Managing Global Research and Development (R&D) International Business Oded Shenkar and Yadong Luo Chapter 13 Managing Global Research and Development (R&D) Chapter 13: Managing Global Research and Development (R&D)

Do You Know? The increasing benefits and challenges facing firms in relationship to global R&D? The different types of R&D structures that are available? The responsibilities that R&D takes for corporate development? Chapter 13: Managing Global Research and Development (R&D)

Global R&D at Nestle Nestle is a global leader in R&D, dedicating approximately 400 Million Euros Peru year in basic R&D. Areas where Nestle excels in R&D? Food Science, Bio-science, plant science, food technology, food safety, nutrition, and pharmaceuticals. Chapter 13: Managing Global Research and Development (R&D)

Why Globalize R&D? Like Nestle, Multinational Enterprises are increasingly dedicating their important resources to global R&D in search of sustainable competitive advantage in the global marketplace. By globalizing R&D, firms get the benefit of increased diversity of scientific talent and closeness to customers that can reveal useful applications. Chapter 13: Managing Global Research and Development (R&D)

Global R&D Basics Globalizing R&D is different than internationalizing R&D. R&D intensity has been increasing as firms seek innovations in important industrial segments like electronics, pharmaceuticals, chemicals, and medical equipment. Technology is a major source of competitive advantage and is also necessary for R&D. The nature of technological innovation has changed – development more commonly come from integrating innovations than they do from “Eureka” discoveries. Chapter 13: Managing Global Research and Development (R&D)

Global R&D Basics Exhibit 13-1: Top patenting MNEs in 2000 and 2001 Chapter 13: Managing Global Research and Development (R&D)

Global R&D Basics Time is critical to most R&D these days. The growth of network and information exchange systems make globalization of R&D easier. Larger regional markets provide bigger outlets for R&D output and innovation. Firms consider foreign R&D units a critical source of knowledge and technology. Inter-organizational technology cooperation has become a widespread process. Chapter 13: Managing Global Research and Development (R&D)

Benefits of Global R&D Globalizing R&D provides a vehicle for access to, and extract benefits from a target country’s technical resources, scientific talent, and local expertise. R&D enhances a firm’s global competitive advantage. Globalizing R&D enables Multinational Enterprises to enjoy the benefits arising from international division of labor in R&D among multiple countries, regions, and trading blocs. Chapter 13: Managing Global Research and Development (R&D)

Challenges of Global R&D Maintaining minimum efficient scale in foreign R&D operations is not easy. Leakage of proprietary knowledge poses a serious threat when R&D is globalized. Globalization of R&D raises coordination and control costs. Chapter 13: Managing Global Research and Development (R&D)

Designing and Structuring Global R&D Defining the type of a planned foreign R&D program is the first step in globalization of R&D. Subsidiaries can be categorized as corporate technology units, specialized or regional technology units, global technology units, technology transfer units, and indigenous technology units. Chapter 13: Managing Global Research and Development (R&D)

Type of Foreign R&D Units Corporate Technology Units, generate basic long-term technology of exploratory nature for use by the corporate parent. A Specialized Or Regional Technology Unit, develops specialized technologies, products, and processes to serve the global or regional market. A Global Technology Unit is generally established for developing new products and processes for major world markets. …/… Chapter 13: Managing Global Research and Development (R&D)

Type of Foreign R&D Units Technology Transfer Units focus on facilitating the transfer of corporate technology to subsidiary or partner venture units. The Indigenous Technology Unit is formed overseas to develop new products specifically for the local market. Chapter 13: Managing Global Research and Development (R&D)

Selecting R&D Location This is a difficult proposition. Location selection depends on an R&D subsidiary’s role set by the parent company. Host government policies may influence location decisions. The local infrastructure and technological level is critical to location decisions. Socio-cultural factors also influence location decisions. Chapter 13: Managing Global Research and Development (R&D)

Selecting R&D Location Exhibit 13-2: Hot spots in the U.S. for technology development Chapter 13: Managing Global Research and Development (R&D)

Structuring Global R&D Activities The structure depends on two critical factors: The level of authority a Multinational Enterprise plans to provide to foreign R&D activities. The scope of the geographical market to be covered. Chapter 13: Managing Global Research and Development (R&D)

Structuring Global R&D Activities Exhibit 13-3: Organizational models for global R&D Chapter 13: Managing Global Research and Development (R&D)

Global R&D Structure Types Ethnocentric Centralized, has all major R&D operations centralized in one country, usually the corporate home. Polycentric Decentralized, is characterized by a decentralized federation of R&D sites with no supervising corporate R&D center. Specialized Lab, has foreign R&D units being assigned global R&D mandates they alone can cover. Chapter 13: Managing Global Research and Development (R&D)

Global R&D Structure Types Global Central Lab, is used to leverage centralized technology and resources to create global products from a single location. Global Integrated Network, has a number of foreign R&D units with differing roles and types. There could be a global technology unit, a corporate technology unit, a specialized technology unit, and an indigenous technology unit. Chapter 13: Managing Global Research and Development (R&D)

Managing and Operating Global R&D Managing and Operating Global R&D, is a balance between effective Human Resources Management, Autonomy Arrangements, Planning, and Communication. Effective HRM has a firm selecting key personnel to the role or type of RD unit, creating HRM policies that promote creativity and adhere to local laws, and establishing regular contacts and visits between foreign sites and home R&D. Autonomy Arrangements are designed according to the role it plays in the R&D network. Chapter 13: Managing Global Research and Development (R&D)

Managing and Operating Global R&D Effective planning established a primary means of information exchange among decentralized R&D labs, projects and assignments. Communication enhancement involves establishing effective rules and procedures for communications, electronic communications mechanisms, boundary spanning roles to promote understanding and translation, informal networks for idea generation, and networks for cultural adaptation. Chapter 13: Managing Global Research and Development (R&D)

Technology Transfer Across Borders International technology transfer is a process by which one firm’s technology or knowledge is passed on to another firm or subsidiary for economic benefit. This is a complex activity requiring an absorptive capability, procedural bridges, human interfaces, and organizational bridges to make it happen effectively. Chapter 13: Managing Global Research and Development (R&D)