The Internationalization of Corporate R&D

THE INTERNATIONALIZATION OF CORPORATE R&DIn a hierarchy of corporate functions, different activities can be ranked in terms oftechnical complexity both in manufacturing and in services (Figure 2-1). Higher technicalcomplexity means higher value added as well as higher requirements for skillsand capabilities. A company’s decision to establish or relocate activities abroad typicallystarts with functions of lower technical complexity and may then gradually moveup the value ladder (see for example BusinessWeek 2005).Figure 2-1 Illustrative levels of technical complexity of corporate activities in the partly overlappingcategories of manufacturing and services.Complexity Manufacturing ServicesHigh-levelAdvanced R&D, “frontier innovation,”& specialized R&D servicesMid-levelDevelopment, design andadaptationHigh-end services(i.e. software development)Low-level Basic manufacturing Low-end servicesSource: based on UNCTAD 2005a.R&D is related to the broader notion of innovation. Innovation can be defined as theintroduction of new products, services or processes into the market. The term is usedto cover both the creation of new technologies (new to the world) and the use ofexisting technologies (new to a particular user or market). In this context, R&D canbe seen as one source of innovation or a particular type of innovative activity.Modern corporate innovation typically requires cross-functional cooperation andinteraction throughout the company, including R&D-units, manufacturing, marketing,sales and service, as well as with external parties, such as customers, competitors,suppliers, subcontractors, standardization bodies, universities and research institutes.For example, customer insights from marketing, sales and service teams areessential to identify attractive opportunities for new products and services. Also,manufacturing and suppliers can offer critical suggestions on design for manufacturability(see for example BAH 2005 and CoC 2005). Tight collaboration in avalue chain including the customer, is particularly important in services R&D(Ruetsche 2005).In this way, the R&D function becomes highly embedded in the value chain (or valuenetwork) of the company with extensive internal and external reach. At the same time,the overall production process is becoming increasingly modularized, opening up thepossibility for multinational companies to relocate specific processes or functionsacross the company, both nationally and internationally (see BusinessWeek 2006).56