Managing and incentivizing research commercializationin Chinese Universities

Weiping Wu

Published online: 29 March 2009� Springer Science+Business Media, LLC 2009

Abstract Research shows that there are important institutional underpinnings for

building university–industry linkages. This paper aims to understand how China is

developing the relevant organizational structures and incentives in its universities. What

academic institutions shape the scope and channels of university–industry linkages? What

incentives do universities provide to encourage and facilitate faculty engagement with

industry? My analysis is accomplished through content analysis of university documents

and in-depth interviews with personnel in two top institutions—Fudan University and

Shanghai Jiaotong University, supplemented by official statistics. It shows that the hybrid

organizational structure to manage technology transfer is a product of historical legacy and

institutional learning—parts uniquely Chinese and parts adapted from the West. Faculty

incentives also have varied effects. In spite of being enticed to disclose inventions and

pursue commercialization, faculty remains keener on scholarly publications.

Keywords University–industry linkage � Organizational practice � Incentives �Higher education reform � China

JEL Classification O32 � I23

1 Introduction

The rise of the knowledge economy has underscored the essential role technological

innovation plays in economic development. Within this context, research universities are

increasingly seen as vehicles for technology transfer and a conduit through which

knowledge exchange is made more effective. By and large, they are thought of as places

where knowledge is generated and patented, where specialized research is housed, and

W. Wu (&)Urban and Regional Studies & International Studies, Virginia Commonwealth University,Richmond, VA 23284-2028, USAe-mail: wwu@vcu.edu

123

J Technol Transf (2010) 35:203–224DOI 10.1007/s10961-009-9116-4

where scientists and industry work together on product commercialization (D’Este and

Patel 2007; Poyago-Theotoky et al. 2002). However, most such cases have been discussed

in the context of the developed world by far. Developing countries, until quite recently, had

attached little importance to the roles of universities as sources of knowledge and inno-

vation for firms (Hershberg et al. 2007).

Universities in China are yet to become the key driver of national research and

development (R&D), given that university-based research had been seriously neglected in

the pre-reform period. But under reform, an important change has been the promotion of

academic research and commercialization, particularly by elite institutions to which the

central government provides more funding. China hopes to use the leverage that can be

gained from research universities to acquire design and technological capability in its high-

tech industry. The advantages of this strategy, if it succeeds, include the rents gained from

technological innovation, gains from higher productivity, the potential to carve out

international brand names, and the scope for diversifying away from labor-intensive

assembly operations (Yusuf and Nabeshima 2007). The official push for university–

industry interaction since the 1980s (and more intensely since the 1990s) stems from this

rationale. With a newfound autonomy, universities are experimenting with a wide range of

policies and institutions to manage relationships with industry and incentivize research

commercialization. As such, China’s experience can provide multiple trajectories to

examine in a relatively short period.

Placed in a comparative framework, this paper explores the question of what university

policies and institutions shape the scope and fruitfulness of university–industry linkages in

China. The primary goal is to understand how China is adapting and developing the

institutional underpinnings of its academic research and commercialization system. Uni-

versities are gaining greater autonomy in several spheres, such as academic programs and

curriculum, administration, and fiscal matters, but are still far from autonomous (NSF

2000). They are under increasing pressure from the central government, particularly the

elite institutions, to demonstrate their contribution to the national and local economies. As

such, they have experimented with different organizational practices and incentives in

order to accomplish the new, third mission—knowledge diffusion (or narrowly defined as

commercialization). Two specific questions motivate this study. First, what organizational

structures have the universities used to manage technology transfer? Of particular focus is

the role of technology transfer offices (TTOs) and its relationship with university

administration. Second, what incentives have the universities provided to encourage and

facilitate faculty engagement with industry? I also show how commercialization is per-

ceived by faculty, particularly in how it may interfere with more traditional academic

pursuits.

This study will use the broad definition of university–industry linkages, with a focus on

university research and hence with less emphasis on how academic education contributes

to industry. Although many studies of knowledge transfer have concentrated on patenting,

licensing and formation of startup companies as the main mechanisms, university–industry

linkages embrace a much broader spectrum of activities (Cambridge-MIT Institute 2005;

Cohen et al. 2002; D’Este and Patel 2007; Mowery et al. 2004). Additional forms through

which universities influence industrial R&D include publications/reports, public meetings/

conferences, consulting, contract research, informal exchange, and joint research agree-

ments. Results from both the Carnegie Mellon Survey of industrial R&D in the U.S. and

the Cambridge-MIT (Massachusetts Institute of Technology) Institute’s survey of firms in

the U.S. and U.K. confirm the importance of these additional forms (Cambridge-MIT

Institute 2005; Cohen et al. 2002).

204 W. Wu

123

University–industry linkages in China include these forms common in the West. An

additional form, almost uniquely Chinese, is through university-affiliated enterprises (Ma

2004; Xue 2004; Zhang 2003). Recent studies on China mostly has focused on the overall

performance of its few premier universities (particularly those in the capital city Beijing)

and university-affiliated enterprises (Chen and Kenney 2007; Guan et al. 2005; Liu and

Jiang 2001; Ma 2004; Mei 2004; Song 2004; Xue 2004; Yang and Xu 2004; Zhang 2003).

Some scholars have even argued that spinoffs remain the only viable arrangement in China

instead of technology licensing, contracting, or patenting (Euna et al. 2006; Kroll and

Liefner 2008). In general, weak industrial R&D capabilities mean that much potentially

useful research in universities would face difficulty being commercialized by firms outside

of universities (Xue 2004; Wu 2007). These studies have yet to uncover the institutional

dynamics in the academia. Research, mostly in industrialized countries, shows that uni-

versity policies and incentives can significantly influence knowledge spillovers and

university–industry collaboration (Debackere and Veugelers 2005; DiGregorio and Shane

2003; Link and Siegel 2007; Poyago-Theotoky et al. 2002; Thursby and Thursby 2004;

Woolgar 2007). By investigating the inner workings of university organizations and

incentives, this paper provides insight on why Chinese universities and their researchers

pursue commercialization through specific channels.

My analysis is accomplished through both content analysis of university documents and

in-depth interviews with personnel in select institutions, supplemented by statistical data

published by the Ministry of Education (MOE), the universities and other official sources.

The documents include university annual reports; reports of university Science and

Technology (S&T) divisions (ke ji chu); university policies on intellectual property rights,

technology transfer, and faculty promotion; and reports of university technology transfer

centers and enterprise offices. The focus of the study is Fudan University and Shanghai

Jiaotong University (SJTU) in Shanghai. In-depth interviews were conducted with

administrators in charge of S&T programs, technology transfer and university enterprises;

and select faculty at Fudan and SJTU. Semi-structured with open-ended questions, the

interviews were intended to probe into the varying organizational structures and to illus-

trate the range of practices and perceptions.1 They help us understand the complex

reasoning and historical legacies underlying university decisions. As such, this study is not

statistical in nature, and does not need to be so to accomplish the goals set out above. The

official statistics, aggregated at the national and university levels, are meant to provide a

context of the changing patterns of university–industry interfaces in China.

What follows next is a brief review of relevant research on the important institutional

underpinnings of academic knowledge diffusion and research commercialization, partic-

ularly as related to the experience in the West. Section 3 assesses the extent to which forms

of industrial linkage in China is shifting from those with little content of technology

diffusion (e.g. university-affiliated spinoffs) to more effective mechanisms. Sections 4 and

5 examine the institutional structure deployed by the select universities in the management

and promotion of technology diffusion. As universities exploit their new-found autonomy,

institutional setups and incentives vary. They nonetheless are keen in streamlining pro-

cedures (and costs) for invention disclosure and patent licensing, supporting new business

1 The respondents include the director or deputy director of the enterprise office, division chief at the S&Tdivision or managing staff at the technology transfer center, directors of select research centers, and selectfaculty at both universities. A total of 12 in-depth interviews were conducted during the summers of 2005–2007, each taking 1–2 hours to complete. Because of the explorative nature of these interviews and open-endedness of the questions, the responses are not examined systematically. Instead, they provide illustrativenarratives and complement the content analysis of university documents.

Managing and incentivizing research commercialization 205

123

startups by faculty and graduates, and providing seed capital, training and incubator

facilities. The paper is concluded with a discussion on both the challenges and policy

implications for universities in China.

