with China, South Korea and Japan that began in December 1997 in the midst of the Asian financial crisis. The APT has grown into an elaborate mechanism for cooperation in a range of areas from finance and agriculture to information technology. This reflects an underlying economic reality - the growth of regional and bilateral trade agreements and the rapid rise of intra-Asian trade.

Until fairly recently, foreign trade in East Asia was dominated by trans-Pacific trade with the United States. But the share of Asian exports headed to the U.S. has dropped dramatically, while those destined for other Asian nations has risen. In the two decades from 1981 to 2001, according to economist Edward Lincoln, the share of intra-regional exports has risen from 32 percent to 40 percent, and intra-regional imports from 32 percent to 50 percent.

Much of the growth of regional integration is being driven by China, which is generating enormous demand for imports of raw materials as well as for semi-finished goods that are assembled for export. China has not been hesitant to use this role to expand its influence in the region. It has embraced the APT as a road towards creation of an East Asian community. At the ASEAN summit last year, Chinese Premier Wen Jiabao declared that such a community was a "long-term strategic choice in the interests of China's development." China has also outmatched the U.S. in negotiating free trade agreements, both bilateral and regional. The most impressive is an FTA deal between China and ASEAN set to take effect in 2010. Beijing even dreams of an Asian currency, based on the Chinese yuan, to rival the dollar and the euro.

China is not the first nation to try for such East Asian economic unity. Back in the days when Japan was riding high as an economic superpower, it too talked of leading an East Asian bloc, based on a yen currency zone. As late as 1997, in response to the Asian financial crisis, Japan proposed the creation of an Asian Monetary Fund, a kind of alternate regional financial system. More recently, both South Korea and Japan offered their own visions of an East Asian community in 2001. And both countries tried to match China in the APT by offering to form free trade agreements with ASEAN.

Japan, however, was never as successful as China is likely to be. "It would seem that Japan is a natural counterweight to China, but Tokyo is generally perceived as reactive and incapable of outflanking Beijing," Brad Glosserman, director of research at the Pacific Forum of CSIS, wrote recently. "Its economic dynamism is no match for that of China."

The United States has never been friendly toward efforts to create an East Asian economic bloc, viewing them as chipping away at the global trading system and rivaling American leadership. But Asia is arguably only following in American footsteps -- witness the NAFTA deal with Canada and Mexico and the more recent trade pact with Central America.

Many American policymakers believe these developments are partly a product of the failure of the Bush administration to articulate - much less pursue - a strategy to engage East Asia.

"The United States has greater strategic interests in Asia now than it did in Europe before World War I or World War II,'' argued a recent report of the Grand Strategic Choices Working Group, co-chaired by John Hopkin's University's Francis Fukuyama and Princeton's G. John Ikenberry. "Thus," the report continued, "it is unfortunate that part of the problem, in East Asia in particular, is that America's relative lack of interest in tending to the region has caused some allies of the U.S. to doubt our resolve and question the value of resisting unfavorable developments alone."

The report echoes other policymakers in suggesting the U.S. form its own East Asian economic zone with Japan, South Korea and Australia."That's a non-starter,'' says Professor Vinod Aggarwal, director of Berkeley's APEC study center. "Nobody wants to be cut out of the China market."

Privately, Bush administration officials downplay the importance of the East Asian summit in December, pointing to the lack of any concrete agenda. The addition of India, Australia and New Zealand to the invitation list, along with Japan, should effectively counter any Chinese initiative, they believe.

But those countries also fear being left out of whatever may emerge from this process. They cannot afford to be left on the outside, looking in.

Ultimately, neither can the United States. The President's trip is a belated recognition of that fact. But to be more than a momentary gesture, the United States must give East Asia the consistent attention it deserves.

