Academic journal article Seoul Journal of Economics

India as a Destination of the R&D of Multinational Companies: Importance and Management Strategies of Local R&D Centers

Academic journal article Seoul Journal of Economics

India as a Destination of the R&D of Multinational Companies: Importance and Management Strategies of Local R&D Centers

Article excerpt

I. Introduction

As Japan and other advanced economies mature, economic growth in emerging countries shows high potential. This trend has become clearer with the financial crisis of 2008 and the recent Euro crisis. Accordingly, to capture emerging markets that are experiencing considerable growth. companies in advanced countries commonly engage in extensive research and development (R&D) activities. Among these markets, India is attracting attention, particularly among firms from Europe and the United States. Based on a United Nations Conference on Trade and Development (UNCTAD) survey, India ranks behind China and the United States as a top R&D center for multinational firms (UNCTAD 2005). When comparing China and India, many companies are attracted to the market and cheap labor of China, while the strength of India lies in its high-quality R&D resources. In particular, India boasts of the largest offshore centers for software, and many multinational firms have established information technology (IT)-related development offices there. In this paper, we focus on India as an international R&D center, and discuss management strategies for overseas R&D centers.

R&D internationalization is often categorized in two ways, which are activities that augment technological assets in the home country (homebase-augmenting or HBA) and activities that develop the market of the target country using the technological assets of the home country (homebase-exploiting or HBE) (Kuemmerle 1997). However, theories and empirical research regarding R&D internationalization have presumed R&D investments between advanced countries with relatively similar environments. When companies from advanced countries establish R&D centers in emerging countries, the vast differences between the business environments enable companies to select a strategy that capitalizes on these differences. In addition to the degree of adaptation to the local market (le., aggregation versus adaptation), companies can utilize a new strategic axis of arbitrage (Ghemawat 2007) that takes advantage of the differences in business environments. A demonstrative example of this situation is the establishment of offshore development centers in emerging markets, particularly in India. Furthermore, a trend toward reverse innovation is emerging, where products developed in the emerging markets using uniquely local ideas are introduced to the home country (Immelt et aL 2009).

However, large differences in business environments are proportional to the difficulties in managing local R&D centers. For example, India has strict labor laws with active labor unions, the caste system, and different customs and practices by state. Moreover, weak intellectual property laws and high worker turnover lead to a high risk of technology leaks, which are sensitive factors in R&D and are usually highly confidential. By conducting R & D in India, companies can significantly improve efficiency, although a high risk of failure exists due to the un- successful management of the research facilities. R&D management is critical because it is a high-risk/high-return investment.

In this paper, we provide an overview of technology management of overseas R&D centers by focusing on India as a host country. In the next section, we discuss the taxonomy of R & D globalization. While HBA and HBE are concepts created for R&D globalization in advanced countries, we summarize various activities that reflect R&D characteristics in emerging countries, including India. In Section III, we discuss the current state of R & D of foreign firms in India. In addition to providing an overall view using patent data, we discuss the market orientation of Suzuki Motors in developing new vehicles as well as examine the development of a portable electrocardiogram (ECG) device by GE Healthcare (a case of reverse innovation). In Section IV. we present a framework to understand dynamically the mission and positioning of foreign research centers as well as to discuss the state of management and organizational strategies for foreign R&D centers in India. …

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