2 Institutional underpinnings of academic research commercialization

Research shows that, within the university, there are important institutional underpinnings

for building commercial linkages that are related to outputs such as patents, licensing

revenue, and startup formation (Link and Siegel 2007; O’Shea et al. 2008; Ponomariov

2008). For instance, the primary source of growth in university licensing stems from an

entrepreneurial bent of university administration rather than a change in faculty research

(Thursby and Thursby 2000, 2004). University administration can influence the incentives

for TTOs and faculty members by establishing university-wide policies for sharing

licensing income. Evidence from the U.S. indicates that it is the shift in the licensing

behavior of universities that is responsible for the surge in licensing activities (Poyago-

Theotoky et al. 2002; Thursby and Thursby 2004). Several general features of the

American system of higher education also emerge as conducive to university–industry

partnerships: decentralization, competition, and the coupling of research and graduate

education (Feller 1999; Mowery et al. 2004; Owen-Smith et al. 2002; Shane 2004).

The majority of university inventions are so embryonic that successful commerciali-

zation depends on faculty participation in further development. The bulk of economic

benefits of university research come from inventions in the private sector that build on the

scientific and engineering base created by university researchers, rather than from com-

mercial inventions generated directly by university research (Henderson et al. 1998;

Poyago-Theotoky et al. 2002). Key ideas and major technological opportunities or

breakthroughs that result from key ideas also are the product of cumulative research

interactions and advances involving the flow of ideas and people back and forth across the

boundaries between universities and industry (National Academy of Engineering 2003).

When inventions are too embryonic to license, firms often pursue the invention by spon-

soring faculty research in lieu of a license (Thursby and Thursby 2004). In other cases,

publication of ideas through referred journals and scientific reports is a more important

form of knowledge transfer than patenting (Agrawal and Henderson 2002).

Faculty involvement needs to go well beyond simply disclosing research, to identifying

licensees as well as working with licensees in further development. Faculty specializing in

basic research may not disclose new ideas because they are unwilling to spend time on

applied R&D that often is needed for businesses to be interested in licensing university

inventions. In other cases, faculty may not realize the commercial potential of their ideas,

but often they do not disclose inventions because they are unwilling to risk delaying

publication in the patent and license process (Thursby and Thursby 2000). Furthermore,

faculty may feel discouraged to file for patents because of the high transaction costs

(Kneller 2007; Wolson 2007; Yoshihara and Tamai 1999). In Japan, for instance, inventors

are responsible for the initial application and subsequent maintenance of the patents since

most invention titles go back to individual inventors. Given that patents are not important

to the academic community in Japan, most faculty do not file for patents on their own.

Instead, they use an informal system of technology transfer by providing firms with access

to their discoveries and receiving donations from firms in return for the rights to their

intellectual property (IP) (Kneller 2007; Yoshihara and Tamai 1999).

206 W. Wu

123

TTOs play important roles managing the long process of knowledge transfer, and their

personnel skills and governance structure matter (O’Shea et al. 2008, Swamidass and

Vulasa 2008; Woolgar 2007). They often are the first place where invention disclosure

occurs and the potential for commercialization is assessed. In addition, many TTOs pro-

vide seed money for further work on inventions, assistance in business planning,

introduction to venture capitalists, assistance in recruiting startup teams, and incubator

space (Wu 2007). But there is an emerging consensus among researchers that most TTOs

lack the necessary resources and competencies (Swamidass and Vulasa 2008). Besides

problems associated with skill and budget shortages, TTO staff also faces pressure on their

time. As a result, they may succeed in patenting inventions but may have limited resources

for marketing them to potential licensees and investors (Swamidass and Vulasa 2008;

Wright et al. 2008).

Research shows that incentives are important in terms of explaining variation in relative

performance and hold a positive relationship with commercialization (Debackere and Ve-

ugelers 2005; Woolgar 2007; Wright et al. 2008). Additional incentives are required to attract

faculty participation in commercializing important inventions, including royalties and

equity. Although the vast majority of agreements (in the U.S.) include royalty payments,

contracts with equity have been shown to be Pareto superior to those with royalties (Jensen

and Thursby 2001, Thursby and Thursby 2004). The distribution of royalty rates between

inventors and the university also could influence the propensity of faculty to exploit aca-

demic inventions. Clearly, allowing faculty to retain a higher share would lead to more

invention disclosures (DiGregorio and Shane 2003; Link and Siegel 2007; Ponomariov

2008). Spinoffs started by enterprising faculty as well as graduates license university IP to

commercialize inventions. These ventures are often assisted by incubators, venture capital

funds or equity financing (to cover up front costs of startup firms), and business support

systems set up by the university. These policies, together with the commercial orientation of

university research and its intellectual eminence, determine why some institutions generate

more new spinoffs than others (DiGregorio and Shane 2003; Shane 2004). Another important

constraint concerns how commercial pursuits are rewarded in the promotion process, as

patenting and consulting do not receive as much merit as publishing and research activities

(Renault 2006, Wright et al. 2008). Moreover, the attitude of many faculty members against

commercial involvement, lack of research focus on urgent industry needs, unbalanced dis-

tribution of benefits, and inadequate IP protection are among some of the main obstacles of

academic spillover (Liu and Jiang 2001; National Academy of Engineering 2003).

Installing institutional structures and incentives to promote commercialization can bring

benefits to a university as a whole. Industrial linkages offer additional incentives to attract

and retain talented faculty and students. Despite the time involved, entrepreneurial faculty

members tend to have higher scholarly productivity than others. They often reinvest

‘‘profits’’ in lab equipment and additional postdoctoral researchers, enabling them to

conduct additional research and experiments (Blumenthal 2003; Jackson and Audretsch

2004; Poyago-Theotoky et al. 2002). However, there are risks involved. The traditional

commitment of a university to the integrity of scientific research may come into conflict

with the new financial interests created by connections with for-profit companies. The

integrity threat is through several mechanisms—research support from industry that may

lead some faculty wittingly or unwittingly to bias findings in the firms’ favor, and rela-

tionships reduce the openness of communication within the research environment

(Blumenthal 2003; Gassol 2007; Hane 1999; Link and Scott 2003; Poyago-Theotoky et al.

2002). The risks can undermine the public’s faith in the university research enterprise and

public funding. There are also potential conflicts between individual faculty and their

Managing and incentivizing research commercialization 207

123

university administrations about who will capture benefits from commercialization

(Kodama and Branscomb 1999). These potentially disturbing downsides deserve further

attention.

3 Technology diffusion between academia and industry in China

University-based research had been seriously neglected in the pre-reform period in China

as the functions of universities were largely limited to human capital training. Only a small

number of top universities were involved in research, primarily in the areas of defense and

military technology (Zhang 2003).2 Even today, universities have yet to become key

drivers of national R&D, counting for only about 10% of total R&D expenditures on

average between 1997 and 2006 (see Fig. 1). But the growth of R&D personnel in uni-

versities has been steady since 2000. More encouragingly, the university sector has been

granted more than one quarter of domestic patents on average. To further promote uni-

versity-based research, the central government (primarily through the MOE) provides more

funding to elite universities (Hsiung 2002; Ma 2004; Suttmeier and Cao 1999). Recent

programs include the National Basic Research Program (‘‘973’’ Project), ‘‘211’’ Project,

and ‘‘985’’ Project.3

A direct push for university–industry linkages came in 2001, when the State Economic

and Trade Commission and MOE jointly set up the first group of state technology transfer

centers in six universities to promote the commercialization of technological achieve-

ments.4 Perhaps even more important was a clear directive from the MOE in 2002 that

encouraged the development of university enterprises, after some heated debate on whether

commercialization and links with industry should be a central mission of universities (Wu

2007). These debates were highlighted by six circulars endorsed by then vice premier Li

Lanqing. After the appointment of a new minister of education, Zhou Ji, who oversaw a

number of university enterprises as a professor in Wuhan, the debates came to some closure

and a clear official position emerged (personal interview with a Fudan University official).

This position stated that the three major missions of universities would be teaching, research,

and commercialization. Now the number of patents and income from technology transfer has

become important criteria when the MOE evaluates universities (Tang 2006).

Based on available data, it appears that the diffusion of university research occurs

primarily through contracts for technology services, patent licensing and sales, and uni-

versity-affiliated enterprises. Together, income generated from these activities was

equivalent to one-fourth to one-third of university R&D revenues nationally between

2 These included Beijing University, Fudan University, Xiamen University, Jilin University and NankaiUniversity in semiconductor research; Beijing Aeronautic College in aircraft design; Beijing University ofTechnology in missile design; Harbin College of Defense Technology in computer design; and TsinghuaUniversity in space research. See Zhang (2003).3 ‘‘Project 211’’ provided significant funding for capital construction on university campuses and fordeveloping new academic programs (Hsiung 2002). The ‘‘985’’ program aims at nurturing China’s topuniversities into world-class research universities. Its first phase, which began in 1999, funded only nineuniversities: Beijing University, Chinese Science and Technology University, Fudan, Harbin Institute ofTechnology, Nanjing University, Tsinghua University, STJU, Xi’an Jiaotong University, and ZhejiangUniversity. In 2004, the second phase included 34 universities (Ma 2004).4 The six universities are Central China University of Science and Technology, East China University ofScience and Technology, Tsinghua University, Sichuan University, SJTU, and Xi’an Jiaotong University(Xinhuanet 2001, retrieved on 13 August 2006 from http://www.edu.cn/20011122/3011306.shtml).

