R&D at global scale: Securing competitive advantages through local engineering

Kosmopolit F&E: mit Local Engineering Wettbewerbsvorteile sichern
Marginal Column

November 2014


R&D is migrating into local markets to an increasing extent and is thus becoming a major success factor for global corporations.


Innovations are the lifeblood of every technology-based company. R&D departments are the drivers of innovation and thus a cornerstone of competitive advantage. To maintain this advantage it is, however, necessary to be on site in the growth regions – close to the customers – with local technical people and knowledge. R&D is thus increasingly emancipating itself from the company headquarters and is founding its own local units.

The attractiveness of emerging nations

The framework for such a shift has improved greatly in recent years. The costs for information transfer, transportation and coordination have continuously dropped. Emerging nations now account for an ever greater share of global production. In addition those countries have caught up in the fields of education, research and the use of modern technologies in the past ten years. These nations have become highly appealing for local engineering. To take China as an example, ever since 2010 more people have enrolled at universities there than in the EU, the USA and Japan – combined. In view of improved education in these countries and growing experience with R&D, they are increasingly becoming full-value competence centers which develop new products independently instead of just modifying them to suit the local market.

Platform for personnel, too

Central R&D departments are less dependent on day-to-day performance pressure; they are better at working on long-term innovation projects. That is why a centralistic organizational structure still prevails in multinational corporations. There the parent company in the home country carries out the basic functional development for a platform while the foreign subsidiaries, as service-oriented R&D laboratories, tailor the products to the demands of their local customers. This is because the local unit knows more about the needs of its customers. But this also requires suitable personnel. Thus the platform concept plays an important role for local engineering not only in terms of production, but also in the competition with other companies when recruiting technical personnel at foreign locations. “The key to localizing the business is to set up global platforms with local implementations,” says Josh Bersin, the founder of Bersin by Deloitte, a personnel consulting company. What he is talking about is the company’s personnel structure.* A manageable core of global expertise, principles, targets, and software systems has to offer enough flexibility to permit local entry-level and advanced training, targets and user solutions – in order to be successful in local labor markets.

Integrated network

Linking the new R&D location into the existing R&D structure is of central importance so as to avoid inefficiencies and development effort in parallel. One option for exploiting local competencies in the best possible way is the idea of an integrated R&D network. Here each location becomes a competence center for a given product or a technology. Within this range of responsibility, it coordinates R&D activities globally, too. This approach promises high efficiency, relevant learning processes at all sites, and a positive combination of specialization and synergy effects. Prof. Hagen Lindstädt of the Karlsruhe Institute for Technology (KIT) feels that such “hybrid models” – involving centralized and decentralized approaches – promise the greatest prospects for success.

* Josh Bersin: “The world is not global, it’s local”. Forbes, April 23, 2013, http://onforb.es/14LBeZv