International Management & Innovation Prof. Dr. Alexander Gerybadze Presentation at the International Symposion on “R&D Outsourcing and Smartsourcing” Bucharest, Romania 20 February 2008 Prof. Dr. Alexander Gerybadze Center for International Management and Innovation Center for Research on Innovation and Services (FZID) University of Hohenheim R&D Offshoring and Outsourcing: Nurturing Sustainable R&D Capabilities in a Globalized World
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Presentation at the International Symposion on “R&D Outsourcing and Smartsourcing”
Presentation at the International Symposion on “R&D Outsourcing and Smartsourcing” Bucharest, Romania 20 February 2008. R&D Offshoring and Outsourcing: Nurturing Sustainable R&D Capabilities in a Globalized World. Prof. Dr. Alexander Gerybadze - PowerPoint PPT Presentation
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International Management & InnovationProf. Dr. Alexander Gerybadze
Presentation at theInternational Symposion on “R&D Outsourcing and Smartsourcing”
Bucharest, Romania20 February 2008
Prof. Dr. Alexander GerybadzeCenter for International Management and Innovation
Center for Research on Innovation and Services (FZID)University of Hohenheim
R&D Offshoring and Outsourcing: NurturingSustainable R&D Capabilities in a Globalized World
International Management & InnovationProf. Dr. Alexander Gerybadze
Global Innovation / Trends inR&D Offshoring
Global Innovation / Trends inR&D Offshoring
Strategic Implications for R&D andInnovation Policy
Strategic Implications for R&D andInnovation Policy
R&D Outsourcing / New PartnershipModels in Innovation
R&D Outsourcing / New PartnershipModels in Innovation
R&D Offshoring and R&D Outsourcing: Nurturing Sustainable R&D Capabilities in a Globalized World
The Agenda / Key Issues
International Management & InnovationProf. Dr. Alexander Gerybadze
Major Trends in the Global Innovation Arena
R&D and Innovation is Key for International Competitiveness
Multinational Corporations are the Drivers of Technical Change
Trend to Globalize R&D: Persistent R&D Offshoring
Trend to Externalize R&D: R&D Outsourcing / Open Innovation
Trend to Commercialize R&D
Trend towards Downstream Innovation
International Management & InnovationProf. Dr. Alexander Gerybadze
Do In-houseat the Home-baseof a Multinational
Firm
Do sth. at aForeign location(Foreign direct
Investment)
Contract outto suppliers and / or
External partners
Type of Value-addingActivities
OFFSHORINGIncreasing trend of globali-
zation of all value-adding acti-vities including R&D
OUTSOURCINGIncreasing tendency to
„harvest-out“ / Focus on few core activities in-house
First of all, Offshoring and Outsourcing need to be differenciated
International Management & InnovationProf. Dr. Alexander Gerybadze
Source: OECD, Main Science and Technology Indicators 2006.
Western Europe224 Mrd. $
Rest EU 25
UKFrance
Nether-lands**
Switzerland*Germany
Austria
* Data for 2003; ** Data for 2004.
Asia283 Mrd. $
Japan**
China
Korea
Singapore
Taiwan
North America 339 Mrd. $
USA
Canada Mexico*
World R&D Expenditures / GERD 2005 Total 845 Billion $ PPP
World R&D Expenditures strongly concentrated on a few CountriesWithin the Triad regions / Gross Expenditures for R&D (GERD) 2005
By Comparison: 27 Billion $ PPP in Eastern Europe (of which 64% in Russia)
International Management & InnovationProf. Dr. Alexander Gerybadze
Increasing Global Dispersion of Innovation Activities / R&D Globalization andR&D Offshoring outside of Home Region
Source: Gerybadze 2004, p.246; Roberts 2001 / Global Benchmark Survey on the Strategic Management of Technology
1995 2001 1992
10%
20%
30%
40%
Share of R&DOutside of HomeRegion (in %)
Europe
North Amerika
Japan
1998
International Management & InnovationProf. Dr. Alexander Gerybadze
Business Expenditures on R&D also concentrated on few Industrieswhich increasingly go Global
1. Pharmaceuticals & Biotech
2. IT-Hardware & Equipment
3. Automobiles & Parts
4. Electronics & Electrical
5. Software & Computer Services
6. Chemicals
7. Aerospace & Defence
8. Consumer / Leisure goods
9. Industrial Engineering
10.General Industrials
70 523
64 532
60 807
27 139
26 523
17 186
15 991
14 209
9 319
8 868
15.9
8.6
4.1
4.4
9.8
3.1
4.8
6.5
2.7
2.1
Source: EU Industrial R&D Investment Scoreboard 2007, INTERIS Database University of Hohenheim 2007
Intensity ofR&D Offshoring
* * *
* * *
* *
* * *
* * *
* * *
* *
* * *
* *
* *
R&D Expen-ditures 2006
(in Mio €)
Industry R&D In-tensity
2006 (%)
* * *Very strong R&D Offshoring
* *Strong R&D Offshoring
International Management & InnovationProf. Dr. Alexander Gerybadze
Increasing Globalization of R&D: What does thismean for Building R&D Capabilities in Host Countries?