208 W. Wu

123

2000 and 2003 (see Table 1).5 Entering into technology contracts with firms is the most

significant mechanism of technology diffusion for Chinese universities. In the period of

2000–2003, income from such contracts amounted to an average of 22% of R&D rev-

enues in higher education (see Table 1). A number of factors are likely underlining this

trend. For a long time, the enterprise sector had been a weaker actor in R&D, particularly

in comparison to public research institutes. Internal capacity in basic and applied research

was absent in most enterprises. Industry-specific research institutes within different

ministries were responsible for solving specific applied problems as well as introducing

new technology into enterprises (Hu and Jefferson 2004; Liu and White 2000; Xue 2004).

The lack of in-house R&D capability in most industrial enterprises means that they

require external assistance for solving more complex technical problems in their pro-

duction (Xue 2004).

The largest beneficiary of such technology contracts looks to be state enterprises

during the entire period of 2000–2006, which have signed close to one-half of the

contracts with universities (see Fig. 2). This is likely attributable to existing institutional

channels in the state sector that facilitate the connections, since nearly all of China’s elite

universities are public. It also may suggest continued difficulty of private enterprises in

accessing state resources. However, a new trend has emerged since 2003 in the number of

technology contracts signed between universities and private enterprises, counting for

about 40% of all contracts (see Fig. 2). In contrast, state enterprises as a whole have

experienced a shrinking share since 2003, now nearly on par with the private sector in

contracting S&T activities with universities. Foreign-invested firms, on the other hand,

have drawn the least upon university research capabilities. This is likely attributed to

concerns by foreign firms with the long-standing belief on Chinese university campuses

that knowledge is public and warrants no IP protection (personal interview with a Fudan

University Official).

0.0

10.0

20.0

30.0

40.0

50.0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006Year

Perc

ent

R&D personnel R&D expediture Patents granted to professionals

Fig. 1 University sector’s share in China’s R&D activities, 1997–2006. Sources: Chinese UniversityTechnology Transfer, September 2005, pp. 40–43; MOST (various years)

5 Officially, the accounting of university R&D revenues includes the following main sources: centralgovernment budgetary allocation (primarily from the Ministry of Science and Technology or MOST andMOE), National Natural Science Foundation, local government budgetary allocation, contract funding fromthe enterprise sector, bank loans, and research grants/contracts with overseas entities (see Wu 2007).

Managing and incentivizing research commercialization 209

123

Patent licensing, commonly used in the West for universities to diffuse innovation, has

yet to become a major mechanism of technology transfer in China.6 Compared to tech-

nology contracts, patent licensing and sales generated far less income during 2000–2003, a

mere equivalent of about 2% of R&D revenues (see Table 1).7 According to a manager at

SJTU, only about 10% of all patents registered by the university are marketable (personal

interview). Clearly, patent licensing and sales are an underutilized mechanism of tech-

nology transfer, particularly given that universities have been granted closed to 30% of all

domestic patents. University administrators have expressed frustration over the lack of

technology intermediaries to facilitate patent sales and the limited capacity of domestic

firms to conduct further development (personal interviews with Fudan University and

SJTU officials). Instead, faculty is more likely to jointly author publications with industry.

Table 1 Select modes of university–industry linkage, 2000–2004

2000 2001 2002 2003 2004

Technology contracts

Number 4,946 5,540 5,683 7,809 9,188

Value (million RMB) 1,788 2,219 3,797 2,374 2,292

As % of university R&D revenues 22.0 22.1 30.0 15.4 –

Patent licensing

Number of patents licensed and sold 299 410 532 611 731

As % of granted patents 45.9 70.8 76.3 35.3 21.0

Value of patent licensing and sales (million RMB) 185 259 220 360 278

As % of university R&D revenues 2.3 2.6 1.7 2.3 –

Publications joint-authored with industry

Number 5,366 6,424 7,829 8,988 –

Ratio to granted patents (paper/patent ratio) 8.2 11.1 11.2 5.2 –

University-affiliated technology enterprises

Number 2,097 1,993 2,216 2,447 2,355

As % of university enterprises 38.5 39.6 43.9 50.6 51.6

Net profits (million RMB) 2,803 2,398 1,863 1,473 2,385

Contribution to university (million RMB) 846 778 761 774 825

Contribution to university as % R&D revenues 10.4 7.8 6.0 5.0 –

Sources: Liu and Lundin (2007); MOE (2001–2004); Chinese University Technology Transfer, July 2005,pp. 47–49

–, Data not available

6 University patents are a good indicator, because patents are a unique and visible method of technologytransfer and their public nature allows for more comprehensive analysis than surveys or case studies(Henderson et al. 1998). By official definitions, patents in China are divided into three groups: inventions,new utility models, and new exterior designs. Inventions ‘‘refer to new technical proposals [on] products,methods, or both.’’ New utility models ‘‘refer to new technical proposals on shape, structure of a product orthe combination of both.’’ New exterior designs ‘‘refer to aesthetics and industry-applicable new designs forshape, design or color of a product, or their combination’’ (Sun 2000, p. 443). Inventions, and to a lesserdegree new utility models, are the most fundamental and beneficial paths for technology development in thelong run.7 This level, however, is not too far off from those in U.S. universities. For instance, in 2007, licensingincome accounted for 5.1% of research expenditures in Massachusetts Institute of Technology, 7.2% inStanford University, 2.4% in the University of California System, and 1.4% in the University of Texas atAustin (calculated based on AUTM 2007).

210 W. Wu

123

The ratio of such joint papers to the number of patents granted to universities is in the

range of 5–11 (see Table 1), comparable to levels found in some U.S. universities

(Agrawal and Henderson 2002).

University-affiliated enterprises, officially estimated at 4,311 in 2005, have received

much attention.8 Although the commercialization of faculty research has been touted as a

key function of these enterprises, only about 50% of them are involved in S&T-related

activities (technology enterprises). But their share has been increasing steadily since 2000

(see Table 2). The non-technology enterprises are mostly engaged in such business pursuits

as producing consumer goods and providing general services (e.g. food, printing, etc.).9

Since the late 1990s, many university-affiliated enterprises have begun to reform their

governance structure, increasingly through an ‘‘exit strategy.’’ As a result, the number of

wholly university-owned enterprises has declined steadily nationwide since 2000 (see

Table 2). Now about one-third of such enterprises are joint ventures with domestic partners

while foreign partnership remains rare. Similarly, university departments are gradually

giving up control of enterprises. Some university enterprises have gone public, spear-

headed by the initial public offering of Fudan Fuhua Inc. on the Shanghai Stock Exchange

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006Year

State enterprises Private enterprises

Foreing-invested enterprises Others

Fig. 2 Share of technology contracts between universities and different types of enterprises, 2000–2006(percentage). Sources: MOE (2001–2007). Note: Private enterprises also include collective enterprises, andenterprises with mixed share-holding

8 Broadly, they refer to enterprises invested in and owned wholly by universities, operated and ownedjointly with outside entities, or invested in partially by universities (Ma 2004; Zhang 2003). Their traditiondates back to the late 1950s, when they served as sites for student experiential learning, as generators ofemployment, and as a source of supplemental funding for universities.9 One of the more successful such enterprises is Angli Ltd., specializing in health supplements and createdas wholly university-owned in 1990 (Yang and Xu 2004). Its products target the domestic mass market buthave quickly established a brand name, leading to steady rise in sales revenue and making the company themost profitable enterprise for SJTU. The company’s rapid expansion also has necessitated the publicoffering, listed on the Shanghai Stock Exchange since 2001. SJTU now holds a 25% share (Wu 2007).

Managing and incentivizing research commercialization 211

123

in 1993. By 2002, more than 60 university-affiliated enterprises had become publicly

traded (Yang and Xu 2004).

