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R&D

Samsung, DuPont and now SCG show the value

Before the 1970s, Samsung Electronics was nowhere in the global rankings. Four decades on, it controls 30.4 per cent of the global smart-phone market, 30.5 per cent of the television market, 17.7 per cent of the monitor market and 14.2 per cent of the refrigerator market.

Yong Sung Jeon, managing director of Thailand Samsung Electronics, attributed all that to innovation - supported by 34 research-and-development centres across the world on top of six design centres. In 2012, when the global economy remained fragile, Samsung posted record sales revenue of US$188 billion (Bt5.88 trillion). Seeing the benefits of innovation, last year the company channelled 7 per cent of its revenue to R&D activities. That helps Samsung sell 23,000 phones every 30 minutes across the globe.

Of its more than 60,000 researchers, 25 per cent are now devoted to future technology as the company sets its sights on penetrating the infotainment and life-care segments.

"We've developed quality for consumers, partners and employees," he said at Siam Cement Group's Thailand Innovation Forum last week, designed to build up a collaborative network of scientists to support the commercialisation of researchers findings. While Samsung is among the 10 most-valued global brands, it aims to be in the top five under its "2020 Vision".

At DuPont, from a maker of explosives in the 19th century, in the 20th the global company cashed in on chemicals with the introduction of products popular worldwide like nylon, Teflon, Lycra and Kevlar. By 2050, as the company enters its third century, integrated science is the target to respond to the challenges when global population hits 9 billion and sparks a huge increase in demand for food and energy.

Supporting this is R&D, which enjoyed a budget of $2.1 billion last year, equivalent to about 6 per cent of annual sales revenue of $34.8 billion.

"Innovation can help in good and bad economic times. Especially in bad times, as witnessed in the mid-1930s in the US, [when] commitment to science and technologies allowed the company to prosper," said Douglas Muzyka, senior vice president and chief science and technology officer of DuPont. "Science can help solve some of the world's challenges in food, energy and environment safety."

Muzyka suggests consistency in R&D investment and a balance of technology that can generate short- and long-term value.

He noted that in the competitive world market, some innovative products still could suffer from a short life cycle. Innovative companies need products that can maintain their competitiveness in the long term. Innovation can lead to new products, new services, new technology platforms, new market platforms and new business models.

"We do science to create commercial value." He said he understood that some companies might focus more on the short term and invest heavily in incremental projects, but in his position he has to ensure the equilibrium of the company's portfolio of technology that will generate value in the short and long term.

Collaboration

This demands that the company establish collaborative networks. At present, 25 per cent of its R&D activities are in cooperation with outside organisations.

Meanwhile, the long record of DuPont's commercialisation of R&D is drawing more researchers. That fits the company's slogan that "Together we can accomplish what no one can do alone."

Muzyka realises that most companies in Asia are no match for DuPont in terms of R&D. His suggestion is that these companies should invest in small-scale technology. They can then leverage on the investment in connecting that to the global network of science.

DuPont itself strengthens its R&D through 11 innovation centres, which are mostly in developing countries. After setting up the first one in Japan, two years ago it established one in Bangkok - where it can access what customers in the particular markets demand and where it can expand the client base.

"We want to explore ideas that we can collaborate [on]," he said, adding that the highest concentration of scientists was now in the developed hemisphere, though the world is shifting towards Asia.

Famed as the leader in terms of innovation in Thailand, SCG, which celebrates its centenary this year, knows that it is still in the infancy stage. Innovation was just started in 2004 with a budget of only Bt40 million. It tried to increase this in following years, but the team could not find ways to utilise the budget. For example, in 2012, Bt2 billion was approved for R&D, but actual spending was only Bt1.43 billion.

Thirty-seven per cent of the budget goes on research for new products, while the rest is to improve the production process as well as quality.

Despite investment in R&D, some of these products are sold at the same prices as commodity products.

SCG researchers "complained that they didn't know where else to spend. DuPont had to control its R&D spending, while here they couldn't spend all of the budget," said Kan Trakulhoon, chief executive officer and president of the industrial conglomerate.

Kan understood that it would take time. During the first years, return on investment from the projects was not on the agenda. But the bottom line shows that his decision was right.

For example, G1 paper can be 4 per cent lower in weight and requires 12 per cent less energy to produce. It and other high-value-added (HVA) products generated Bt136.76 billion of sales revenue last year, up from Bt7.78 billion in 2004. That was a surge of more than 1,000 per cent, against 40 per cent for commodity products.

The plan is to increase the number of researchers from 71 to 170 in the next five years. Some foreign researchers are also working for SCG, through a collaborative network with universities across the world. The network has expanded fast, leading to 78 international projects against 169 domestic projects.

As host of the innovation forum, SCG hopes that other companies will follow its direction by investing more in R&D, to make Thailand a branded HVA country. That will require more researchers as well as new investment. At present, only 20 per cent of the country's researchers are in the private sector, leading to low commercialisation rates and low returns to the economy as a whole. In recent years, Kan has observed sharp growth in green-related products.

The government has set a target that by 2021, there should be 25 researchers per 10,000 population and 60 per cent will be in the private sector, while investment will be 2 per cent of gross domestic product.

"Thailand's future would leap forward if the proportion were 3 per cent of GDP and if 80 per cent of researchers were in the business sector," Kan said, urging large-scale Thai companies to invest more in R&D.

"As the Asean Economic Community kicks off, Thailand can no longer rely on cheap products that need cheap labour. Once the AEC is up and running, Vietnam will be the cheap destination, as well as Indonesia. Thailand is becoming an ageing society, but we need to be fresh."


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