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Open source software (OSS) is widely used as operating systems (Linux), web tools (Apache, JBoss), database platforms (MySQL) and a range of applications. Creating OSS is widely believed to be a relatively easy process compared with proprietary software. Its growing use and support from large firms such as IBM and HP have led many to believe that OSS will ultimately replace proprietary software. While this is hotly debated, there is little doubt that as its use increases, it will impact how software services will be delivered. In particular, low cost global delivery centers might benefit from ready access to OSS code. The panel will discuss these and other issues related to the globalization of software services caused by OSS.

Panelists:

Mike Balma is HP's Linux Business Strategist. Mike has helped drive HP's strategy for Linux and Open Source software across HP since 1999. Mike is a member of HP's Open Source Review Board that reviews HP open source projects. He was involved in the Linux port to Itanium. He also helped create an exchange for open source software development. And he helps drive HP's Linux strategy in the public sector including the security related technologies and certifications.

Mitchell Kertzman is a partner at Hummer Winblad Venture Partners. He has over 30 years of experience as a CEO of public and private software companies. Most recently, Mitchell was chairman and CEO of Liberate Technologies, a provider of platform software for the delivery of digital services by cable television companies.

Rajesh Setty chairman of CIGNEX Technologies, Inc., a company that he co-founded in late 2000. Setty has managed technology projects and practices over the last 14 years in several parts of the world (India, Singapore, Malayisa, Hong Kong, France and the United States.)

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Mike Balma Linux Business Strategist Panelist Hewlett Packard
Mitchell Kertzman Partner Panelist Hummer Winblad Venture Partners
Rajesh Setty chairman of CIGNEX Technologies, Inc. Panelist
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The US-India corridor for services outsourcing, now over three decades old, has moved from providing software programming to a wide range of lines of work, encompassing business processes, call-centers and analytical work, and going beyond its original focus on the banking industry to cover other financial services, healthcare and personnel management. The talk will address the benefits and risks associated with outsourcing,  the value proposition from a vendors' perspective and trends in the outsourcing services industry. The talk will take an analytical view of the drivers of outsourcing, going beyond the usual arguments based on cost arbitrage to show how firms like TCS have built defensible businesses based on process maturity, domain expertise, scale and scope. 

Surya Kant (known as Sury) is  President, Tata Consultancy Services  North America. Tata Consultancy Services Limited (TCS) is India's largest global IT consulting and services company, employing over 50,000 persons in 34 countries. His 27 year career with TCS includes setting up TCS Japan in 1987. He has also been country manager, TCS UK.  His focus areas include software quality assurance and delivery center management.

Sury received his Masters in Electrical Engineering from IIT Delhi (1978) and his Bachelors of Electrical Engineering from Delhi College of Engineering (1976). He is a member of the Association of Computing Machinery (ACM), USA. He was nominated to the Tata Group Top Strategic Leadership Programme in 2004.

Tea and samosas will be served.

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Surya Kant President, Tata Consultancy Services Limited, North American Operations (TSC) Speaker
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In today's global economy, access to resources around the world has never been easier. The high tech industry has always been in the forefront of globalization in lowering costs, acquiring talent as well as serving markets. For instance, Asian countries have long been known for their vast manufacturing bases for western high tech industry.

In recent years, thanks to Y2K, India has become the leader in software outsourcing. China, given its expanding economy as well as its open market direction, has rapidly become the emerging location for multi-national semiconductor companies to outsource their product development amidst China's own burgeoning integrated circuit (IC) industry. Mr. Lee has first-hand experience in building and managing an IC product development center in Shanghai, China. He will discuss the challenges of operating a R&D organization in an environment of different languages and cultures. He will also share his vision of the future of the IC industry in China.

Mr. Lee is Group Vice President and general manager of Timing Solutions Products at Integrated Device Technology, Inc.(IDT), a public semiconductor company of $650 million annual sales, focusing on valued-added solutions for communication, consumer and computing markets. He has been with IDT for the last 22 years and has served various management roles. In 2001, he architected the acquisition of Newave Semiconductor Corporation in China and established the Shanghai Product Development Center for IDT. Before joining IDT in 1984, Mr. Lee spent 5 years at Intel Corporation as a technologist for the early development of flash memory technology. Mr. Lee earned his B.S. degree in Electrical Engineering from National Taiwan University in 1975 and M.S. degree from Case Western Reserve University in 1979.