Overall, spinoff enterprises are declining in numbers (see Table 2) and contributing less

to university R&D revenues (see Table 1). This may be signaling a gradual shift in uni-

versity–industry linkages from affiliated spinoffs into more flexible institutional

arrangements, such as joint R&D and publications, contract research, sharing research labs,

licensing, and technology sales. To some observers, spinoffs in China are based on a

hierarchical mechanism rather than market mechanism since they retain substantial con-

nections to universities (Euna et al. 2006). But as domestic firms gradually move upwards

along the technology curve, their abilities to absorb new knowledge and conduct in-house

R&D increase in tandem. As such, the advantage of affiliated enterprises in knowledge

resources inevitably erodes.

The diffusion effect of university-based innovation and entrepreneurship is still limited.

It appears that many firms continue to be unwilling or uninterested in collaborating with

universities. According to the annual Survey of S&T Activities by the National Bureau of

Statistics, only about 15% of large and medium-sized firms in the manufacturing sector

outsourced S&T activities to universities between 2000 and 2002. Less than 3% of patent

applications between 1985 and 2003 were filed jointly by collaborating pairs of firm and

university (Motohashi 2006). A 2006 survey of 703 private enterprises in Shanghai shows

that about half of them have never used universities as a source of knowledge (Shanghai

Chamber of Commerce 2006).10 Main barriers to collaboration, according to a survey of

Beijing firms, include lack of efficient communication channels with universities,

Table 2 Characteristics of university-affiliated enterprises, 2000–2004

2000 2001 2004

Number Percent Number Percent Number Percent

Enterprise orientation

S&T related 2,097 38.5 1,993 39.6 2,355 51.6

Other 2,354 43.2 3,046 60.4 2,208 48.4

Sector

Manufacturing 1,995 36.6 1,830 36.3 1,893 41.5

Services 846 15.5 746 14.8 425 9.3

Other 2,067 37.9 2,463 48.9 2,245 49.2

Ownership

Wholly university-owned 4,793 87.9 4,227 83.9 3,044 66.7

Joint venture with domestic partner(s) 556 10.2 718 14.2 1,478 32.4

Joint venture with foreign partner(s) 102 1.9 94 1.9 41 0.9

Administrative affiliation

University 4,217 77.4 4,059 80.6 4,031 88.3

Department/School 1,234 22.6 980 19.4 532 11.7

Total 5,451 – 5,039 – 4,563 –

Sources: Chinese University Technology Transfer, July 2005, pp. 47–49; MOE (2003)

10 Among those who have interacted with academia (52.4%), the large majority resorts to technologycontracts (27.5%) and a much smaller number of them conducts joint R&D with universities (13.8%). Therest uses more informal forms of collaboration such as sharing equipment and labs, and developing jointtraining programs. See Shanghai Chamber of Commerce (2006).

212 W. Wu

123

uncertainty of market perspective for research results, high costs to commercialize uni-

versity research, and immature technology from academic research (Guan et al. 2005). In

addition, contribution by university-affiliated technology enterprises also remains limited.

Their sales revenue made up a mere 2.3% of the revenue of all high-tech enterprises

nationwide; nearly half of such revenue was contributed by enterprises affiliated with

Beijing and Tsinghua universities. Many of the early spinoffs simply provided technology

services to other firms, and were not commercializing research results but rather trans-

ferring personnel from universities to the commercial sector (Chen and Kenney 2007).

4 Managing technology diffusion

Given the multitude of industrial linkages and universities’ new-found autonomy, insti-

tutional setups and incentives for research commercialization are varied. The following

analysis shows that relevant administrative units in some universities perform functions far

beyond those of traditional TTOs in the West and become powerful gatekeepers of tech-

nology diffusion. Overall, top universities continue to rely on their S&T division or its

affiliate to manage technology transfer in the form of patent licensing, consulting, contract

research, and technology services. On the other hand, they tend to set up separate

administrative units to oversee affiliated enterprises, through either a university enterprise

office or holding company. This division of labor in managing research commercialization

is likely a product of history, as the S&T division is in charge of research and sponsored

programs whereas enterprising activities have been under the oversight of logistics support

services (also known as houqin).

4.1 Conventional technology transfer

As shown by experience elsewhere, the role of university TTOs is critical for transferring

technology through the more conventional means (e.g. patent licensing, joint R&D,

technical service, and technology contracts). It often is the first place where invention

disclosure occurs and the potential for commercialization is assessed. Almost all research

universities in the U.S. have established TTOs to manage relationships with industries

(Poyago-Theotoky et al. 2002). In most Chinese universities, many of TTO’s functions are

subsumed under the S&T division. Traditionally the S&T division is responsible for the

management of research projects, commercialization of technology, IP management,

management of research bases, and management of international research cooperation

projects. This multiple set of functions often leads to insufficient attention and staffing in

the area of research commercialization, which has only become a priority recently. Fudan

University, for instance, has only three staff members overseeing the operation of tech-

nology transfer in its S&T division. As a result, they can only manage to provide general

oversight and are unable to work closely with faculty or firms (personal interview with a

Fudan administrator).11

The establishment of national technology transfer centers (NTTCs) in six universities

across China (Central China University of Science and Technology, East China University

of Science and Technology, Tsinghua University, Sichuan University, SJTU, and Xi’an

11 This low level of TTO staffing is not uncommon even in U.S. universities. In 2007, about 20% of U.S.universities had three or fewer TTO staff, while only 20% had 15 or more staff (a level comparable to that inSJTU). See AUTM (2007).

Managing and incentivizing research commercialization 213

123

Jiaotong University) has elevated the status of research commercialization in university

administration. The functions of the NTTCs much closely resemble those of TTOs in the

West—chiefly invention disclosure, patent application, evaluation of patent market value,

and patent licensing or sales to firms. In particular, given the lack of technology inter-

mediaries and true venture capital, NTTCs weave these roles into their own operations. All

six NTTCs have received initial funding from the central government in the amount of

RMB 1 million (Tang 2006), but their hosting universities provide subsequent financial

support.

SJTU’s NTTC represents a model of TTO that is proactive and versatile. Officially

launched in November 2001 with a staff of over 20, it is affiliated and works closely with

the university’s S&T division. Out of the granted patents, the center identifies marketable

innovations that are more likely to be accepted by local firms, though not necessarily the

most advanced. It then works to license some of these to domestic firms (personal inter-

view with a NTTC staff at SJTU). But instances of patent licensing remain rare, with no

more than 10 annually since 2000 (see Table 3). It also uses proactive approaches to

Table 3 Research output in Fudan and SJTU (science and engineering only), 1995–2005

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Fudan universitya

Publications 436 421 600 538 638 876 – 1,182 1,875 1,746 2,495

SCIE 244 230 320 308 442 612 648 773 944 1,009 1,300

EI 135 124 216 154 196 190 – 255 730 452 796

ISTP 57 67 64 76 0 74 – 154 201 285 399

Patents 15 19 15 22 28 – 28 36 92 98 128

New invention 10 16 12 21 21 – 13 18 59 88 108

New application 5 3 3 1 7 – 15 18 32 10 19

New design 0 0 0 0 0 – 0 0 1 0 1

Paper/patent ratio 29.1 22.2 40.0 24.5 22.8 – – 32.8 20.4 17.8 19.5

SJTUb

Publications 144 164 203 277 610 1,202 1,669 2,333 2,864 3,609 6,194

SCIE 64 53 62 113 177 389 589 744 1,020 1,342 2,169

EI 80 111 141 164 349 649 842 1,128 1,429 1,641 2,951

ISTP 0 0 0 0 84 164 238 461 415 626 1,074

Patents 10 10 5 11 19 – 34 41 156 332 438

New invention 3 6 5 5 6 – 3 25 134 302 401

New application 7 3 0 6 12 – 31 16 22 30 36

New design 0 1 0 0 1 – 0 0 0 0 1

Patents licensed – – – – – 3 9 5 2 – 10

Paper/patent ratio 14.4 16.4 40.6 25.2 32.1 – 49.1 56.9 18.4 10.9 14.1

Sources: China Patents Database (various years), Fudan and SJTU Yearbooks (various years), ISTIC (2004–2006), and MOE (various years)

–, Data not available

SCIE Science Citation Index Expanded, EI Engineering Index, ISTP Index to Scientific and TechnicalProceedingsa Shanghai Medical University was merged into Fudan in April 2000. Data for 2000 and onwards reflect thisb Shanghai Second Medical University was merged into SJTU in 2005. Data for 2005 reflect this

214 W. Wu

123

cultivate collaborative R&D with firms (e.g. Volkswagen, General Motors and Baoshao

Steel),12 and seek out research funding from local government sources. Its footprints

extend beyond Shanghai to the Yangtze River and Pearl River deltas, through the estab-

lishment of branch offices and information exchange centers. These offices help

disseminate SJTU’s research innovations to local governments (and in turn local enter-

prises) and receive local bidding requests.

