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New survey examines global R&D network growth

Innovation is globalizing, and more than 75 percent of new research and development sites planned over the next 3 years will be established in China and India, according to a recent survey conducted by business school INSEAD and management consulting firm Booz Allen Hamilton. However, they found few companies growing their R&D networks have the internal capacity to run them efficiently and effectively.

Booz Allen and INSEAD surveyed 186 companies representing 19 countries and 17 industry sectors with combined annual R&D spending in 2004 of US $76 billion, representing nearly 20 percent of the global total for all corporations.

Among the study’s key findings: Innovation is moving East. The share of R&D sites outside corporate headquarters has increased—from 45 percent in 1975 to 66 percent in 2004. The trend is reportedly a shift of sites toward China and India, which accounted for 3.4 percent of foreign sites in 1990, increasing to 13.9 percent by 2004. Over the same period, the share of foreign R&D sites in the U.S. fell from 19.6 percent to 15.9 percent, while in Western Europe it fell from 30.0 percent to 28.1 percent.

According to the survey, the pace will increase with 77 percent of new R&D sites planned through 2007 slated for either China or India. According to the study, companies are particularly attracted by highly qualified staff in developing regions, and motivated by proximity to technology clusters and access to markets or customers.

The study also found that few of the companies that build international R&D networks regularly review them for efficiency and integration. Though participants projected that improved organization could yield a 37 percent faster time-to-market with 24 percent lower costs, 23 percent of their foreign sites do nothing but customize products and services for the local market, and just 36 percent of all projects performed are undertaken across multiple sites.

The study also found that while 90 percent of the sample believes deep customer insights are key to identifying the potential for new products and services, only technology innovators actually emphasize uncovering such insights. Tech innovators were also more likely than the rest to encourage globalization through career or financial rewards and to require an international background for senior managers, even though most of the survey respondents believe that people with multicultural experience perform better in the increasingly prevalent virtual teams of growing networks.

Booz Allen advises companies to centralize decision-making on project portfolios, standardize structure, system and processes throughout the network, and to develop a global management team with diverse backgrounds.

The complete study, Innovation: Is Global the Way Forward? is available online.

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