Globalisation and market dynamics are causing more and more companies to review all aspects of their business efficiency, including research and development (R&D). Companies have become increasingly market-driven and change of technological need has risen excessively during the last decades. Due to the pace of the market change R&D spending has also surged. James Golver argues in his research paper published by Industrial Research Institute, companies should first ask themselves:

  1. How much R&D is enough?;
  2. How R&D can make cost effective?;
  3. How the productivity of R&D can be measured and improved?;
  4. Whether the required demanding technology can be developed through in-house R&D or collaboratively with partners , or purchased?;

before making a decision to outsource by considering the latest trend. In-fact, the most common type of R&D function that is outsourced can be defined as technology. Inc.com (2010) states, the companies outsource R&D most often for component innovations, design, new process innovations, new product innovations and software design.

The trend 

Many large organisations to improve their products and services and the market presence conduct R&D by outsourcing all the related work or retaining what is most crucial in-house. Many partner with strategic alliances to collaboratively acquire new technologies since corporate research organisations often have the latest expertise and technological know-how in the field. Even small and medium-size firms also tend use this concept up to a considerable extent to keep up with the dynamic market trend.

However, these trends make new and increased demands on governments. The accelerating pace of market and technological change, the high costs of essential investment in technology and the strategic importance of newer technology have become the basic factors, which may require solid government action. If governments fail to act on these challenges may risk economic competitiveness of specially among SMEs and employment.

R&D suppliers

An increasing number and diversity of organisations now offer R&D and related technology services to industry. Universities and other higher-level educational and research institutions are important contributors in the industrial R&D market-place in many parts of Europe and Asia. Their prices are mostly low and have concerns over quality, delivery and confidentiality.

Government laboratories in many countries have become expertise in particular sectors or technologies that have entered the R&D market recently. In some cases they are semi government organisations that many of them are observed to be highly competent providers of state-of-the-art knowledge. Those that are still subject to public sector models of management are not always considered responsive and flexible. And high overhead costs and policies sometimes may make their services expensive.

Industrial companies meanwhile increasingly co-operate with one another in order to produce, access or acquire technology. In this process the organisations are better to make sure on how much impact R&D makes on actual potential competition. In view of this, companies must aware which areas are better for collaborative research and which are not suitable as collaborative effort. Non-competitive areas usually are supply chain or in non-market areas such as health and safety and environmental protection.

Outsourcing concerns

Inc.com (2010) explains, factors that influence successful R&D outsourcing decision include the ability to protect the innovation, its timing, risk and cost.

  • Proprietary – If a technology can be safeguarded as proprietary and protected by patents, trade secrets, nondisclosure agreements etc.
  • Timing – If the market growth rate is slow or neutral, in-house or contracted R&D may be the best means to obtain the technology.
  • Risk – Inherently, technology development is always riskier than technology acquisition because the technical success of R&D cannot be guaranteed.
  • Cost – For a successful product line with relatively long life, acquisition of technology is more costly, but less risky, than technology development.

According to R&D Magazine (2016),”Most U.S. businesses that outsource R&D do so to other entities in the United States, but that percentage is declining as the expanding economies of India, China, and Eastern Europe promise lower costs and a rising share of skilled workers. U.S. businesses are becoming increasingly sensitive to customer concerns that U.S. jobs are being shipped overseas and some firms that have outsourced functions are deciding to move them back in house”.

Conclusion

“Research and development (R&D) is the process by which a company works to obtain new knowledge that it might use to create new technology, products, services or systems that it will either use or sell (Business Encyclopedia,2016)”. Obviously, whatever the circumstance is in global level, the objective of research and development (R&D) is clear. It is simply to obtain new knowledge applicable to business’ needs that can improve products, processes, systems or services that finally increase business’ sales and profits.

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