In addition, SJTU’s NTTC is a gatekeeper for imported technology and subsequent

redevelopment. Given China’s late-comer status, endogenous capacity for innovation

within universities is likely weak, measured by conventional standards found in advanced

countries. Hence, universities often function as critical partners in the redevelopment of

imported technology for the domestic market and as key service providers for absorbing

technologies from advanced economies. In the case of SJTU, more than 300 faculty

members have studied in Japan and have connections with both university faculty and

industry researchers there. Through such connections, SJTU faculty bring in advanced

technologies from Japan and redevelop them for transfer to domestic firms. A number of

firms, particularly in the Yangtze Delta area, have long-established relationship with SJTU

on such transfer. The NTTC also files patent applications for redeveloped technology and

licenses granted patents to domestic users (personal interview with a NTTC staff at SJTU).

The operation of NTTCs, however, faces some constraints. One is the subordinate

nature of their relationship with S&T divisions, which limits their autonomy and flexibility.

SJTU’s NTTC, for instance, is headed by a deputy director of the university’s S&T

division. The lack of business income also poses some challenges. The centers generally

provide services to university faculty free of charge and, as a result, rely on research

income for their operation. After the initial funding from the central government dried out,

some NTTCs began to experience funding shortfalls as their host universities had limited

budgets for technology transfer operations. The NTTC in Tsinghua University is the only

center that gets involved in university enterprises. As a result, profits from such enterprises

provide a steady stream of funding for the center.

Whether or not a NTTC is established in a research university does not necessarily

determine a university’s performance in technology transfer. In fact, there is evidence

suggesting that the six host universities of NTTCs have performed unevenly. Between

2001 and 2002, for instance, patent sales declined in all but two of the universities (Tang

2006). On the other hand, some research universities without NTTCs have done just as

well, if not better. Take the example of Zhejiang University, which has consistently ranked

second nationally (behind Tsinghua University) in the number of patent sales since 2000.

Its S&T division has a dedicated office in charge of research commercialization with six

staff members who are drawn from faculty, graduate students, and outside consultants. The

office stays in close contact with local firms and government agencies to respond to their

technology needs. The provincial government of Zhejiang also provides financial assis-

tance for academic technology transfer, which further complements the university’s

proactive approach to technology diffusion.13

12 SJTU’s collaboration with General Motors is comprehensive, including five research centers GM hasestablished in SJTU, targeted training (undergrad go through 3 years of basic training and then specializedtraining in the fourth year), thesis research by graduate students, and reciprocal appointment of R&D staff.13 Zhejing Province requires local governments to set aside 1 million yuan each year for R&D collaborationwith universities (personal interview with a NTTC staff at SJTU).

Managing and incentivizing research commercialization 215

123

4.2 University-affiliated enterprises

The management of university-affiliated enterprises is entirely separate and not under

NTTCs or S&T divisions. There are at least two distinct types of relationship between such

enterprises and university administration. In most universities, all such enterprises are

under the oversight of a university enterprise group or holding company that is under the

university leadership. As a result, university administration and enterprise decision-making

are often intertwined. Some universities have directly invested in technology spinoffs and

become the sole owners of enterprises (see Table 2). Such a relationship raises concerns

about the potential financial risks that universities are exposed to (Xue 2004). In SJTU, for

instance, the party secretary of the university serves as the chairman of the board for the

enterprise group and the university president as vice chairman. The university has had to

bail out some unprofitable firms from time to time, and faculty sees this as more of an

intrusion to the traditional academic culture (personal interview with a SJTU

administrator).

On the other hand, Fudan University’s approach is exceptional though increasingly

popular—using faculty research and innovation as knowledge capital to enter into joint

ventures with outside entities. There is no direct involvement of university administrators

in enterprise management and decision-making. This is a conscious decision by the uni-

versity leadership, in the hope that academic research and teaching would be least

interrupted by commercial pursuits. Fudan’s philosophy can be summarized as incubation

by the university, investment by outside entities, expansion according to market principles,

and maturation by going public (Wu 2007). No university funding allocated by the central

government would be invested in enterprises affiliated with Fudan, except for a small 1-

year incubator grant program for small startups by its own graduates and selected faculty.14

Instead, a Commercialization and University Enterprise Management Office has been

established to promote research spinoffs, manage assets operation, and provide necessary

business support services. The Office now is involved in more than 100 enterprises, which

together contribute 70–80 million RMB to the university annually and employ around 800

or about one-fifth of university staff (personal interview with a Fudan administrator).

Outside firms also participate in holding companies with Fudan (Walcott 2003). Fudan’s

approach appears to minimize university’s involvement in business activities and enter-

prises are given a freer rein for decision-making. Hence the emphasis is more on how

Fudan can cultivate innovation and entrepreneurship by faculty and graduates, rather than

on expanding its business operations. To further minimize negative impact on the uni-

versity, all Fudan-affiliated enterprises have moved outside of the campus and a science

park has been created.

There is clearly a trend towards less direct involvement of university administration in

enterprise ownership, investment and management. One rationale is to expose enterprises

to market competition and to reduce friction with academic pursuits. Another relates to the

increasing size and complexity of the business operations and the necessity of obtaining

professional management. Spearheaded by Tsinghua University, a typical ‘‘exit strategy’’

involves severance of ownership ties between the university and its enterprises—all

business assets owned by the university transferred to a university enterprise group or

14 Fudan has even gone a step further in reforming the management and ownership structure of olderuniversity enterprises since 2000. In a matter of 2 years, all business entities formerly owned by Fudan andits subordinate schools/departments were closed, merged or transformed into free-standing enterprises andmoved out of the campus (Chinese University Technology Transfer October 2002, p. 19).

216 W. Wu

123

holding company and non-business assets held by enterprises returned to the university

(Yang and Xu 2004). Some of the profit-losing enterprises would be closed, and depart-

ments would no longer be allowed to set up business operations. More importantly, any

corporate dispute or liability would be born by the enterprises, as the university is only held

responsible for its shares in the enterprises. Since 2001, many top universities have

undertaken such exits for affiliated enterprises and substantially reduced their numbers.

5 Incentivizing faculty research and commercialization

Given the critical role faculty plays in technology diffusion, it is important to understand

how faculty incentives and behavior factor in. Traditionally, university faculty’s main

responsibility had been teaching in China, and not in advanced research (Sigurdson et al.

2005). Only since the launching of the ‘‘211’’ (in 1995) and ‘‘985’’ (in 1998) programs

have the top universities begun to provide stronger incentives for faculty research and

commercialization. Institutions are particularly keen in seeing their faculty publish in

prestigious, international journals. In SJTU, for instance, with each Science Citation Index

Expanded (SCIE) publication faculty is entitled to a 10,000 RMB reward with 9,000 as a

research grant and 1,000 as cash incentive (personal interview with a SJTU official). Fudan

offers somewhat less incentives, ranging from 9,000 RMB for a SCIE I publication, 6,000

for SCIE II, 4,000 for SCIE III to 2,000 for SCIE IV (Fudan S&T Yearbook 2003, p. 47). In

addition, universities offer cash incentives to faculty who have won national and local

research and technology awards.

More importantly, motivation for research comes in the way through which faculty

annual evaluation is carried out. Much like the commune system in the countryside started

in the late 1950s, faculty needs to meet an annual quota in work loads that include courses

offered, publications, grants, supervision of graduate students, and other activities. Those

with a higher research output can substitute publications for teaching, a practice similar to

that in top U.S. universities where research is more valued. Many full professors never

have to set foot in an undergraduate classroom while some teaching faculty is so burdened

with courses that they rarely have time for research.

In addition, faculty promotion guidelines continue to give much less credit to com-

mercialization than to scholarly publications in elite institutions, as their academic

prominence and reputation do not reply on entrepreneurial activities. In fact, administrators

in Fudan’s S&T division discourage faculty to collaborate with small and medium-sized

enterprises because of their low technology content and the large amount of time needed to

train their staff in order to do collaborative R&D (personal interview with a Fudan Uni-

versity official). Compared to scholarly publications in international journals, cash rewards

for filing domestic patents are lower at Fudan—3,000 RMB for an approved new invention

patent and 1,000 RMB for that on new application or design. Hence, in both Fudan and

SJTU, publications in international journals continue to far outnumber the number of

approved patents (see Table 3). Both, however, have experience substantial growth in

patent applications since 2003.

