Companies Can Beat the Odds of Successfully Globalizing Their R&D by Following Four "Golden Imperatives," Says a White Paper by The Boston Consulting Group
New Study Reveals Why Some Companies' R&D Centers in China, India, and Other Rapidly Developing Economies Are Reaping Significant Strategic Benefits, While Others Are Struggling
| Source: The Boston Consulting Group
BOSTON, MA--(Marketwire - August 27, 2009) - The cost advantages of conducting R&D in rapidly
developing economies (RDEs) such as China and India are well established.
The Boston Consulting Group (BCG) has observed that MNCs based in developed
countries typically can lower their R&D labor costs by 40 to 60 percent in
RDEs, compared with their domestic R&D labor costs, according to a new BCG
White Paper, "Taking R&D Global: Meeting the Challenge of Getting It
Right."
Another important benefit of doing R&D in RDEs is gaining access to large
pools of well-trained researchers and engineers. In 2007, RDEs accounted
for two-thirds of the global engineering talent pool -- and that share is
growing.
But for many leading companies an even greater benefit than lower costs and
access to talent is the ability to design and develop products specific to
RDEs' fast-growing markets. The IMF has forecast that these economies will
drive the entire growth of global GDP in 2010. They are also home to many
of the world's "next billion" consumers, who are commonly considered
impossible or unprofitable to serve with current business models but who
could become profitable to serve with new ones. In 2008 this group already
numbered some 3.7 billion people, with earnings of $2.3 trillion -- and
those earnings are expected to grow at 8 percent per year to reach $4
trillion in 2015.
Global companies that want to tap into this vast pool of new consumers must
develop products and services that cater specifically to their needs,
rather than merely tweak existing offerings. And the best way to do that is
to be there, employing creative people who know those markets intimately.
A critical aspect of succeeding in globalizing R&D is setting the right
objectives for the R&D organization. These include improving the
cost-effectiveness and efficiency of R&D, and specifically avoiding the
"hidden" costs of doing R&D offshore, which can amount to as much as 35
percent of overall R&D costs. Other critically important objectives are
harnessing global talent and innovation, and localizing design and
development to capture market growth.
Meeting these objectives generally entails adopting a different design for
the R&D organization. R&D centers should end up playing one of three
distinct roles: cost cutter / effectiveness master, innovation and talent
seeker, or localization leader. Trying to achieve all three objectives at
the same time in a new or still-maturing R&D center can jeopardize the
center's effectiveness and growth.
A number of companies have failed in their efforts to reap the benefits of
globalizing their R&D because they fell into the trap of "unreadiness." In
this condition, there is a significant gap between the company's ambitions
and its capabilities. This gap triggers a vicious cycle in which the
company launches an RDE-based R&D center but fails to empower its people or
give it interesting and rewarding projects, so the most highly skilled
staff members leave, quality and effectiveness decline, and the center
stagnates.
Companies that recognize their own unreadiness can take action by applying
the four golden imperatives: globalize your research and innovation, not
just your low-value engineering; establish a common language; implement a
comprehensive global talent strategy; and leverage local partners without
risking intellectual property leaks.
To succeed in globalizing R&D, companies usually must undertake a
fundamental transformation of their current way of doing R&D. Often they
must take an integrated approach by shifting part of the R&D responsibility
away from the historical headquarters to multiple global centers. They may
also need to make some tough tradeoffs between their ambition and the pace
of transition. And in some cases they will need to shift management's
attention away from the company's existing business, in order to focus on
new opportunities in growing markets.
To order a copy of "Taking R&D Global: Meeting the Challenge of Getting It
Right," or to arrange an interview with one of the authors, please contact
Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.
About The Boston Consulting Group
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