Increasing Globalization of R&D: What does thismean for Building R&D Capabilities in Host Countries?
Strategic Implications for R&D andInnovation Policy
Strategic Implications for R&D andInnovation Policy
R&D Outsourcing / New PartnershipModels in Innovation
R&D Outsourcing / New PartnershipModels in Innovation
R&D Offshoring and R&D Outsourcing: Nurturing Sustainable R&D Capabilities in a Globalized World
Presentation Part 2
International Management & InnovationProf. Dr. Alexander Gerybadze
Changing Pattern of Knowledge Flow in the Innovation Process
Lead MarketInnovation / Advanced
Services
Lead MarketInnovation / Advanced
Services
Engineering-Innovation / Advanced
Manufacturing
Engineering-Innovation / Advanced
ManufacturingResearch-
based Innovation
Research-based Innovation
Traditional Interpretation / Linear-sequential Innovation Process
Increasing Trend towards Downstream Innovation in many dynamicIndustries
Many Host Countries build up Universites and Science base …
… but R&D Location not just driven by need to access Research
Most important „new drivers“ for R&D Offshoring - Access to Advanced Market / Lead Market - Manufacturing Excellence / Engineering Innovation - Strong Innovative Competitors - Standard setting / Innovation enhancing Regulation
International Management & InnovationProf. Dr. Alexander Gerybadze
Home-base-Exploiting R&D
Where is the most
critical concen-
tration of talent?
Location with
most advanced
Scientific base?
FOREIGN BASE
(e.g. USA)
FOREIGN BASE
(e.g. USA)
HOME BASE
(e.g. Germany)
HOME BASE
(e.g. Germany)
Leading
R&D Center in
Germany
Transfer of
Knowledge to Foreign
R&D Labs
Case Example Pharmaceuticals & Biotech: still Research-based,but strongly dominated by the U.S.
Most European and Asian MNC set-up Lead-R&D in the U.S. Home-base-Augmenting R&D
Reverse
Knowledge
Transfer
Lead R&D
Center in the
U.S.
R&D Offshoring of MNC in Europe: few selected research areas
R&D Outsourcing: Mainly clinical studies / but often dominated by U.S. based CRO´s
Some R&D in Eastern Europe: Labour-intensive screening and Multi-center Clinical studies
International Management & InnovationProf. Dr. Alexander Gerybadze
European Countries often with Strong Capabilities in Downstream Innovation
ENGINEERINGINNOVATION /
Advanced Manu-facturing
ENGINEERINGINNOVATION /
Advanced Manu-facturing
RESEARCH-BASEDINNOVATIONS /
Scientific Excellence
RESEARCH-BASEDINNOVATIONS /
Scientific Excellence
LEAD MARKETINNOVATION /
Close Access toLead Customers
LEAD MARKETINNOVATION /
Close Access toLead Customers
Close Interaction betweenProduct- & Process Development /
Embeddedness advanced Supplier-Networks critical
Examples:
Automotive engineering
Mechatronics
Chemical processing
Where is the Engine in the Innovation Process?„Front-Drive“„Rear-Drive“
Research may generateNew Products and Industries / Embeddedness in Research
Community critical
Examples:
Genetic engineering
High-energy physics
Superconductivity
Very few successes in Research-based Innovation in Europe
Interaction with Lead Users /Strong Ties with Demand side