University incentive structure clearly encourages patent applications, although faculty

disclosure of invention tends to be a voluntary process. Many universities underwrite most

of the costs associated with patent application and maintenance (required for 3 years after

approval). Some even earmark funds to cover filing costs, drawing from both university

budgetary allocation and patent licensing income. This resembles the practice in U.S. in

that universities retain the rights to IP and absorb the associated costs. As shown by the

Managing and incentivizing research commercialization 217

123

experience in many Japanese universities, faculty lacks the incentive to file for patents if

the rights of IP are reverted to them and they have to pay for patent application and

maintenance (Kneller 2007; Yoshihara and Tamai 1999).

Despite this incentive structure, disclosure and patent filing remain low. Some faculty

prefers to work with firms directly through consultancy or other informal arrangements to

maximize personal income and to avoid sharing profits with the university/department as is

required in patent licensing (personal interview with a NTTC staff at SJTU). Once parent

licensing or sale is complete, in SJTU, faculty gets 60% of profits, school/department 20%

and university 20%. In Nanjing University, distribution of royalty rates between inventors

and university is even more favorable for faculty, who receives 70% for both patent

licensing and equity investment.15 The university receives 20% and department 10%. In

the case of patent licensing, royalty income for both the university and department for the

first 2 years is used to reward the faculty involved. For the next 2 years, half of such

income serves this purpose (Nanjing University 2005).

Another factor underlying the limited efficacy of patenting and licensing relates to the

inability of many domestic firms to conduct in-house R&D. The embryonic nature of

academic research makes faculty participation in further development a crucial factor in

commercialization. This is particularly true for universities with strong disciplinary scope

in basic sciences, such as Fudan University.16 But it is rare that faculty gets to continue to

work on an embryonic technology after the basic concept has been licensed out. Hence,

licensing sometimes is embedded in technology contracts, as this can reduce the risks for

firms. SJTU’s distinction in engineering offers a clear advantage in traditional technology

transfer since results from faculty research tend to be more than embryonic, while basic or

applied scientific research in Fudan requires a much lengthier path to commercialization.

This is confirmed by patent data in the period of 1995–2005 with SJTU far outpacing

Fudan in the number of approved patents, even though the two universities are similar in

faculty size and academic prominence.

Institutions continue to offer a great deal of amenities and assistance to enterprising

faculty through university-based science parks. Established in 2000, the Fudan University

Science Park now houses over 100 enterprises created by both Fudan researchers and other

entrepreneurs. A joint effort between Fudan and several local entities, its management is

undertaken by a holding company that also helps enterprises raise investment through

establishing various venture-capital funds. The municipal and district governments have

provided significant in-kind assistance including free land allocation and updated com-

puters (personal interview with a park official). There is a small, 1-year incubator grant

program for startup enterprises by Fudan’s own graduates and select faculty, with funding

from the city (RMB 12 million a year), the Yangpu district government (5 million) and the

university (5 million). Business services provided by the incubator includes training and

assistance in obtaining local or national innovation grants and applying for licenses and

high-tech designation as well as relevant incentives (personal interview with a Fudan

University official). In addition, Fudan University’s enterprise office acts as a venture

15 In the case of equity investment, shares held by the university and department are managed by theUniversity Investment Management Co. Ltd. (Nanjing University 2005).16 There are four broad categories widely used in China for classifying disciplinary scope: basic sciences (like), engineering (gong ke), humanities and social sciences (wen ke), and medical sciences (yi ke). Thisclassification dates back to the pre-reform period when more universities specialized in one scope, modeledafter the Soviet system. Part of the higher education reform program has been an effort by many researchuniversities to acquire a wider range of disciplines. But most of them continue to show strength in disci-plines that they used to specialize in.

218 W. Wu

123

capitalist to finance the surviving small enterprises for another 2–3 years through its

investment company.

For most of university faculty, however, the costs associated with university–industry

linkages can outweigh the benefits. They remain uncertain about the degree to which

commercial pursuits can co-exist with academic ones. Many feel that commercial interests

may interfere with the long-term research agendas, particularly the emphasis on basic

research. Faculty involvement in commercialization activities also depletes resources for

classroom teaching, even though theoretically faculty is required to devote most of their

time to university responsibilities. While the pull of financial gains is undeniable given that

faculty salary levels remain moderate in general, the stronger likelihood of outside

engagement for the more applied disciplines has led to a situation in which faculty income

can vary significantly across programs (personal interview with a Fudan faculty member).

Some faculty feels that university enterprises serve merely as cash cows to generate profits

for universities and do not involve genuine research commercialization. They become

particularly concerned when unsuccessful firms have to be backed by university general

funds, which is more of an intrusion to the traditional academic culture (personal interview

with a SJTU faculty member). Hence, even among the top universities, the debate con-

tinues on whether higher education ought to keep a distance from the market.

6 Conclusion

Perhaps a more salient feature of the Chinese experience is the increasing entrepreneurial

bent of its elite universities. University administrators have become more willing to engage

in commercial pursuits and set up enterprises. Clearly, the government has a large steak in

such pursuits, as it perceives the roles of universities as beyond human resource training

and basic research. In particular, investment priorities for elite institutions of higher

education and critical policies for rewarding commercialization are largely decided by the

central government. One of the criteria for assessing the performance of universities and

their administrators is commercialization and tangible contributions to local economies.

These policy forces, together with the need for universities to diversify revenue sources

and pursue economic gains, have jump started and sustained a growing level of research

commercialization nationally.

Compared to their counterparts in the West, Chinese universities are significantly less

active in utilizing market mechanisms of technology transfer such as licensing and tech-

nology sales, which tend to allow for less disruption of faculty research and teaching.

However, there is some evidence suggesting that a shift has occurred (or about to occur) in

the forms of university–industry interaction. Affiliated spinoffs, a favored form early on,

are gradually declining in both numbers and economic contribution. Technology contracts

continue to be the dominate form, and increasingly are signed between universities and

private enterprises. Given that universities’ share in granted domestic patents is increasing

steadily, it is conceivable that patent licensing will become a more important mechanism to

diffuse academic research. But the adoption of more market-based technology transfer will

rely on the improved quality of the local innovation environment. The lack of interme-

diaries, limited capacity of domestic firms to conduct further development, and mismatch

between academic research foci and societal needs continue to present barriers. These and

other factors also discourage firms to seek out universities as a source of knowledge or as

partners in R&D. Hence, the impact of university-based innovation and entrepreneurship is

limited, even though universities have increasingly assumed commercial roles.

Managing and incentivizing research commercialization 219

123

China’s determined efforts to promote academic research and technology diffusion have

propelled universities to increase institutional and financial support for commercialization.

The hybrid organizational structure to manage technology transfer is a product of historical

legacy and institutional learning—parts uniquely Chinese and parts adapted from the West.

Since technology spinoffs are considered as a type of university-affiliated enterprises,

university administration has control over their ownership, management, and associated IP

rights. As such, spinoffs are a different form of technology diffusion in China from

common patterns elsewhere and are not integrated with other mechanisms of commer-

cialization. On the other hand, Chinese universities are effectively learning from the West

(particularly from the U.S.) in the development of organizational capacity for managing

more conventional forms of technology transfer such as patenting and licensing. Given the

lack of local intermediaries and venture capital, NTTCs have weaved more functions into

their operations and become powerful gatekeepers. SJTU’s experience clearly shows that

top Chinese universities have established themselves as an important source of knowledge

for firms. While few institutions frequently collaborate with industry in the development of

new products/processes, many function as critical partners in the redevelopment of

imported technology for the domestic market.

There is also a remarkable similarity in the incentive structure adapted by Chinese

universities and those in the U.S. Overall, faculty is enticed to disclose inventions and

pursue commercialization. They receive university support in patenting, obtain favorable

positions in sharing royalty, and get additional assistance through incubator programs in

university science parks. However, university policies on faculty reward and promotion—

perhaps the most important incentive—continue to place more value on scholarly publi-

cations than commercial pursuits. This shows that university officials seem to be of two

minds in terms of promoting commercialization. As a result, faculty research output grows

more rapidly in academic papers than patents. Given the embryonic nature of basic or

applied scientific research and lack of in-house R&D capacity of many domestic firms,

universities with less engineering or technical prominence fall further behind in making

industrial connections.

Whether there should be limits to university engagement in business activities remains

an open question, given the potential conflict between industry’s desire for quick results

and the fundamental mission of universities to conduct long-term basic research. Faculty

has yet to fully embrace commercial engagements and often is troubled by the presence of

outside influence on academic pursuits. There is also increasing tension among faculty of

different disciplines, as the more applied ones such as engineering and life sciences tend to

have higher propensity for research commercialization and subsequently economic gains.

