Strategies for Global R&D

OVERVIEW: Senior executives in every large or midsize company in the United States and Europe routinely face questions regarding their plans and strategies for conducting a part of their R&D overseas, especially in low-cost countries such as India, China, Israel, or Hungary. A confluence of technological and macroeconomic factors—digital connectivity, emerging scientific and technical talent in the developing world, improved intellectual property protection, substantial cost differentials, and the potential of large markets—make it imperative for global companies to consider conducting some R&D in low-cost locations. While current cost advantages are expected to diminish over time, economists believe that substantial labor arbitrage will exist for the next 10–15 years. Nevertheless, companies are making their global R&D decisions based on both cost and strategic advantages. Case studies in six industries suggest that companies “assign” five key types of roles for such R&D locations, depending on the global organization structure and the extent of strategic tasks at the location. Each such R&D location then needs to be managed differently in terms of organizational and operational processes.