Partners & Regulatory agencies
Examples: Telecommunication Automotive electronics Medical products & services
Many success stories in Engineering Innovation / Often Medium-tech
International Management & InnovationProf. Dr. Alexander Gerybadze
R&D Outsourcing in Germany / Increasing Global Outsourcing ina few selected Industries
R&D Outsourcing concentrated on a few Industries with very specific requirements
1. Automobiles
2. Chemical Industry
3. Electronics / Data Processing
4. Machinery
5. Metall Processing
Total / Manufacturing Industries
4 767
1 698
886
300
128
7 940
25.0
21.1
10.4
7.3
13.5
18.6
External R&DExpenditures( 2003 in Mio €)
Industry R&D Out-sourcing
(% of BERD)
ForeignOutsour-cing (%)
16.8
48.9
5.6
12.9
18.6
22.6
Outsourcing Partners
Share of Foreign R&D Outsourcing Increasing
PrivateCompaniesin Germany
70.4
43.7
61.0
66.5
58.1
63.0
Mostly private Companies as Outsourcing Partners
PublicResearch &Universities
12.8
7.4
33.4
20.6
23.3
14.4
Role of Public Research & Universities often overestimated
International Management & InnovationProf. Dr. Alexander Gerybadze
Global Innovation / Trends inR&D Offshoring
Global Innovation / Trends inR&D Offshoring
Strategic Implications for R&D andInnovation Policy
Strategic Implications for R&D andInnovation Policy
R&D Outsourcing growing in Importance / but contractsgo to professional partners / mostly private firms
R&D Outsourcing growing in Importance / but contractsgo to professional partners / mostly private firms
R&D Offshoring and R&D Outsourcing: Nurturing Sustainable R&D Capabilities in a Globalized World
Presentation Part 3
International Management & InnovationProf. Dr. Alexander Gerybadze
Learn from Success Stories / Sustainable Strategiesin other Countries
Coherent Development Strategies that build on Human Capital, Science and Industrial Innovation
The New „Eastern European Tigers“: Estonia, Slowenia, Czech Republic, Saxony
The „Baltic Tigers“: Finland, Sweden, Denmark
The „Celtic Tigers“: Ireland, Scotland, Wales
The „Alpine Tigers“: Baden-Württemberg, Bavaria, Austria, Switzerland
International Management & InnovationProf. Dr. Alexander Gerybadze
Case Example of a „Eastern European Tiger“ / Innovation andForeign Direct Investment in the Czech Republic
R&D Expenditures 3.5 Billion $ 2005 (up from 1.3 Billion in 1995)
R&D 1.54 % of GDP (up from 0.95% in 1995)
Strong role of R&D of Foreign affiliates (52% in 2005 / up from 27% in 1995)
R&D units typically linked to Manufacturing plants
Foreign affiliates still play limited role in stand-alone R&D labs (only 6% of R%D employmant)
R&D services industry received only 0.1% of FDI inflow (80% of this investment from Germany)
Encouraging and fostering an Innovation and Technology culture has moved to center stage of Economic development strategy
CzechInvest actively targets companies with R&D and technologi- cally advanced projects
International Management & InnovationProf. Dr. Alexander Gerybadze
What can a Country do to build and LeverageSustainable R&D Capabilities?
