Internationalization of Research and Development

In earlier years, industrial research and development (R&D) laboratories were exclusively located at a firm’s headquarters. One company in the chemical industry even had two central laboratories serving different groups of strategic business units at its headquarters, before disbanding the concept of central laboratories almost totally and adopting a concept of internationally dispersed R&D investment centers. Today, even within one industry and among the biggest global players, we can observe firms which have spread their R&D laboratories all over the globe as well as those which have centralized these activities. For instance, we can observe both of these phenomena in the chemical industry.

Before trying to tackle problems of internationalization it might be good to answer the question why a company may want to entertain more than one R&D laboratory at different locations. The problem of internationalization in the sense of assuming a headquarters laboratory and at least one more laboratory in a different country, would then appear as a generalization of the first problem.

One reason for the internationalization of the inventive phases of innovation processes could be that country-specific success factors exist. If relatively more efficient inventors would live in one nation and relatively less efficient ones in another, we should expect invention activities to be concentrated in the relatively more efficient places. Better education is thought to provide such differences in efficiency. Thus, education appears to be one of the success factors of innovation. However, we cannot assume that this factor is of importance in some nations and of no importance in some others. Rather, the level of a universally important factor is different. This view is supported in the extensive study on “Culture and Technical Innovation”, where it is said that: “there is no evidence of any culturally different patterns of generating basic innovations” (Albach, 1993, p. 61) and “...we maintain that the determinants of success of technical innovation are the same all over the world. They are. . . competence, leeway, integration, commitment, and knowledge” (Albach, 1993, p. 78). These variables are then studied at the level of: the individual, the group, the firm and its environment as characterized by users, the organization of an economy, trade unions, education and the government.

As concluded in the previous chapter, a reasoning process supported by an evaluation of benefits and costs will precede the start of international R&D. In this chapter, we present various ways of starting up activities. In one of these approaches, the incidental acquisition of a laboratory, there might not have been a strategic or operational evaluation preceding the acquisition. Therefore, the question of how to integrate such laboratories into the technological strategy of a firm might be more difficult to answer than how to set up or acquire laboratories as a consequence of a technological strategy.

In a recent study of industrial research laboratories, it was found that they need to meet four necessary conditions to be successful (Brockhoff, 1997). Adopting a resource-based view, it is suggested that the conditions result from building four potentials, namely:

In a questionnaire study among the world’s largest companies, Pearce and Singh find that only a quarter of all laboratories is closely coordinated with the parent company, while 22% of the companies do not see any coordination (Pearce/Singh, 1991, pp. 198 et seq.). Most of the coordination is approached systematically (68%), some in an ad hoc fashion (25%), and the rest infrequently (7%) (Pearce/Singh, 1991, pp. 198 et seq.). This leads us to think that quite a number of firms face severe problems in managing the interfaces among laboratories, and between laboratories and the other departments of a company.

Management of foreign R&D units proves to be a difficult task. This has to do with the observation that, to date, little “hard” data on this topic are available that could guide management in its decisions. For this purpose, evaluations of R&D success would be most important. Only very few studies seek to measure success. Technical success can be measured at the project level as well as the program level. However, this is only a necessary condition for the achievement of economic success. This is difficult to measure because it can be observed only after a substantial time lag and because many departments other than R&D need to collaborate optimally to make this success happen. Thus, while it is difficult to measure the overall economic R&D success of an organization, it appears to be even more difficult to determine the appropriate share by which individual laboratories have contributed to success. Some of the literature puts trust in the ability of experienced managers to solve this problem by asking them to reveal their perceived evaluation of success for individual laboratories. However, the particular division of labor between laboratories and the dispersed customers for whom they work might involve specific biases, depending on whom one prefers to interview. Figure 18 classifies different approaches that one could take. Most frequently, R&D managers from headquarters (Box (4)) have been asked to evaluate the R&D performance of individual laboratories or the success of the overall R&D organization of their company. It is obvious that their answers could be biased in support of their own unit and could downgrade other units that they may view as competitors for scarce internal resources. A few other studies ask managers of foreign R&D units to evaluate its success from their point of view (Box (5)). This could stimulate an opposite bias. No study is known that would contrast evaluations from different viewpoints to check the validity of the responses. This leaves open a wide field for further studies. It is obvious that by comparing responses from interviewees who might be located at different boxes and by finding significant differences, one would immediately become aware of biases and problem areas that need further attention. Similar biases become obvious by comparing the views of R&D managers and scientists in the same laboratories (Compare Boxes (4) and (7) or (5) and (8)). Let us illustrate this point with reference to a strictly national study: in a study of German R&D laboratories, it was found that while managers thought that reducing budget overruns was the second most important issue in securing higher laboratory success, bench engineers in the same laboratories perceived that reducing delays in decision making was the second most important issue in this respect. This can have severe consequences: if such differences in the perception of issues cannot be resolved, many of the management efforts might well be futile. However, the limitations of research perspectives on international R&D cannot be resolved in short time, and, therefore, we issue an early warning to keep this limitation in mind.

A new phenomenon can be observed even in large, industrialized countries during recent years. A growing number of firms started spending mounting sums of money for R&D in foreign countries but not at their headquarters. This trend has alarmed politicians, and it has caused technology managers to review their strategies, particularly, if these were primarily based on the centralized generation of new knowledge. The trend reflects an important facet of growing internationalization. This trend is also represented by the employment of people of many nationalities in real or virtual project teams or in the participation of firms in international R&D cooperations. Disregarding such aspects, which cause management problems of their own, we concentrate on a situation where a firm operates not only one or many laboratories in one country, but also runs laboratories in nations which are considered foreign from the perspective of its headquarters. Then, a first question arises: What explains this phenomenon of internationalization of R&D laboratories?