The Internationalization of Corporate R&D

THE INTERNATIONALIZATION OF CORPORATE R&D1 The Challenges of International Corporate R&DMagnus Karlsson1.1 Introduction1.1.1 Companies are Creating Global Innovation NetworksCompanies are changing the way they innovate. Multinational companies and, in somecases, smaller high-tech companies, are building networks of distributed research and development(R&D). Companies like IBM, Microsoft, Ericsson and AstraZeneca have establishedR&D facilities away from their headquarters at many locations worldwide.The rise of cross-border corporate R&D became significant in the mid–1980s following thebroader internationalization pattern of manufacturing in the 1970s. This trend has expandedinto knowledge-intensive services and more systematic R&D activities during the 1990s.International corporate R&D involves investment, trade, mobility of people and exchangeand collaboration around the world with suppliers, universities, research institutes, customersand even competitors.The practice of establishing R&D activities in foreign countries has so far mostly occurredwithin the Triad (the U.S., Europe and Japan). However, during the last five years, there hasbeen a rapid increase in locating R&D to developing countries, including India, China,Singapore as well as Eastern and Central Europe. The trend can be observed in a number ofindustrial sectors, including information technology, communications, biotechnology andpharmaceuticals.The drivers to extend R&D beyond company borders include the need for adaptation tolocal markets, support for foreign manufacturing and increasingly, to reach globally forknowledge, technologies and talent. R&D abroad is dominated by development but theshare of research is increasing.Companies are also responding to the fact that innovation itself is changing. First, the processof turning knowledge into commercially viable products and services is occurring morerapidly because barriers of geography and access have come down. The development ofcommunications technologies is an important enabler. Second, the process is increasinglycomplex and collaboration across disciplines and specialties is necessary. Third, innovationis collaborative, requiring active cooperation between scientists, engineers and leading endusers,as well as between the design, manufacturing, supply and marketing functions of thecompany. Fourth, it is becoming more expensive to develop new products and services, andexternal partnerships can reduce cost and risk. Finally, the innovation process is becomingglobal in scope. Knowledge is created at centers of excellence around the world (see forexample IBM 2004, NII 2004).27