Active, long-term and stable investment in Education at all levels
Focus on Academic Excellence in Targeted fields
Increase of R&D as % of GDP (to levels of >2%)
Build / Nurture Local Firms / Spin-offs
Build Technology Centers
Build Business Support Services
Participate in European R&D Support Programmes
Attract Foreign Firms in areas where the Country offers appropriate Capabilities
International Management & InnovationProf. Dr. Alexander Gerybadze
Develop Strategic Partnerships with Corporations andGovernment Agencies in Continental Europe
Even in a Globalized World, Proximity and Cultural Heritage still matters
Build alliances with Firms and Research centers especially in „Alpine Tiger“ states
Build on Industries with Downstream Potential / High Value-added in Country plus Innovation - Specialty Machinery - Food Chain / Wine - Supplier Industries
Build Strong Innovation Clusters for particular Industries
Develop growing Business Services / Knowledge-intensive Business Services (KIBS)
Design and Administer EU Structural Fund projects aimed at enhancing Innovation Strong Investment Promotion Agency as Promoter and Implementor of National Development Programme
International Management & InnovationProf. Dr. Alexander Gerybadze
Etwas In-housedurchführen und
am Stammsitz desUnternehmens
Etwas im Auslanddurchführen, aber
innerhalb einesMNU
Etwas durch einanderes Unterneh-men durchführen
lassen
Differenzierte Formender Wertschöpfung
Offshoring and Outsourcing Strategien for different elements of the Value Chain in Multinational Corporations
„Made in Germany"
„Made by BMW"
Marketing
Sales
Administration
R&D
OFFSHORING OUTSOURCINGManufacturing
International Management & InnovationProf. Dr. Alexander Gerybadze
Research-basedInnovation
Research-basedInnovation
EngineeringInnovation
EngineeringInnovation
Lead MarketInnovation
Lead MarketInnovation
FOREIGN BASEFOREIGN BASE
HOME BASEHOME BASE
Strong Home-base in World-class Manufacturingand Engineering / Functioning
Supplier and EngineeringInfrastructure
Foreign Direct In-vestment in Manufacturing& Advanced Foreign Plants
of German Firms
First Commercialuse often in Germany
The Innovation Performance of Research-based Innovation andHigh-tech Industries is rather limited in Germany
German Innovation Performance is much higher in areas where the core of value added is in Engineering Innovation / which build on a strong Home-base of Manufacturing and Engineering excellence
Examples: Automobiles, Process engineering, Special purpose machinery
Advanced R&DIn Germany
Export
Strategies
Home-base
Exploiting R&D
International Management & InnovationProf. Dr. Alexander Gerybadze
Innovation Strategies within Multinational Corporations addressingtwo Key Issues
Engineering-Innovation / Advanced
Manufacturing
Engineering-Innovation / Advanced
ManufacturingResearch-
based Innovation
Research-based Innovation
Lead MarketInnovation / Advanced
Services
Lead MarketInnovation / Advanced
Services
Changing Pattern of Knowledge Flow in the Innovation Process
Traditional Interpretation / Linear-sequential Innovation Process
• Key Issue 2: Where is the Core of Value Added in the Innovation Process / The Functional Source of most advanced Knowledge?
Where is the Engine in the Innovation Process?
• Key Issue 1: Where is the Geographical Center / Locus of Innovation Where can we best learn about the Winning Combination?
Increasing Trend towards Downstream Innovation
International Management & InnovationProf. Dr. Alexander Gerybadze
Business Expenditures on R&D also concentrated on few Industrieswhich increasingly go Global
1. Pharmaceuticals & Biotech
2. IT-Hardware & Equipment
3. Automobiles & Parts
4. Electronics & Electrical
5. Software & Computer Services
6. Chemicals
7. Aerospace & Defence
8. Consumer / Leisure goods
9. Industrial Engineering
10. General Industrials
70 523
64 532
60 807
27 139
26 523
17 186
15 991
14 209
9 319
8 868
15.9
8.6
4.1
4.4
9.8
3.1
4.8
6.5
2.7
2.1
Source: EU Industrial R&D Investment Scoreboard 2007, INTERIS Database University of Hohenheim 2007
Key issue:Embeddedness in mostAdvanced Engineering
locations abroad
Home-basedLead Markets
Multipolar / ForeignLead Markets
Lead MarketInnovation / Customer
and Service Inte-gration
Lead MarketInnovation / Customer
and Service Inte-gration
Key issueStrong network relation-
ships with Lead customersin „Avantgarde markets“
Managing Global Innovation
German Firms
Japanese Firms
International Management & InnovationProf. Dr. Alexander Gerybadze
Managing Global InnovationManaging Global Innovation
Managerial Issues for three selected Projects: Jaspar, Autosar and FlexRay
Managerial Issues for three selected Projects: Jaspar, Autosar and FlexRay
