MULTINATIONALS: JD.com Scoops Up Yahoo R&D Cast-Off

By newsdoug on April 10, 2015

Bottom line: The move by Yahoo’s former China R&D chief to a major local Internet firm reflects growing work opportunities at Chinese companies, and waning attraction of China as an R&D center for big multinationals.

Former Yahoo R&D exec joins JD.com

A new move by a leading R&D executive is spotlighting a pair of major trends in China’s high-tech space, led by rapidly falling expectations for the market by big multinationals. The actual move has seen the former head of Yahoo’s (Nasdaq: YHOO) China R&D center take a new job at JD.com (Nasdaq: JD), China’s second largest e-commerce company, just weeks after Yahoo closed one of its last remaining Chinese operations. That move also highlights the growing attractiveness of big domestic companies for top R&D executives, who used to eschew such homegrown firms.

Both of these trends reflect a growing reality in China’s high-tech space. On the one hand, China-based R&D is rapidly losing its attraction for major western firms, which once held out big hopes for the market. Several reasons are behind that shift, including rapidly rising wages for top talent that mean costs in China aren’t that much cheaper than the west anymore. Chinese workers are also famous for changing jobs, creating staffing problems and raising the likelihood of intellectual property theft by departing employees.

Some of those factors were probably behind Yahoo’s decision last month to shutter its China R&D center, one of its last remaining Chinese facilities, as it withdraws from a market where it once held great hopes. (previous post) Now JD.com has just announced it has hired Zhang Chen, who formerly headed the Yahoo R&D center, as a senior vice president in charge of R&D for its JD Mall. (company announcement)

There’s not much more of substance to the announcement, though it does note that Zhang spent 18 years at Yahoo and was part of the team that developed the company’s Yahoo Messenger product. Zhang’s move was obviously forced by Yahoo’s decision to close its R&D center, but the fact that he chose a Chinese employer over a major western firm is also significant.

In the past, most of China’s western-educated executives would have avoided working for local employers, which were more famous as copycats rather than innovators and had corporate cultures that stressed long work hours and low pay. But that has changed in the last few years with the emergence of a stable of high-tech giants like Lenovo (HKEx: 992), Baidu (Nasdaq: BIDU) and Xiaomi, which have enticed a growing number of high-powered executives with big pay packages and more western-style work environments.

One of the highest profile cases of such job-hopping came just last fall, when Zhang Yaqin, the Beijing-based longtime head of Microsoft’s (Nasdaq; MSFT) large Asia R&D operation, suddenly jumped ship for a senior position at leading search engine Baidu. (previous post) I wrote at the time that Zhang had probably thought he would spend his entire career at Microsoft when he joined the company in 1999. But he later changed his mind when offered the job to head up Baidu’s R&D, in a job reporting directly to company founder Robin Li.

While the latest movements do reflect the growing attraction of working for Chinese employers, they also show the concurrent growing frustrations that many major western firms are feeling at operating R&D centers in China. Yahoo’s decision follows another similar high-profile closure of Adobe’s (Nasdaq: ADBE) China R&D center last fall. (previous post) Like Yahoo’s move, that decision was explained as part of a broader global retrenchment for Adobe, which reportedly laid off about 400 Chinese workers.

The related IT outsourcing industry has proved equally disappointing for both western and Chinese firms. Despite huge hopes for that sector, China has yet to produce a company to rival the likes of India’s Infosys (Mumbai: INFY) or Tata Teleservices (Mumbai: TTML), and most start-ups that once had big hopes have fizzled.

All that said, this latest move by Yahoo’s former R&D chief to JD.com seems quite in line with recent trends, and I expect we’ll see more such moves in the future. At the end of the day these Chinese R&D executives will become a valuable resource for their new employers, especially for creating products tailored to the China market. Concurrently, many western firms are also likely to discover they don’t need to travel to China to create good products, and that their best resources are already right in their own backyards.