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Globalization
of R&D By Arun
Kottolli As companies become global corporations, all their operations become global. Until recently, all R&D activities was concentrated in the home country of the MNC. Companies like Microsoft, Oracle, Intel, HP etc... had all their R&D done in US while their sales, manufacturing & other operations were global. Traditionally companies were reluctant to globalize their R&D, partly due to the fear of losing out their competitive advantage, partly due to non-availability of talent in other countries & partly due to ethnocentrism. This attitude started changing in 1990’s when companies realized the need to customize their products to the local markets and when companies gained confidence in using research talent found abroad. By late 1990’s, most companies had R&D centers abroad to attract local scientific talent, to lower costs of R&D, to better respond to local markets and to meet regulatory requirements. Factors for Globalization of R&D Cost Factor: As the business environment changed in 1990’s due to increasing global trade. To maintain competitiveness companies increased their R&D spending. R&D is expensive, it needs large investments in equipment and highly skilled scientists. In 2000, US companies spent about $180 billion on R&D activities. A high investment led to concentration of R&D activities in one location to prevent duplication of resources. However, with globalization there is a need to locate R&D centers in strategic countries and availability of skilled scientists in other countries is driving businesses to spread their R&D efforts. Globally distributed R&D network helps firms to benefit for lower wages abroad and at the same time allows them to tap into a wider pool of talent which helps to speed up innovation, thus lowering the overall costs of R&D. Market Factors: The concept of a global product was not viable in many sectors. Consumers in other countries demanded products which suits their tastes and started to refuse products designed for other markets. (For example, cell phone users in China wanted phones which displays Chinese script and Indian cell phone users wanted ring tones which is similar to Indian music). The need for localization or customization of global products is driving firms to have R&D centers close to the major markets. E.g. Nokia has established R&D center in US to enable them to respond quickly to American needs. Competitive Factors: Companies need to be concerned if their competitors pursue a global R&D strategy. Companies that conduct their R&D activity primarily in their home country will risk losing out competitive advantage when their competitors setup global R&D centers. The ability to obtain technical expertise and enhancing the scale of R&D operations adds to the competitiveness of a company. Companies can gain by having a R&D center in the lead markets by scanning for information on customer requirements and competitor's capability and competitor's activity. For example, Phillips, a large consumer electronics firm has R&D centers in Europe ,US & Japan. Phillips had very capable R&D centers in US & Europe, but the management wanted another R&D center in Japan to enable them to access to Japanese development. Phillips has hired Japanese scientists and made contacts with Japanese companies, universities and government labs. Phillips gains by learning from highly demanding Japanese customers and from collaborative R&D with Japanese firms. Government Factors: Government rules and regulations makes it necessary to have R&D centers in other countries. For example, complex and lengthy drug approval process in US makes a R&D center in US beneficial to get approval for new drugs. Having a local R&D presence will help to better understand technical specifications and regulations. Additionally, governments encourage technology transfer into their country. Having a local R&D in other countries will improve the bargaining power for the companies with the local governments. Technology Factors: New and cheaper
communication technologies like Internet, dedicated fiber-optic lines and satellite
communication now allows companies to transfer huge amounts of data across the
world for faster information sharing. This communication revolution was the
key enabler for globalization of R&D. Telecommunication is enabling firms
to establish and manage a global R&D network.
Selecting R&D Location Location for R&D centers is based on strategic factors such as:
Trends in Global R&D Some of the notable trends are : Ÿ
R&D spending abroad by global companies is rising much
faster than in their home country. More than one third of R&D in global
companies are now done abroad. Ÿ
Technical alliances with other companies and universities abroad
are being increasingly used for R&D. Example, GE has an alliance with IIT
Delhi, Intel has an alliance with Barcelona university, BOSH has tie-up with
Motorola. Ÿ
Companies have established R&D units in North America,
Europe, Japan, China and India. Ÿ
Companies now recruit researchers from anywhere in the world
based on their skills rather than their nationality. Companies are willing to
setup R&D centers closer the talent rather than relocate researchers. Ÿ
There is an increasing external and cross-border sourcing of
technology among multinationals through various means. Ÿ
The links between university research and industrial R&D are
no longer dependent on the nationality of the firm and the university. Ÿ
R&D centers with in a company are increasing their
collaboration for joint product development. This decreases product
development cycles and lowers cost. R&D Builds Competitive strengths Companies rely on R&D for competitive advantage in
high tech business. The underlying technical skills of the business plays a
bigger role on the success of a particular product. This id forcing companies
develop core technical skills to remain competitive. Developing technical
skills is not easy, it requires steady investment over a period of time. On
the product side, the product life cycles are becoming shorter. In such a
situation, the product is the intermediary between the company's
technical skills and the market it serves. Rather than being the focus
of corporate activity, products are actually transient mechanisms by which the
market derives value from a company's skill-base while the company derives
value from the market. The high tech companies are therefore asking `what
skills, capabilities and technologies should we build up?' rather than the
stereotype question `which markets should we enter, and with which To acquire new skills and remain world class in all the
core competencies, companies need to increase their R&D investments. The
pressure on the top management to maximize share holder value places a
pressure to minimize all expenditure, including R&D expenditure. Therefore
it becomes imperative for companies to explore ways to lower R&D costs
while retaining competitive advantages. One direct effect of this is that
companies have become very selective on the R&D projects that they are
willing to develop in house and are increasingly in favor of a strategic
alliance with other companies who have complementary technologies. This allows
both the companies to trade their technologies and remain competitive.
