Microsoft recently broke ground on a new research and development center in Beijing with an investment of US$280 million that will be its largest R&D center outside its United States headquarters, says a report in the Shanghai Daily.

The Microsoft China R&D Campus is scheduled to be completed in 2010 and will house thousands of researchers working on innovative technologies and creative products. "Through investments such as this, we are building on our capabilities as one of Microsoft's key global R&D centers and positioning the company to support the development of the local IT system," Zhang Yaqin, corporate vice president of Microsoft and chairman of Microsoft China, is quoted as saying.

The new facility will work on mobile and embedded technologies, Web technology products and services, digital entertainment, servers and tools and products for emerging markets.

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China's State Administration of Taxation recently released an important rule on the appraisal and classification of high-tech enterprises, which sets a new threshold for high-tech companies to enjoy China's preferential taxes, according to the China Tech News.

Companies appraised as high-tech companies will be issued a certificate which will be valid for three years. During this period, the company can enjoy a 15% preferential tax policy.

The new rule says that high-tech companies must be those that are engaged in at least one of the eight fields under the key support of the national government: electronic information technology; aviation and space technology; high-tech services; resource and environmental technology; biology and new medicine technology; new materials technology; new energy and energy-saving technology; and traditional industries that have undergone high-tech transformations and have their own core intellectual property rights.

Other details include:

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The Shanghai Daily recently reported that China's electronic and information sector grew at a slower pace in the first quarter, with growth in fixed-asset investment ebbing further and injection by overseas-funded businesses declining, according to a source at the ministry of industry and information.

During the first three months of the year, major manufacturers in the sector realized 1.06 trillion yuan (US$151 billion) in output value, a growth of 18.6% compared to the same period last year. By comparison, the sector's growth rate was 19.9% for all of last year.

The major electronic and information enterprises injected 50.79 billion yuan in fixed assets in the first three months, up 22.7 percent from the same period a year earlier. The growth rate was 17.3 percentage points lower than the January to March period of 2006 and 5.2 percentage points lower than the same period of 2007.

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The May 12 earthquake in China's western Sichuan Province has claimed more than 40,000 lives, but many economists expect the impact on overall growth to be limited, Businessweek reports. Many economists expect the natural disaster to have limited impact on the Chinese economy despite some power outages, communications breakdowns, and blocked roads in the mountainous region.

"In the short term, there will be a temporary disruption in industrial production, but it should recover very quickly," Mingchun Sun, a Hong Kong-based economist at Lehman Brothers. One reason, he says, is that the quake hit a rural area without a big manufacturing base. The province's industrial output only accounts for 3.9% of China's GDP, according to Merrill Lynch.

Sun notes that when a big earthquake hit Japan in 1995, it temporarily disrupted Japan's industrial output but the region quickly recovered in the coming months. "It's a big tragedy in terms of human life, but in terms of growth it's not a big deal," he was quoted as saying.

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COMMIT Incorporated, a Chinese TD-SCDMA chip manufacturer, has announced plans to stop business operations due to disrupted capital flow. To certain extend, this reflects the hard conditions facing China’s TD-SCDMA industry.

COMMIT was established in February, 2002, with the backing of 17 respected enterprises including China PUTIAN, DaTang Telecom Technology, Texas Instruments (China), Nokia (China) Investment and LG Electronics, Inc. It is one of the five major companies performing research and development in TD-SCDMA chips. Among the investing group, 9 are domestic companies and 8 are foreign, while 68.76% of the total capital is owned by the foreign firms with the remaining 31.24% held by the Chinese funds. Texas Instruments and Nokia accounted for 13.5% of the total capital respectively.

Insiders say that since last year, major stockholders have had conflicts over whether to continue investing in COMMIT. Nokia approved further investment, Texas Instruments refused, and China PUTIAN and DaTang failed to engage in time, so reinvesting in COMMIT has stopped.

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Insight

Everybody’s doing it. Industry leaders like General Electric and Microsoft — as well as the start up companies that are looking forward to challenging them — are outsourcing offshore. After all, every company’s goal is a lean, agile research and development department that brings innovative products to market rapidly and profitably. As a business plan, outsourcing enables companies to leverage lower labor costs, including wages and health care, and focus on core competencies. Nevertheless, a “they’re doing it so I will, too” decision to outsource is not a good enough reason. Outsourcing can be a powerful, profitable strategy. However, one of the challenges of outsourcing is identifying when outsourcing embedded product research and development projects will deliver the greatest return on your investment.

