I am currently living in Bangalore. Today there are several high tech MNC companies in Bangalore – Intel, Oracle, Microsoft, Cisco, Juniper networks, Sony, Kyocera, NEC, LG, Novatris, Biocon, HP, DELL, SUN, AMCC, AMD, Triology and several others. All these diverse companies have one thing in common - that these companies have established R&D centers in Bangalore. Most of these companies do not sell in India – and do not even have a sales office. Yet companies have come here to setup their R&D Labs – and to tap the Indian talent. This represents the changing face of global R&D.
Historically companies had one or two primary R&D center supported by a handful of special-purpose sites around the world. This comparatively sparse network has helped in the efficiency of its R&D. Microsoft for example, had its only R&D center near Seattle, Cisco’s R&D mainly done at Santa Clara, SUN microsystem’s R&D center was in Palo Alto. A concentrated R&D center was beneficial when it was built largely through internal growth and had few products to develop.
Global R&D
In the era of globalization, companies have grown through acquisition. Products have multiplied with multiple brands for multiple markets and operate a worldwide network of manufacturing, sales and marketing offices. To support this kind of an organization R&D centers had to be spread across the world to: 1) Support & develop multiple product lines 2) Tap local talent & accelerate R&D process.
Having a global R&D network is not easy. It creates a new set of complexities which makes the R&D groups more expensive to operate – replicating R&D infrastructure, duplicating work and coordinating. Yet companies have continued to expand their R&D networks. Companies have learnt to configure their R&D networks for cost efficiency and then manage these centers to deliver value. In a study conducted by INSEAD, 66% of the R&D centers are now located outside the company’s home country with India & China being the favorite locations for the new R&D centers.
Several factors have contributed to this dispersion of corporate R&D sites:
- Rising costs in the West, rapid growth of markets in developing nations
- Rapid advancement of information technology
- A scarcity of engineers and scientists
- Opening of markets in China and India have each encouraged companies to globalize their R&D efforts.
Future R&D sites in Western Europe, the United States, and Japan will be selected primarily because they offer value such as proximity to technology or research clusters, to markets or customers, or to qualified workers commensurate with their higher cost. Locations in the developing world will be chosen primarily to gain access to local markets, to decrease costs, and, particularly in India and Eastern Europe, to tap into a pool of highly qualified workers.
But choosing the right location isn’t an easy task for R&D leaders. Because it’s critical that leaders be able to justify the high cost of knowledge access in a developed market location and of operational efficiency in a developing market location, the process must be managed strategically. Without fully understanding the calculated benefits of a potential site, R&D executives are likely to incur an unjustified increase in structural costs.
When the process is managed properly, however, the benefits are easily identifiable. A diverse class of multinational corporations, including LG, Adidas, Novartis, and Toyota, have all taken advantage of globalization. Korean giant LG was able to move part of its software and project engineering to India, whereas apparel manufacturer Adidas created a key consumer and fashion product development center in Japan.
A global footprint also enables companies to better tailor their products for local markets. There are countless examples: Novartis moved its research on tropical diseases to Singapore, while Areva have more than 1,000 engineers working in India to develop products for the local markets.
In the face of such obvious need to disperse innovation networks, companies are configuring their R&D networks for cost by:
- To cost-effectively access critical knowledge that could not otherwise be tapped
- To locate capabilities where they can deliver results better, faster, and cheaper than anywhere else in the network.
Efficient R&D
Compared with traditional innovation networks, these leaner, more cost consciously designed networks can achieve 37 percent faster time-to-market and lower costs by 24 percent, according to the study done by INSEAD. This is possible only by removing inefficiencies in the R&D networks by:
- Having a well-planned processes and tools in place that can help foster innovation and collaboration across geographies, cultures, and organizational groups.
- Being the first to market and introduce breakthrough technologies.
- Having common product and component architectures as communication platforms that give global teams a reason to foster collaboration. For example, project reviews should be conducted the same way in all R&D centers with inputs from other centers.
- Evoking and sustaining a healthy innovation culture and attracting and developing talent.
This are more of a soft skills development – where cross-cultural skills, leadership skills and communication skills of the employees have to be developed. - Providing financial and career incentives to encourage staff to work in different geographies. By having people work in foreign countries and them bringing them back to their home countries, people can influence and reshape organizational culture and work practices.
- Access the capability of each R&D site and assign tasks to them accordingly. This implies that some of the low value-add sites will eventually move up the value chain as they take on more complex responsibilities. (This also helps in retaining the highly trained staff in these centers)
Closing Thoughts
Global R&D networks are now an integral piece of the emerging international economic system, but creating networks that deliver real value requires thorough, painstaking consideration. An effective global R&D network should operate with seamless efficiency across borders and cultures. This can be achieved by having cost-effective R&D location, well-designed product development platforms, an innovation-friendly global culture, and a well-aligned set of incentives.
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