China - Where the Tech Talent Lives

IBM Corp. (NYSE: IBM) announced the opening of a new research facility in Shanghai, China, that the company said will provide clients greater accessibility to IBM Research expertise and opportunities for collaboration with universities and other research institutions. The new facility is an extension of the IBM China Research Laboratory established in Beijing in 1995, one of the company's eight research labs worldwide.

The IBM China Research Lab in Shanghai will focus primarily on areas such as information analytics, Web-delivered service computing, cloud computing, and stream computing. In recognition of the growing importance of services in the global economy, the lab will also work on integrating service science, management, and engineering (SSME) into the Chinese University Curriculum. According to Dr. John E. Kelly III, IBM senior vice president and director of IBM Research, "The establishment of IBM Research in Shanghai reflects both the rich pool of science and engineering talent in China, as well as our continued commitment to expand our collaboration with Chinese enterprises and academic institutions."

Legendary robber Willy Sutton reportedly said that he targeted banks because "that's where the money is." A corollary for this notion exists in technology and other industries, which go "where the talent is" to pursue their research and development efforts. That talent, at least for IT vendors, including IBM, Microsoft Corp. (Nasdaq: MSFT), and Google (Nasdaq: GOOG), clearly resides in Asia, where universities in China alone turn out some 700,000 electrical engineering graduates annually.

As a result, IBM will have ready access to a steady stream of high-quality professionals in engineering and other scientific disciplines. This should be a boon for ongoing company efforts in highly technical efforts, such as cloud and stream computing, information analytics, and Web-based services. But the new Shanghai facility should also succeed as a center of collaborative efforts in developing areas, such as SSME, which IBM has been particularly active and vocal in promoting.

We expect the company's vision of SSME, as the foundation of next-generation IT and business service offerings, will find wide support among China's education and business leaders. But such enthusiasm is just one reason for the company's decision to open the Shanghai facility.The fact is that many organizations, including, we expect, existing IBM customers, are moving to or planning to do business in China. The new Shanghai lab and its parent facility in Beijing will provide the basis of future IBM business dealings and opportunities for decades to come.

In addition, we believe the new lab illuminates how IBM pursues its longer-term research and development strategy. In 2007, IBM spent $6.2 billion on R&D, a notable sum by any measure. But while most IT vendors spend the lion's share of their R&D budgets on applied research (i.e., improving or creating commercial products), IBM dedicates a substantial portion of its R&D on innovative exploratory research. The results of such efforts are typically less predictable, but the potential destination is often well worth the cost of the trip.

IBM's SSME is an interesting example of one such project. When the company began services research six years ago, the organization had 50 employees dedicated to better understanding the needs of IBM customers. Today, nearly 500 service science professionals are working at IBM's global research facilities. Their efforts underlie or help inform many of the offerings from the company's Global Services organization, which drives well over half of IBM's annual revenues. In addition, IBM is working to establish service science disciplines at over 200 universities, a number that the new Shanghai programs will help to grow.

The value of IBM's R&D strategy ranges from the common to the profound. Applied and exploratory research helped drive a wide range of company products and solutions. In addition, IBM led the IFI Claims list of top patent earning companies for 15 years running (with 3,125 patents earned in 2007). That's a nice feather in any cap, but the company also generates about $1 billion annually in intellectual property-related income. Overall, we expect the new Shanghai facility will add substantially to IBM Research's long legacy of creating innovative technologies and business services and solutions.

Charles King, President and Principal Analyst for research firm Pund-IT Inc. , focuses on business technology evolution and interpreting the effects these changes will have on vendors, their customers, and the greater IT marketplace. Since founding Pund-IT in December 2004, Charles has published the Pund-IT Weekly Review, which contains a variety of industry analysis features, including this blog.0