Innovation Networks and Standard-settingin Automobile Electronics
Innovation Networks and Standard-settingin Automobile Electronics
Managing Global Innovation Networks: The Case of Automotive Electronics
Presentation Part 2
International Management & InnovationProf. Dr. Alexander Gerybadze
Managing Global InnovationManaging Global Innovation
Managerial Issues for three selected Projects: Jaspar, Autosar and FlexRay
Managerial Issues for three selected Projects: Jaspar, Autosar and FlexRay
Innovation Networks and Standard-settingin Automobile Electronics
Innovation Networks and Standard-settingin Automobile Electronics
Managing Global Innovation Networks: The Case of Automotive Electronics
Presentation Part 3
International Management & InnovationProf. Dr. Alexander Gerybadze
Organizational Issues in Managing Transnational Innovation Networks
Corporate R&D / ProductDevt. at German HQ
Project team in JapaneseR&D subsidiary
Corporate R&D / ProductDevt. at Japanese HQ
Project team in EuropeanR&D subsidiary
Cooperative R&DProject in Japan
Cooperative R&DProject in Germany
CoordinationProblems betweenHQ and European
Subsidiary
CoordinationProblems betweenHQ and Japanese
Subsidiary
Weak represen-tation of HQ
agenda in Japa-nese coopera-tion projects
Weak represen-tation of HQ
agenda in Germannese coopera-tion projects
Managerial issues
International Management & InnovationProf. Dr. Alexander Gerybadze
International Management & InnovationProf. Dr. Alexander Gerybadze
WorldMarketRollout
LeadMarket
Capability
Manufactu-ring Ex-cellence
Standardsetting
Strength
IntellectualPropertyPosition
New Pro-duct Per-formance
IndustrialR&D
BasicResearch
University Education
World Class(Top 3 Countries)
Competitive(Keeping pace with Top 10 Countries)
Developing(Catching-up Countries)
The Global Value Chain
High Performance Innovating Country
The Global Innovation Value Chain and the Battle for Standards
Sucessful Global Innovation requires to manage the Full Rangeof the Innovation Value Chain
Downstream Innovation increasingly important
Standard-setting and IP-Position most critical !
International Management & InnovationProf. Dr. Alexander Gerybadze
Who defines the Standard in Automobile Electronics: the European OEM or U.S.based High-tech Firms?
Hig
h-t
ech
Lo
w-t
ech
European strengths
Automobile-OEM(Final assembly & System integration)
3-4% R&Dintensity
AutomobileSuppliers
(Sub-systems & Components)
5-7% R&Dintensity
AutomobileElectronics &
Vehicle IT
8-10% R&Dintensity
U.S. dominated
Software(15% R&Dintensity)
Semiconductors(12% R&D intensity)
The Global Innovation Chain and the Battle for Standards
International Management & InnovationProf. Dr. Alexander Gerybadze
Case Studies of the Battle for Standards are well documentedin the Literature
IBM 360
IBM Personal Computer
VHS vs. Betamax
Microsoft Windows
ETHERNET
Mobile Telephony
In many cases, innovators with the best technology lost out because they were incapable of influencing the standard and / or unable to securea strong IP-Position
The Global Innovation Value Chain and the Battle for Standards
Internet standards & protocol
International Management & InnovationProf. Dr. Alexander Gerybadze
CAN
AUTOSAR
MOST
FlexRay
In most of these Cases, European firms have become quite successful inpushing the frontier and in coordinating the Innovation race and theStandard-setting race
PROFIBUS
Industrial Ethernet
More recently, European firms have taken a more active role inStandard-setting Competition
PROFINET
. . .
The Global Innovation Value Chain and the Battle for Standards
International Management & InnovationProf. Dr. Alexander Gerybadze
Success in the Standard-setting race requires to follow a stringentProcedure
Core members of a Standard-setting Cluster pursue aconsistent strategy emphasizing the following elements:
A. Explore basic concepts that are likely to result in an accepted standard
B. Convince customers and downstream complementors to invest in widespread application thereby strengthening the standard
C. Enable suppliers and upstream complementors to invest in necessary equipment, tools and supplies
D. Manage intellectual property (patents, brands, trademarks) for the major knowledge domains
E. Organize a Club that clearly defines the roles, responsibilities and access rules for its members
The Global Innovation Value Chain and the Battle for Standards
International Management & InnovationProf. Dr. Alexander Gerybadze
WorldMarketRollout
LeadMarket
Capability
Manufactu-ring Ex-cellence
Standardsetting
Strength
IntellectualPropertyPosition
New Pro-duct Per-formance
IndustrialR&D
BasicResearch
University Education
Specialization along the Global Innovation Value Chain is feasible . . .