Long Circle recommends that you heed these tell-tale signs that let you know: It’s time to put outsourcing to work for your company.

Too many projects stuck in the pipeline?

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Insight

Intellectual property security breaches are making headline news with alarming frequency and creating headaches for consumers, businesses, governments and institutions everywhere. The specter of identity and intellectual property theft hangs over everyone’s head, brought home by incidents like the following:

► Two 200-MB files containing incomplete portions of the source code for Windows 2000 and Windows NT operating systems were stolen and posted to the Internet. An individual downloaded the code and offered it for sale. An undercover FBI agent bought the code and the seller was indicted under the U.S. Economic Espionage Act. 1 ► The over $20 billion video game industry shook when news came out about the hacking of the computer network and Internet-leaking of the source code at Valve Software, the maker of the mega-popular Half-Life 2, a first-person shooter (FPS) video game. The financial ramifications of source code already licensed to developers, but now available for free on black-market sites, is something no executive wants to encounter. 2

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Insight

The reality of business is that companies must do more with less to stay competitive and continually search out new ways to improve products and time-to-market to lead their markets. Top companies have long found it makes good business sense to outsource a business function — from making parts to delivering payroll — to wherever it can be done the best. With the Telecommunications Act of 1996 came the wave of fiber-optic cable and a new capability that truly enabled the IT departments of U.S. companies to plug into offshore outsourcing firms and take advantage of lower wages and cost efficiencies.

Many of these same companies have R&D departments developing embedded software and hardware and now the CTOs want to leverage offshore vendors to not only reap the same benefits of lower wages and expanded productivity, but bring better products to market sooner. Although the potential benefits are there, companies must consider two things before offshoring embedded R&D technology. First, the requirements of an R&D department that does embedded technology development for the marketplace and those of an IT department that serves employees are not the same. Second, a country’s human capital may be good quality for IT projects, but may not be the best choice to meet the higher skill levels required for R&D embedded technology.

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Insight

Trade exchange between different cultures and countries has long yielded rich rewards for those who recognize the potential.

After all, as far back as the 1st century BC, merchants and caravans followed the Silk Road – the overland trade route from northern China to the Western World – and brought precious silks, tea and other resources from China to the rest of the world. Not only did linking different countries and cultures prove profitable, but new and greater products and ideas flowed between the countries.

The Silk Road of the 21st century is technology driven. This trade exchange, built on fiber-optic cable, sprang from the Telecommunications Act of 1996. Now, it is the R&D departments of companies from the United States and other countries that benefit from the resources and opportunity found in China.

Today’s China, the fastest growing country in the world, offers the: • Biggest engineering talent pool • Biggest emerging market • World’s number one manufacturing industry

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Insight

Is outsourcing the new Holy Grail for R&D organizations? The IT departments in the enterprise went first and discovered lower costs and improved efficiencies by outsourcing call centers and back office projects offshore. Now the R&D development department in the same enterprise wants to follow the same outsourcing route and realize comparable results. It’s true that outsourcing can yield significant benefits. However, as many early adopters of outsourcing learned, there are some important signs a smart company takes note of before venturing into outsourcing. Long Circle recommends keeping the following points in mind to take you to your goals.

Outsourcing is a process that must be managed

If a company assumes that outsourcing means that they can toss their R&D projects over the fence (or in the case of offshore outsourcing, across the ocean) and extraordinary results will follow, they’re about to have a learning experience. Outsourcing is a process and processes must be managed to reap the best results.

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The Hidden Costs of Outsourcing: Beware and Be Wise

Insight

Every day, more organizations are eagerly embracing the concept of offshore outsourcing to lower costs, increase efficiency and productivity, and enable employees to focus on the innovative, core endeavors that drive business forward.

IT departments have been early adaptors of outsourcing projects and services. Now manufacturers, original equipment manufacturers (OEM), original design manufacturers (ODM), independent software vendors (ISV), system integrators (SI), and value-added resellers (VAR) whose products rely on embedded software and hardware across countless industries are exploring the benefits of offshore outsourcing to stretch their R&D dollars.

After all, lower wages and higher productivity is a winning concept that should result in significant cost savings and improve a company’s bottom line. Unfortunately, outsourcing projects don’t always work that way. And at the end of a project, no CTO of a company wants to total up the

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