The Internationalization of Corporate R&D

THE INTERNATIONALIZATION OF CORPORATE R&D6 Open Innovation in the PharmaceuticalIndustryAnna S. Nilsson6.1 IntroductionThe pharmaceutical industry is not only a big industry in terms of revenue, it is alsoone of the most research-intensive industries (Gambardella 1995). It is therefore importantto acquire a deeper understanding of the trends in localization of research anddevelopment (R&D) facilities. The general and worldwide focus is on the current trendof “big pharma” moving to low-cost countries such as India and China, and that isseems to be happening quickly.There are great differences in the characteristics of activities performed by large pharmaceuticalcompanies. Sales, manufacturing and R&D should therefore not be analyzedand discussed as one unit. This study focuses on R&D in an effort to increase theunderstanding of where companies locate those specific activities and why.The benefits reaped by pharmaceutical companies from public research are wellknown.This means that we could expect companies to locate laboratories across theworld to capitalize on spillover at local universities and institutes. At the same time,there are organizational and cost benefits to centralizing research in a single location.Thus, we have an interesting case of both centralizing and decentralizing forces(Furman et al. 2004).The hypothesis in this study is that the internationalization of corporate R&D is a slowmovingprocess, and that companies must take into account several factors regardinglocalization of R&D. The purpose of this study is to highlight data that puts the discussionof localization of R&D within the pharmaceutical industry into perspective, and touncover some considerations behind decisions regarding localization of R&D laboratorieswithin pharmaceutical companies.The key questions discussed in this study are:• To what extent do pharmaceutical companies locate R&D activities outside the U.S.?• What are the rationales behind the localization of R&D laboratories within thepharmaceutical industry?• What relevance does open innovation in the pharmaceutical industry have for Sweden?The first question is approached through statistics from different sources. The secondquestion is approached through interviews with executives (herein referred to as ExecutivesI, II, and III) within the areas of global business operations, global discovery153