The other method to lower R&D costs is to source R&D from other
countries which have lower labor costs. Both these techniques are currently
being used. For developing countries, this trend has helped them catch up in
technology with developed countries thus leading to an accelerated technology
leveling among countries. In
other words, technology innovation is no longer limited to a particular
country, instead the innovation is shared by multiple countries. Challenges with Global R&D Global R&D offers companies several advantages and
benefits, but these gains are not without challenges. Having worked at Intel
R&D, the main challenge for a successful global R&D can summarized as
:
Communication barriers exists in two forms Ÿ
Differences in time zones & work hours makes it tough to
communicate in real time. Ÿ
Different levels of technical skills and different standards of
measurement between countries will impair smooth communication. Often there is
misunderstanding of what is being said and what was understood.
Different countries have different policies and implementation levels
of intellectual property rights. As a result companies are reluctant to share
critical technology with their own R&D centers located in other countries.
Often countries have some sort of embargo or sanctions
against other countries. For example US had imposed a ban on exporting high
tech computers to India, US currently prohibits transfer of several
technologies to China. These sanctions were imposed for political reasons, but
R&D center located in US must comply with those rules.
Differences in culture plays as a big spoil sport while working in
joint ventures or collaborations. Cultural differences are not easy to
overcome and takes a while for all parties to understand each other’s
culture. When quick product development is needed, cultural differences can
hamper the project.
Personally,
I have observed that it takes a
couple of projects for all the parties to understand each others culture. Once
the cultural barrier is crossed, then communication becomes smooth & the
joint development produces better results than a stand alone centers.
Often R&D centers would have developed as a stand alone unit. The concept of joint development with another R&D center
is new and may not be welcome by the staff. There will friction between
R&D centers arising from communication challenges. Global coordination of
R&D is a management challenge. Creating a cohesive network of coordinated
R&D centers requires dedicated efforts from top management, Human
resources Department and R&D staff. Ÿ
Common understanding of goals and objectives. Full
commitments from all groups to these goals. The goals must be well defined to
avoid misunderstanding in overall Vs local
priorities. Establish a common language, common terminologies &
common corporate language to avoid misunderstandings. E-mail addresses, phone
numbers of all members must be available to all members of the team. This
enables faster communication.
Provide easy access to e-mail, phone, cross site meetings, video
conferencing etc.. for better communication between sites. IT/Computer
infrastructures across sites must be comparable to get the maximum benefits of
improved communication. Ÿ
The main project manager must have very skillful people
skills and must be capable of establishing a creative and positive
environment. Team members must be committed to solve problems quickly to
prevent damage to the project schedules or objectives. Project leader must be
capable of resolving any cross-site issues and disputes quickly and equitably.
If disputes are not resolved quickly, it may soon escalate thus forcing a
costly intervention from the top management.
The project manager is responsible for setting up the hierarchy of the
Joint R&D organization. Having a clear line of command is vital to the
smooth functioning of the joint teams. The project manager must be empowered
to handle any organizational issues. Ÿ
Establish trust between different R&D teams. If the
teams are from different countries or locations, companies must arrange for a
face-to-face meetings early on in the project. Such meetings help to build
trust between R&D centers, breakdown small fiefdoms and increase
productivity. Team rotation between sites should be encouraged during the
project to build better co-operation and overcome cultural differences. This
also removes any ethnocentric or parochial view held by both sides.
It must be noted that cultural differences are difficult to overcome.
Experience has shown that increasing contact between cultures reduces cultural
differences as people understand other cultures better. In a global R&D
project, increasing face-to-face contact either by meetings or by team
rotations, companies can minimize the impact of cultural differences. Ÿ
Requirement gathering must be done with great care.
R&D teams must work closely with marketing and other departments to
document a detailed project requirements ahead of starting the project.
Project requirement specifications must be circulated to all members and
explained clearly to avoid any misunderstanding arising from different
interpretations. However, it is impossible to document all the requirements
and issues do arise during the project. To mitigate this, regular meeting must
be held with marketing to resolve any new issues.
In my experience, I have seen that having at least one person per site
who understands the requirements completely helps resolve issues. Marketing
department must closely work with R&D teams during the life of the
project. Often it is necessary to have weekly or bi-weekly meetings with
marketing to resolve any issues with the project requirements.
Establish a strong change request system. Any changes to the
requirements must go through the change request system. The change request
must be reviewed by a committee within a reasonable time frame and their
opinions must be clearly communicated. Closing thoughts Global market place requires global R&D. Internet & fast communication technologies opens the possibility for global R&D. Although the project management on a global scale has its challenges and specific problems, experience shows that R&D activity serves end markets best when the activity is also located in those markets. Global R&D strategy needs to consider:
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