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Jimmy Lee Group Vice President & General Manager of Timing Solutions Products Speaker Integrated Device Technology, Inc.
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Dr. Liu first offered his view on the current state of the software industry's development and in particular software outsourcing to China. Software prices and margins continue to drop. Coupled with this reality is Liu's view that "only 10-15% of software development is truly innovative and therefore suitable to be developed in Silicon Valley". As software development platforms and communication technologies, especially the Internet, become ubiquitous and affordable, distributed software development is becoming the rule.

China's challenges and advantages in software outsourcing

Compared to India, the leader in software outsourcing, China has its own distinct challenges. Chinese software companies have almost no U.S. customers for a number of reasons: language barriers, different working styles, customers' concern for software piracy, and the lack of experienced programmers and technical managers in China. Yet, China also has its advantages. Not only does it have a rapidly expanding domestic software market, but it also has a large pool of fresh engineering talent. "The key, therefore," asserted Dr. Liu, "lies in someone creating the right environment to train and build a local team to be able to develop and deliver world-class software products."

Augmentum's software development goals

This is what Augmentum has set out to accomplish. "...[W]e want to build a world-class, distributed development team for software product development... like the ODM model in the PC world..." declared Dr. Liu. Based on this vision, Augmentum's strategy hinges on its insistence to develop software for top US customers, such as Motorola, Business Objects, and PalmSource--and to rely primarily on local Chinese engineers. Explained Liu: "We want to make sure that the center of most of the people of that team is going to be in China, even though the locomotive, the teachers, is in the U.S., because that's where the leadership is in the software product development world."

Drawing on decades of experience developing top software teams at IBM and other companies, Dr. Liu detailed his company's efforts to attract the brightest local engineers and train them to be even better. He explained, "Culture and team is the true differentiation of Augmentum.... The real...challenge is to build the right culture with the right core team." The company insists on having no expatriates in their China operations but promoting close interaction between experienced mentors in the U.S. and the young teams in China, sometimes using some creative approaches for recruitment and training. For example, Augmentum puts all of its new hires under "a stress test" after hiring and proactively maintains an "upfront churn of at least 30%" in the first three-month period." Their end goal: "a world-class software development team that can bridge the East and the West but still has a cost structure comparable to local companies."

Liu's focus for the future

Despite experienced leadership, ties to leading U.S. companies, and strong young software teams, Augmentum faces real challenges. Liu acknowledged skeptics who question the ability to build a world-class team through working on the "crumbs of companies" of "projects they don't want to work on themselves." Nevertheless, he is confident in the trajectory of Augmentum's future growth, as the company is expecting to double its employees every year for the coming few years. In addition, Dr. Liu's vision includes a landscape beyond Augmentum. "I have a very simple focus. I want to train a lot of world-class software developers in China to serve the world. Many of them will not be working for Augmentum. It is fine...I want to bring my experience to there to make it happen. And the best vehicle to do that at this moment and time, the wave [that] I want to jump on is outsourcing, because it is growing the fastest."

Biography of Leonard Liu

Leonard Liu has spent 30 years in the systems industry, with a track record of developing innovative computing technologies into successful businesses. Most recently, he served as president of ASE Group, a leading provider of IC test and packaging services, having held roles as Chairman and CEO of Walker Interactive Systems, COO of Cadence Design Systems, and President of Acer Group. He was an early champion of outsourcing to India and China at Cadence and Walker. Dr. Liu began his career at IBM where he was responsible for the creation and implementation of SQL and the management of CICS, SNA and AIX, eventually overseeing the worldwide Database and Language lines-of-business. He received his undergraduate degree from Taiwan University and his Ph.D. from Princeton University.

