The Internationalization of Corporate R&D

THE INTERNATIONALIZATION OF CORPORATE R&D6.4 Strategies for Localization of New R&D LaboratoriesDespite the high costs of reorganizing and relocating R&D facilities, pharmaceuticalcompanies have actively done so in recent decades (Chacar & Lieberman 2003). Accordingto Industry Expert I, some localizations by pharmaceutical companies werebased on economic reasons – tax benefits, for example – but that is not necessarily thecase anymore. Now, the strategic issues are prioritized. To present a snapshot of howdecision makers in pharmaceutical companies prioritize today, the following five typesof objectives were discussed with four of the interviewees 1 :• Cost containment• Speed-to-market• R&D alignment with market needs• R&D alignment with manufacturing• Access to new technology and competenceThe interviewees were asked to rank the five objectives above, according to which ispresently most critical to selecting locations for R&D. Although the responses vary,which can be expected due to differences in company strategies, similarities in thinkingdo exist. These are described below.The issue of placing R&D facilities close to manufacturing is not a priority. Proximityto manufacturing would be nice, as Industry Expert II expressed, but other issues aremuch more important: “There are some regional developers in the U.S. that have builtthe concept that if manufacturing is done here we can entice the pharmaceutical companiesto move their headquarters and their research components to be near the manufacturing,and that is not necessarily so.”Cost containment also ranked at the lower end of priorities. R&D processes are costlyand the risks high, which explains why pharmaceutical companies can not afford tocompromise on quality. Many countries are offering R&D tax incentives in order toencourage business R&D spending and increase the presence of research-intensivecompanies 2 . Some pharmaceutical companies used to locate part of their activities inthose countries, mainly to reap the cost benefits.1 List of objectives from RTEC 2004.2 OECD 2004 offers a good overview on which countries offer R&D tax incentives.158