BUILDING GLOBAL R&D CAPABILITIES

The need to integrate R&D and marketing to adequately commercialize new technologies poses special problems in the international business because commercialization may require different versions of a new product to be produced for various countries.41 To do this, the firm must build close links between its R&D centers and its various country operations. A similar argument applies to the need to integrate R&D and production, particularly in those international businesses that have dispersed production activities to different locations around the globe in consideration of relative factor costs and the like.

Integrating R&D, marketing, and production in an international business may require R&D centers in North America, Asia, and Europe that are linked by formal and informal integrating mechanisms with marketing operations in each country in their regions and with the various manufacturing facilities. In addition, the international business may have to establish cross-functional teams whose members are dispersed around the globe. This complex endeavor requires the company to utilize formal and informal integrating mechanisms to knit its far-flung operations together so they can produce new products in an effective and timely manner.

While there is no one best model for allocating product development responsibilities to various centers, one solution adopted by many international businesses involves establishing a global network of R&D centers. Within this model, fundamental research is undertaken at basic research centers around the globe. These centers are normally located in regions or cities where valuable scientific knowledge is being created and where there is a pool of skilled research talent (e.g., Silicon Valley in the United States, Cambridge in England, Kobe in Japan, Singapore). These centers are the innovation engines of the firm. Their job is to develop the basic technologies that become new products.

These technologies are picked up by R&D units attached to global product divisions and are used to generate new products to serve the global marketplace. At this level, commercialization of the technology and design for manufacturing are emphasized. If further customization is needed so the product appeals to the tastes and preferences of consumers in individual markets, such redesign work will be done by an R&D group based in a subsidiary in that country or at a regional center that customizes products for several countries in the region.

Hewlett-Packard has seven basic research centers located in Palo Alto, California; Bristol, England; Haifa, Israel; Beijing, China; Singapore; and St Petersburg, Russia.42 These labs are the seedbed for technologies that ultimately become new products and businesses. They are the company’s innovation engines. The Palo Alto center, for example, pioneered HP’s thermal ink-jet technology. The products are developed by R&D centers associated with HP’s global product divisions. Thus, the Consumer Products Group, which has its worldwide headquarters in San Diego, California, designs, develops, and manufactures a range of imaging products using HP-pioneered thermal ink-jet technology. Subsidiaries might then customize the product so that it best matches the needs of important national markets. HP’s subsidiary in Singapore, for example, is responsible for the design and production of thermal ink-jet printers for Japan and other Asian markets. This subsidiary takes products originally developed in San Diego and redesigns them for the Asian market. In addition, the Singapore subsidiary has taken the lead from San Diego in the design and development of certain portable thermal ink-jet printers. HP delegated this responsibility to Singapore because this subsidiary has acquired important competencies in the design and production of thermal ink-jet products, so it has become the best place in the world to undertake this activity.

Microsoft offers a similar example. The company has basic research sites in Redmond, Washington (its headquarters); Silicon Valley, California, Cambridge, England; Tokyo, Japan; Beijing, China; Bangalore, India; and Haifa, Israel. Staff at these research sites work on the fundamental problems that underlie the design of future products. For example, a group at Redmond is working on natural language recognition software, while another works on artificial intelligence. These research centers don’t produce new products; rather, they produce the technology that is used to enhance existing products or help produce new products. The products are produced by dedicated product groups (e.g., desktop operating systems, applications). Customization of the products to match the needs of local markets is sometimes carried out at local subsidiaries. Thus, the Chinese subsidiary will do some basic customization of programs such as Microsoft Office, adding Chinese characters and customizing the interface. Similarly, the R&D group in India has helped to develop products for that market.