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Focus on Innovation and Entrepreneurship in Greater China

SPRIE is a multidisciplinary research program at Stanford University that focuses on innovation and entrepreneurship in leading high technology regions in the United States and Asia. SPRIE has an active community of scholars at Stanford as well as research affiliates in the United States, Mainland China, Taiwan, Japan, Korea, Singapore, and India. During 2005-2006, SPRIE is expanding a new initiative on the rise of leading high technology regions in Greater China and their impact on the global knowledge economy. Specific research topics include globalization of R&D, executive leadership, university-industry linkages, venture capital industry development and leading high technology clusters in Greater China. In addition, industries of ongoing research at SPRIE include semiconductors, computers, telecommunications, and software.

SPRIE Graduate Research Fellows: Research Assistantships & Support for International Field Research

As part of its new initiative on innovation and entrepreneurship in Greater China, SPRIE will select outstanding Stanford students as SPRIE Graduate Research Scholars. SPRIE Graduate Research Scholars will work with SPRIE faculty and senior researchers at Stanford for two (or more) academic quarters in 2005-2006 to gather and analyze data, conduct interviews in Silicon Valley, contribute to publications, and advance progress on the overall project agenda. During summer 2006, they will conduct SPRIE field research through interviews or surveys with business and government leaders in Beijing, Shanghai, or Hsinchu. As part of SPRIE's international research team, they will have the opportunity to interact closely with project leaders and visiting scholars at Stanford as well as partners in Asia, such as the Ministry of Science and Technology, Tsinghua University, or Zhongguancun Science Park in Mainland China or the Industrial Technology Research Institute (ITRI) in Taiwan. They will also participate in SPRIE's public and invitation-only seminars and workshops with academic, business, and government leaders. The financial award will include RA support at 15-20 hours/week (or equivalent) plus summer stipend to cover travel, living expenses, and research.

How To Apply (limited to current Stanford graduate students)

Successful candidates will have demonstrated a track record of superior analytical ability, strong oral and written communication skills (including full fluency in English and Chinese), knowledge of high technology and entrepreneurship, high motivation, and willingness to be part of a dynamic international research team.

Applicants should submit:

  1. A brief statement (not to exceed two single-spaced pages), which describes the candidate's interests and skills,
  2. a curriculum vitae
  3. contact information for 2 references, preferably recent professors, advisors, or employers

Send applications to:

SPRIE
Encina Hall - East 301
Stanford University 94305-6055

or by email to George Krompacky. Questions? Please contact George Krompacky, Program Coordinator, by email or call 650.725.1885

Deadline for receipt of all materials: December 30, 2005

Applicants will be notified of decisions in January 2006

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The Stanford Project on Regions of Innovation and Entrepreneurship (SPRIE) is a multidisciplinary research program of the Shorenstein Asia-Pacific Research Center at Stanford University that focuses on innovation and entrepreneurship in leading high technology regions in the United States and Asia. SPRIE has an active community of scholars at Stanford as well as research affiliates in the United States, China, Taiwan, Japan, Korea, Singapore, and India.

Fellowship Program

As part of its initiative on Greater China, SPRIE will select two outstanding post-docs or young scholars as SPRIE Fellows at Stanford for the academic year 2006-2007 for research and writing on Greater China and its role in the global knowledge economy. The primary focus of the program is the intersection of innovation and entrepreneurship and underlying contemporary political, economic, technological and/or business factors in Greater China (including Taiwan, Mainland China, Singapore). Topics of particular interest include, but are not limited to, globalization of R&D, executive leadership, university-industry linkages, venture capital industry development and leading high technology clusters in Greater China. In addition, industries of ongoing research at SPRIE include semiconductors, computers, telecommunications, and software.