All of these point to the challenges facing China—to encourage diverse interfaces between

universities and the industrial sector as seen in many industrialized countries while safe-

guarding academic integrity and allowing for unfettered scientific groundbreaking. It also

is important to recognize the historical legacies that Chinese universities need to overcome,

both internally and externally. Given the short history of university-based research and

commercialization, most academic inventions are not cutting edge. Weak domestic

demands for innovative products undermine their market prospective. Underdeveloped

legal frameworks undermine the protection of IPs. All of these result in poor endogenous

capacities for innovation within universities, and have made research commercialization

difficult.

Nonetheless, the institutional underpinnings for building commercial linkages seem to

be firmly in place and, combined with the increasing entrepreneurial bent, will likely

bridge a closer relationship between academia and industry in China. To further this

220 W. Wu

123

pursuit, universities ought to give greater prominence to thinking about how to generate

greater faculty engagement in commercialization. For instance, SJTU’s experience sug-

gests that faculty members desire a larger share of income (than 60%) from patent

licensing and sales. Raising the distribution formula to allow inventors to receive more, say

75%, would encourage more disclosures. This also may have the added benefit of faculty

retention as academic salary tends not to be competitive against the corporate sector,

particularly in multinational corporations. Universities also need to rethink how to reward

technology transfer activities more favorably in the promotion process than current prac-

tices, in order to motivate faculty interest in commercialization.

The contrast between SJTU’s NTTC and Fudan’s small technology transfer office sends

a clear message. TTOs need to be better staffed with professionals who have the proper

marketing and business skills, even though whether or not a university establishes a NTTC

does not seem to be as critical. The larger and better trained staff at SJTU actively searches

among faculty research activities for developments with commercialization potential, and

provides researchers with the resources necessary to fulfill such potential. In addition,

being closely in touch with industrial and business networks and developing a proactive

attitude for capturing societal needs are extremely critical (Gassol 2007). SJTU’s experi-

ence, again, confirms this. Other Chinese universities could benefit in the same way by

establishing branch offices and information exchange centers around the country or region

to tap into local government and business funding sources for joint R&D projects, tech-

nology contracts, and consulting services.

On the other hand, universities need to be mindful of maintaining a minimal level of

conflict between commercial interests and open science. Fudan’s approach to university

enterprises appear to reduce this type of conflict as university administration is minimally

involved in business activities and enterprises are given a freer rein for decision-making.

The arm’s length relationship can allow the enterprises to continue to draw intellectual

resources from faculty while imposing limited financial and cultural influence over the

university. There are also realistic tradeoffs in encouraging faculty to interact with

industry, particularly in terms of diverting resources from the classroom. Given the

pressing demand for qualified professionals in China’s growing economy and particularly

in the service sector,17 universities need to excel at the training of human resources. But a

major disconnect between the higher education system and practice is that most college

students get little experience of working on projects or in team while at school. Diverse

interfaces between universities and the business sector may open up internship and project

opportunities that can better prepare students for future employment.

In general, China’s universities can and will continue to participate in a development

strategy based on innovation and knowledge-intensive activities. Their interactions with

firms and businesses likely will be of crucial significance for the pace and geography of

future economic and industrial change in the country. We can expect to see a shift of

industrial linkages from university-affiliated spinoffs into more flexible and market-based

arrangements, such as joint R&D, licensing, contract research, sharing research labs, and

consulting. In addition, a recent new form through university-sponsored enterprise incu-

bator likely will become more widespread as universities seek to expand their influence.

17 According to a McKinsey report (Farrell and Grant 2005), despite an apparently vast supply, multi-national companies are finding that few college graduates have the necessary skills for service occupations.According to interviews with 83 human-resources professionals involved with hiring local graduates in low-wage countries, fewer than 10% of Chinese job candidates, on average, would be suitable for work in aforeign company in the nine occupations studied: engineers, finance workers, accountants, quantitativeanalysts, generalists, life science researchers, doctors, nurses, and support staff.

Managing and incentivizing research commercialization 221

123

This typically involves a university-affiliated company serving as a developer and manager

to establish a science park on land close to, and/or owned by, the university. The incubator

form has the advantage of avoiding rigid institutional hierarchy, and providing firms with

name recognition and technological and business assistance.

References

Agrawal, A., & Henderson, R. (2002). Putting patents in context: Exploring knowledge transfer from MIT.Management Science, 48(1), 44–60.

Association of University Technology Managers (AUTM). (2007). FY 2007 Licensing Activity Survey.Retrieved February 16, 2009 from http://www.autm.net/.

Blumenthal, D. (2003). Academic–industrial relationship in the life sciences. The New England Journal ofMedicine, 349(25), 2452–2457. doi:10.1056/NEJMhpr035460.

Cambridge-MIT Institute. (2005). Measuring university–industry linkages. Retrieved July 30, 2006 fromwww.cambridge-mit.org/downloads/InnovationBenchmarking8-17.pdf.

Chen, K., & Kenney, M. (2007). Universities/research institutes and regional innovation systems: The casesof Beijing and Shenzhen. World Development, 35(6), 1056–1074.

Cohen, W. M., Nelson, R. R., & Walsh, J. P. (2002). Links and impacts: The influence of public research onindustrial R&D. Management Science, 48(1), 1–23.

Debackere, K., & Veugelers, R. (2005). The role of academic technology transfer organizations inimproving industry science links. Research Policy, 34(3), 321–342.

D’Este, P., & Patel, P. (2007). University–industry linkages in the UK: What are the factors underlying thevariety of interactions with industry? Research Policy, 36(9), 1295–1313.

Di Gregorio, D., & Shane, S. (2003). Why do some universities generate more start-ups than others?Research Policy, 32(2), 209–227.

Euna, J.-H., Lee, K., & Wu, G. (2006). Explaining the ‘university-run enterprises’ in China: A theoreticalframework for university–industry relationship in developing countries and its application to China.Research Policy, 35, 1329–1346. doi:10.1016/j.respol.2006.05.008.

Farrell, D., & Grant, A. J. (2005). China’s looming talent shortage. McKinsey Global Institute. RetrievedOctober 27, 2006 from http://www.mckinsey.com/mgi/publications/Chinatalent.asp.

Feller, I. (1999). The American university system as a performer of basic and applied research. In L. M.Branscomb, F. Kodama, & R. Florida (Eds.), Industrializing knowledge: University–industry linkagesin Japan and the United States (pp. 65–101). Cambridge, MA and London: MIT Press.

Fudan University. (various years). Fudan Science and Technology (S&T) yearbook. Shanghai: FudanUniversity.

Gassol, J. H. (2007). The effect of university culture and stakeholders’ perceptions on university–businesslinking activities. The Journal of Technology Transfer, 32(5), 489–507.

Guan, J. C., Yam, R. C., & Mok, C. K. (2005). Collaboration between industry and research institutes/universities on industrial innovation in Beijing. Technology Analysis & Strategic Management, 17(3),339–353.

Hane, G. (1999). Comparing university–industry linkages in the United States and Japan. In L. M.Branscomb, F. Kodama, & R. Florida (Eds.), Industrializing knowledge: University–industry linkagesin Japan and the United States (pp. 20–61). Cambridge, MA and London: MIT Press.

Henderson, R., Jaffe, A. B., & Trajtenberg, M. (1998). Universities as a source of commercial technology: Adetailed analysis of university patenting, 1965–1988. Review of Economics and Statistics, 80(1), 119–127.

Hershberg, E., Nabeshima, K., & Yusuf, S. (2007). Opening the Ivory Tower to business: University–industry linkages and the development of knowledge-intensive clusters in Asian cities. WorldDevelopment, 35(6), 931–940.

Hsiung, D.-I. (2002). An evaluation of China’s science & technology system and its impact on the researchcommunity. A Special Report for the Environment, Science & Technology Section of U.S. Embassy,Beijing, China.

Hu, A. G. Z., & Jefferson, G. H. (2004, November 5–7). Science and technology in China. Paper presentedat Conference 2—China’s Economic Transition: Origins, Mechanisms, and Consequences, Pittsburgh.

Institute of Scientific and Technical Information of China (ISTIC). (2004, 2005, 2006). China S&T paperand citation report, 2003, 2004, 2005. Retrieved October 12, 2008 from http://www.istic.ac.cn.

222 W. Wu

123

Jackson, S., & Audretsch, D. B. (2004). The Indiana University Advanced Research and TechnologyInstitute: A case study. The Journal of Technology Transfer, 29, 119–124. doi:10.1023/B:JOTT.0000019534.32207.2c.

