A business owner recently asked Fresh Inc. what it would take his 42-employee business to effectively compete with China. Unfortunately, it seems this might be getting tougher, as China not only continues to be a source for cheap manufacturing labor, but also begins to move increasingly into R&D.

Until recently, China hasn't been known a strong player in R&D; however, in a September 1 BusinessWeek article, "China's Design Dream Team" (not yet available for free online), the writer notes that many large companies increasingly are tapping China's industrial designers, and in a June 2003 EETimes article, writer George Leopold writes that "about 200 joint research and development centers have been established in China since 1990." He also cites a report from the Henry L. Stimpson Center, which traced the evolving relationship between the U.S. and China in the area of R&D, and notes that increased foreign investment in Chinese R&D could mean more innovations and technologies are developed in China before the U.S.

What does this all mean to the smaller company trying to compete with China? First, as was noted in EETimes' article, the Chinese are better known at this point for design than research, and research and core technologies, at the moment, are being kept stateside by most large businesses. But for small manufacturers, increased R&D in China could mean increased competition from foreign-made goods.

As the Henry L. Stimpson report notes: "China boasts a large pool of talented researchers and a growing number of experienced returnees from abroad who are likely to be more capable -- as well as more quickly able -- than most in developing countries to leverage newly introduced technological advances and know-how gained through foreign-invested R&D." In essense, increased investment in foreign R&D could strengthen developing countries ability to not only develop products but also sell them cheaper than U.S. competitors.