SPRIE Fellows at Stanford will be expected to be in residence for at least three academic quarters, beginning the fall quarter of 2006. Fellows take part in Center activities, including research forums, seminars and workshops throughout the academic year, and are required to present their research findings in SPRIE seminars. They will also participate as members of SPRIE's team in its public and invitation-only seminars and workshops with academic, business and government leaders. Fellows will also participate in the publication programs of SPRIE and Shorenstein Asia-Pacific Research Center. The Fellowship carries a stipend of $40,000.

How to Apply

Applicants should submit:

1) A statement of purpose not to exceed five single-spaced pages which describes the research and writing to be undertaken during the fellowship period, as well as the projected products(s) that will be published;

2) a curriculum vitae (with research ability in Chinese preferred); and

3) 2 letters of recommendation from faculty advisors or other scholars. All applicants must have Ph.D. degrees conferred by August 30, 2006.

Address all applications to:

Stanford Project on Regions of Innovation and Entrepreneurship,

Shorenstein Asia-Pacific Research Center,

Encina Hall - East 301,

Stanford University

Stanford, CA 94305-6055

Questions? Please contact George Krompacky, Program Coordinator

Deadline for receipt of all materials: January 13, 2006

Applicants will be notified of decisions in March 2006

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China's software industry is at an inflexion point. For the past decade, China has been in the shadow of India's spectacular success in the IT outsourcing industry. While changes are underway, many challenges remain. However, it is possible to build software development teams in China, collaborating with teams in the United States, to be as good as software development teams anywhere in the world.

Dr. Liu will discuss his experience as Chairman and CEO of Augmentum, a value-added software development services company that has grown in two years to more than 450 people worldwide, 90% of them at Augmentum's development facility in Shanghai. Sixty percent of Augmentum's work is high-value added such as total products and solutions, from architecture to system integration test. All their customers are in North America -- many of them leaders in their respective industries.

Leonard Liu has spent 30 years in the systems industry, with a track record of developing innovative computing technologies into successful businesses. Most recently, he served as president of ASE Group, a leading provider of IC test and packaging services, having held roles as Chairman and CEO of Walker Interactive Systems, COO of Cadence Design Systems, and President of Acer Group. He was an early champion of outsourcing to India and China at Cadence and Walker. Dr. Liu began his career at IBM where he was responsible for the creation and implementation of SQL and the management of CICS, SNA and AIX, eventually overseeing the worldwide Database and Language lines-of-business. He received his undergraduate degree from Taiwan University and his Ph.D. from Princeton University.

Part of SPRIE's Greater China and the Globalization of R&D seminar series

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Leonard Liu Chairman and CEO, Augmentum, former executive at Cadence, Acer Group & IBM Speaker
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Engineering as a profession in the United States and other developed nations may soon face a crisis. As a result of sophisticated telecommunications and the digitization of engineering work processes, increasing portions of engineering work can be done without close proximity to particular persons, places, or other processes. In principle at least, this work can be done anywhere in the world that has access to (1) global telecommunications networks and requisite software packages and (2) adequately trained personnel. Undergraduate engineering students in relatively advanced developing nations, such as India and China, follow a curriculum roughly comparable to the one taught in developed nations. Thus, even as barriers to performing conventional engineering work remotely are eroding, a global pool of conventionally trained engineers is growing. This means that U.S. engineers are now in global competition with engineers in developing nations whose wages are 40 to 80 percent lower than ours.

In this paper, our discussion is limited to work that is relocated but still services markets in developed countries (rather than work done to meet the needs of local markets in developing countries). Offshoring of this work can not only directly replace existing workers, but can also capture jobs that would have been added to the U.S. economy, especially for fast-growing entrepreneurial ventures that must lower cash expenditures and speed up product development. Recent examples include Silicon Valley high-technology start-up companies that establish offshore subsidiaries very early in their life cycles. In these cases, offshoring does not reflect direct job displacement but redirects job growth to lower cost developing nations, at the same time making the start-up more competitive.

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The Bridge: Linking Engineering and Society
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Rafiq Dossani
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