[October 13, 2015]

Suzhou Industrial Park: The Pilot for Change

At an executive meeting of the State Council Sept. 29, Chinese Premier Le Keqiang said that the country "must rely on innovation and entrepreneurship to further develop Chinese economy and society - they are the new driving force for China's development."

Nowhere is that philosophy more clearly at work than in the Suzhou Industrial Park (SIP), a 25-minute bullet train ride due west from Shanghai, where for the last fifteen years, domestic and foreign companies alike have strived to innovate in a Silicon Valley-like environment in which business, academia and R&D cross-pollinate.

In more recent years, SIP has shifted focus from an investment site for foreign and domestic manufacturing toward higher tech innovation and entrepreneurship, and has built a services sector that is made up mostly of companies providing shared services centers for multinational corporations, R&D in the information and knowledge management industries, and financial-tech services, or FinTech.

Today the services sector makes up about 41.3% of the industrial park's total GDP, according to Liu Hua, head of SIP's Bureau of Services, and out of the total incremental investment in the park each year, more than 75% comes from the services sector.

There are already more than 2,000 service outsourcing companies in the park and they, too, are moving up the value chain, Liu says in an interview. "More and more companies are now turning to areas like big data, cloud computing, mobile internet, and the Internet of things, and they are staying away from low value-adding activities such as labor-intensive outsourcing work."

"It's fair to say," Liu adds, "that with more and more companies becoming solution providers in their subject-matter domains, they are actually KPO companies, which already account for about 51% of the park's total outsourcing companies."

Since SIP was created two decades ago as a joint-venture project between the Chinese and Singapore governments, the park has attracted world-class universities that have opened campuses and research facilities that are conducting basic research and creating cutting edge R&D, often in joint ventures with local companies.

SIP has also developed hubs for high-tech and high-value industries in fields such as cloud computing, nanotechnology, bio-pharmaceuticals and the life sciences; and lured domestic and foreign incubators delivering services for start-ups and introductions to venture capital.

In addition, of the 3,000 industrial parks in China, SIP is home to the highest number of returnees (118) under the country's Thousand Talent Program, which was designed to attract China's smartest scholars and scientists to return to China after pursuing graduate degrees and careers outside of their homeland.

The park also offers tenants a lifestyle and environment that is hard to find in many other parts of China, with attractive and relatively inexpensive housing, as well as good schools, hospitals, restaurants, public transportation systems and leisure areas such as around the man-made Jinji Lake. This year SIP is hosting the 53rd Ping Pong World Championships, as well as the Jnji Lake Marathon and Dragon Boat races.

The park supports the growth of small and medium-size companies in all sectors by providing a one-stop shop for legal, financial, accounting, human resources and intellectual property rights protection. It has even set up a Patent Exchange Navigation Centre, where tenants can search for existing patents as well as buy and sell them.

"It's a trading system for patents -- you can exchange patents through the system and you can value how much a patent is worth, and you can buy them legally," says SIP Chairman Barry Yang, adding that SIP has been "active and effective in areas such as IP enforcement and protection."

One way SIP has climbed the value-added chain so quickly is by creating a dynamic environment that can foster what Yang likes to describe as "chemical reactions" between companies.

"It's interesting to see these chemical reactions taking place among the diverse members of the whole ecosystem," he says in a recent interview, pointing as an example to a US$100 million deal in April last year in which a U.S. based company and the world's second-largest medical diagnostics company, Beckman Coulter Life Sciences, acquired SIP start-up Xitogen Technologies.

Beckman Coulter specializes in cytometers, which are used to measure and observe the characteristics of biological cells, and Xitogen Technologies develops flow cytometers.

Xitogen has fully staffed facilities in Suzhou and will function as a research and development and manufacturing centre for Beckman Coulter. In addition to providing an operational base in the China market, Xitogen offers Beckman Coulter a research instrument to round out its cytometer offerings, as the Chinese company developed the XTG-1600, a small footprint cytometer that can detect objects in the 100 nanometer range-viruses, bacteria, microparticles and cell organelles - for basic research investigations.

"We believe that, viewed from a capital, innovation, talent and mindset perspective, such big-&-small reactions can create a very interesting and healthy environment," says Yang. "We hope the big and small companies in SIP will have better connections in future and believe there will be good results."

One of the achievements that most excites Yang about SIP is that it is the first park in China to implement the Marketing Authorization Holder System, also known by its acronym MAH, which allows pharmaceutical companies to focus on what they do best - finding and developing new drugs and treatments -- rather than spending billions of renminbi investing downstream in sales and marketing and distribution networks.

"This was something that was never implemented before in China," Yang says. "But we at SIP felt it was imperative to change. There is often a great advantage in having separate types of organization doing invention, manufacturing and sales, and not least in the speed with which an innovation can be brought to market."

Arthur Zhang, East Coast director for California incubator PlugAndPlay notes that in terms of core technologies and core strengths, Suzhou is no doubt the best place.

"Advanced manufacturing including nanotechnology and fabrication is pretty much the guiding core strength and I don't see anywhere that can compete with Suzhou throughout China," he says. "And as an extension, because you have that, manufacturing, the cloud computing, then you can talk about technology, media and telecommunications, so companies that are established in Shanghai like Tencent and Microsoft (News - Alert) are moving their R&D centers over here because of that."

Ken Ng, a plant manager at BD would agree. The company -- among the world's leading suppliers of medical devices and a key innovator in injection- and infusion-based drug delivery - set up its manufacturing site in SIP in 1994, becoming one of the park's earliest employers.

Last year the company completed its third manufacturing facility in Suzhou, and now has more than 130,000 square meters of combined space in the park, hiring in total more than 1,500 people in quality, manufacturing, supply chain management, sterilization process, regulatory affairs and R&D functions. Although the Greater China headquarters is nearby in Shanghai, the Suzhou operation is the key bridge to the local market, where multinational business meets home-grown enterprises.

"In terms of operations, we put all our eggs in one basket because of the confidence we have in the park," says Ng, adding that from the start the park's administrators in its Human Capital Bureau helped the company recruit employees, about 30% of whom continue to work for the company.

As BD moved towards greater automation at its plants, it approached a government-backed technical institute for help. After explaining the types of technical capabilities it required, the institute customized a course for BD employees. "Not only did they customize training courses for us but the government paid 50% of the training fees, so we only had to pay half the cost."

Ng has seen first-hand how the park has changed over the years. "In the past, people coming here were looking for operation and technician jobs but now we see engineers coming from other parts of China like Wuxi, Hangzhou and Shanghai," he says. "The park's success has started to attract higher caliber talent. And that suits us well because we are moving up the value chain as well."

Most excitingly, the newly setup R&D unit at BD is eyeing collaborative opportunities with local firms - or in other words, exactly the type of cross-pollination that Suzhou was built to facilitate.

"Because land is limited SIP wants to attract the right mix of industries here," Ng adds. "I think they realize that high-end electronics, medical and health care, clean energy, and sustainable industries are the manufacturing operations they want to keep."

View source version on businesswire.com: http://www.businesswire.com/news/home/20151013005734/en/

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