Controversy remains both in interpretation of this general picture and in the identification of implications for the future. Our views are as follows:
There are major efficiency advantages in the geographic concentration in one place of strategic R&D for launching major new products and processes (first model and production line). These are:
1) Dealing with unforeseen problems since proximity allows quick adaptive decisions.
2) Integrating R&D production and marketing since proximity allows integration of tacit knowledge through close personal contacts.
The nature and degree of international dispersion of R&D will also depend on the company’s major technological trajectory and the strategically important points for integration and learning that relates to it. Thus, whereas automobile firms find it difficult to separate their R&D geographically from production when launching a major new product, drug firms can do so and instead locate their R&D close to strategically important basic research and testing procedures.
In deciding about the internationalization of their R&D managers must distinguish between:
Becoming part of global knowledge networks in other words being aware of and enable to absorb the results of R&D being carried out globally. Practising scientists and engineers have always done this and it is now easier with modern IT. However, business firms are finding it increasingly useful to establish relatively small laboratories in foreign countries in order to become strong members of local research networks and thereby benefit from the person who embodied knowledge behind the published papers.
The launching of major innovation which remains complex, costly and depends crucially on the integration of tacit knowledge. This remains difficult to achieve across national boundaries. Firms therefore still tend to concentrate major product or process developments in one country. They will sometimes choose a foreign country when it offers identifiable advantages in the skills and resources required for such developments, and/or access to a lead market.
Matching global knowledge networks with the localized launching of major innovations will require increasing international mobility amongst technical personnel and the increasing use of multi-national teams in launching innovations.
Advances in IT will enable spectacular increases in the international flow of codified knowledge in the form of operating instructions, manual and software. They may also have some positive impact on international exchange of tacit knowledge through teleconferencing but not anywhere near to the same extent . The main impact will therefore be at the second stage of the product cycle. When product design has stabilized and production methods are standardized and documented thereby facilitating the internationalization of production. Product development and the first stage of the product cycle will still require frequent and intense personal exchanges and be facilitated by physical proximity. Advances in IT are therefore more likely to favour the internationalization of production than of the process of innovation.
The two polar extremes of organizing innovation globally are the specialization based and integration based to network structure in the specialization based structure the firm develops global centres of excellence in different fields, which are responsible globally for the development of a specific technology or and product or process capability. The advantage of such global specialization is that it helps to achieve a critical mass of resources and makes coordination easier.
The centre of excellence structure is the most preferable. Competencies related to certain fields are concentrated. Coordination is easier and economies of scale can be achieved. Any R&D director has the dream to structure R&D in such a way. However, the appropriate conditions seldom occur.
Source: Innovation Managing