Jensen, R., & Thursby, M. (2001). Proofs and prototypes for sale: The licensing of university inventions. TheAmerican Economic Review, 91(1), 240–259.

Kneller, R. (2007). The beginning of university entrepreneurship in Japan: TLOs and bioventures lead theway. The Journal of Technology Transfer, 32(4), 435–456.

Kodama, F., & Branscomb, L. M. (1999). University research as an engine for growth: How realistic is thevision? In M. B. Lewis, F. Kodama, & R. Florida (Eds.), Industrializing knowledge: University–industry linkages in Japan and the United States (pp. 3–19). Cambridge, MA and London: MIT Press.

Kroll, H., & Liefner, I. (2008). Spin-off enterprises as a means of technology commercialisation in atransforming economy—evidence from three universities in China. Technovation, 28(5), 298–313.

Link, A. N., & Scott, J. T. (2003). U.S. Science Parks: The diffusion of an innovation and its effects on theacademic missions of universities. International Journal of Industrial Organization, 21(9), 1323–1356.doi:10.1016/S0167-7187(03)00085-7.

Link, A. N., & Siegel, D. S. (2007). Innovation, entrepreneurship, and technological change. Oxford, UK:Oxford University Press.

Liu, H., & Jiang, Y. (2001). Technology transfer from higher education institutions to industry in China:Nature and implications. Technovation, 21(3), 175–188.

Liu, X., & Lundin, N. (2007). Toward a market-based open innovation system of China. Retrieved October3, 2008 from http://www.globelicsacademy.net/2007/papers/Xielin%20Liu%20Paper%201.pdf.

Liu, X., & White, S. (2000). China’s national innovation system in transition: An activity-based analysis.Paper presented at the Sino-U.S. Conference on Technological Innovation, Beijing, April 24–26.

Ma, W. (2004). From Berkeley to Beida and Tsinghua: The development and governance of public researchuniversities in the US and China (cong Berkeley dao beida qinghua: zhong mei gongli yanjiuxingdaxue jianshe yu yunxing). Beijing: Educational Science Press.

Mei, M. (2004, September 7–8). Innovation feedback: Interactive development in research universities andtheir science parks. Paper presented at the symposium on University, Research Institute and IndustryRelations in the U.S., Taiwan and Mainland China, Stanford Project on Regions of Innovation andEntrepreneurship, Palo Alto, CA.

Ministry of Education (MOE). (various years). China University Science and Technology annual report.Beijing, China: Higher Education Press; Retrieved November 15, 2007 from http://www.cutech.edu.cn.

Ministry of Science and Technology (MOST). (various years). China S&T statistical databook. RetrievedJune 19, 2008 from http://www.most.gov.cn.

Motohashi, K. (2006). China’s national innovation system reform and growing science industry linkage.Asian Journal of Technology Innovation, 14(2), 49–65.

Mowery, D. C., Nelson, R. R., Sampat, B. N., & Ziedonis, A. A. (2004). ‘Ivory Tower’ and industrialinnovation: University–industry technology transfer before and after the Bayh-Dole Act. Stanford:Stanford University Press.

Nanjing University. (2005). Nanjing University Science and Technology (S&T) yearbook. Nanjing: NanjingUniversity.

National Academy of Engineering. (2003). The impact off academic research on industrial performance.Washington, DC: The National Academies Press.

National Science Foundation (NSF)—Tokyo Regional Office. (2000). R&D and the knowledge-basedsociety. In Proceedings of the October 1999 Sino-U.S. Science Policy Seminar, Beijing, People’sRepublic of China, October 24–26, 1999.

O’Shea, R. P., Chugh, H., & Allen, T. J. (2008). Determinants and consequences of university spinoffactivity: A conceptual framework. The Journal of Technology Transfer, 33(6), 653–666.

Owen-Smith, J., Riccaboni, M., Pammolli, F., & Powell, W. W. (2002). A comparison of U.S. and Europeanuniversity–industry relations in the life sciences. Management Science, 48(1), 24–43.

Ponomariov, B. L. (2008). Effects of university characteristics on scientists’ interactions with the privatesector: An exploratory assessment. The Journal of Technology Transfer, 33(5), 485–503.

Poyago-Theotoky, J., Beath, J., & Siegel, D. S. (2002). Universities and fundamental research: Reflectionson the growth of university–industry partnerships. Oxford Review of Economic Policy, 18(1), 10–21.doi:10.1093/oxrep/18.1.10.

Renault, C. S. (2006). Academic capitalism and university incentives for faculty entrepreneurship. TheJournal of Technology Transfer, 31(2), 227–239.

Shane, S. A. (2004). Academic entrepreneurship: University spinoffs and wealth creation. Cheltenham, UK;Northampton, MA: Edward Elgar.

Managing and incentivizing research commercialization 223

123

Shanghai Chamber of Commerce. (2006). The private economy in Shanghai. Shanghai: Shanghai Universityof Finance Press.

Shanghai Jiaotong University (SJTU). (various years). Shanghai Jiaotong University yearbook. Shanghai:Shanghai Jiaotong University.

Sigurdson, J., Jiang, J., Kong, X., Wang, Y., & Tang, Y. (2005). Technological superpower China. Chel-tenham, UK, Northampton, MA: Edward Elgar Publishing.

Song, J. (2004, September 7–8). How Tsinghua manages its companies. Paper presented at the symposiumon University, Research Institute and Industry Relations in the U.S., Taiwan and Mainland China,Stanford Project on Regions of Innovation and Entrepreneurship, Palo Alto, CA.

Sun, Y. (2000). Spatial distribution of patents in China. Regional Studies, 34(5), 441–454.Suttmeier, R. P., & Cao, C. (1999). China faces the new industrial revolution: Achievement and uncertainty

in the search for research and innovation strategies. Asian Perspective, 23, 3.Swamidass, P. M., & Vulasa, V. (2008). Why university inventions rarely produce income? Bottlenecks in

university technology transfer. The Journal of Technology Transfer, Published online: December 4.Tang, M.-F. (2006, October 4–7). A comparative study on the role of National Technology Transfer Centers

in different Chinese universities. Presented at the GLOBELICS 2006 (Global Network for Economicsof Learning, Innovation, and Competence Building Systems), Thiruvanathapuram, India.

Thursby, J. G., & Thursby, M. C. (2000). Who is selling the Ivory Tower? Sources of growth in universitylicensing. NBER Working Paper 7718. Cambridge, MA: National Bureau of Economic Research.

Thursby, J. G., & Thursby, M. C. (2004). Are faculty critical? Their role in university–industry licensing.Contemporary Economic Policy, 22(2), 162–178.

Walcott, S. (2003). Chinese science and technology industrial parks. Burlington, VT: Ashgate PublishingLimited.

Wolson, R. A. (2007). The role of technology transfer offices in building the South African biotechnologysector: An assessment of policies, practices and impact. The Journal of Technology Transfer, 32(4),343–365.

Woolgar, L. (2007). New institutional policies for university–industry links in Japan. Research Policy,36(8), 1261–1274.

Wright, M., Clarysse, B., Lockett, A., & Knockaert, M. (2008). Mid-range universities’ linkages withindustry: Knowledge types and the role of intermediaries. Research Policy, 37(8), 1205–1223.

Wu, W. (2007). Cultivating research universities and industrial linkages: The case of Shanghai, China.World Development, 35(6), 1075–1093.

Xue, L. (2004, September 7–8). University–market linkages in China: The case of university-affiliatedenterprises. Paper presented at the symposium on University, Research Institute and Industry Relationsin the U.S., Taiwan and Mainland China, Stanford Project on Regions of Innovation and Entrepre-neurship, Palo Alto, CA.

Yang, J., & Xu, X. (2004). The theory and practice of university enterprise security (gaoxiao chanye anquande lilun yu yanjiu). Beijing: China Economics Press.

Yoshihara, M., & Tamai, K. (1999). Lack of incentive and persisting constraints: Factors hindering tech-nology transfer at Japanese universities. In L. M. Branscomb, F. Kodama, & R. Florida (Eds.),Industrializing knowledge: University–industry linkages in Japan and the United States (pp. 348–364).Cambridge, MA and London: MIT Press.

Yusuf, S., & Nabeshima, K. (Eds.). (2007). How universities promote growth. World Bank directions indevelopment series. Washington, DC: The World Bank.

Zhang, J. (2003). The development of high-tech enterprises in China’s universities (zhongguo gaixiaogaoxin jishu chanye de fazhan yanjiu). Wuhan: Huazhong Science and Technology University Press.

224 W. Wu

123