Interlinkages and paths of German factories' manufacturing and R&D strategies in China

Abstract

Purpose – As a consequence of the sluggish growth in Europe caused by the Euro-crisis, many German companies are currently expanding their manufacturing and innovation activities in fast-growing China – or intend to do so. The paper aims to provide new practical and theoretical insights on how German manufacturing companies are readjusting and further developing their production and innovation strategies in China and which future paths they plan to follow to make the most out of their foreign factories in this market. Design/methodology/approach – Based on in-depth interviews with the top management of 18 German manufacturing companies in China, this paper analyzes the present state, interlinkages and future development paths of their local manufacturing and innovation strategies, employing Ferdows' framework of foreign factory roles. Findings – The authors find that up to now most of the surveyed factories represent an additional type of an advanced server factory, characterized by a “Chinese gap” in new product development (NPD) and basic innovations. Based on that the authors propose five guiding principles on how foreign factories in China can cope with the upcoming challenges in China and make the most of their local strategies. Originality/value – The research provides unexpected insights of a high strategic relevance for practitioners currently engaged in optimising their global production and innovation footprint. It challenges established frameworks on foreign production and innovation modes by comparing them to the established practice of frontrunner companies from key sectors of the German manufacturing industry.