Search
Close this search box.
Search
Close this search box.

Offshoring R&D: More Popular, but is it Wiser?

Procter & Gamble’s shiny new global R&D center in Singapore is a gleaming example of how major U.S. and European companies see the future of product innovation being concocted abroad rather than at home. But manufacturing CEOs and business owners face a number of issues in making a similar decision. The question becomes, “Is offshoring R&D the right decision for your business?”

The world’s largest CPG company has created 254 advanced-research laboratories in southeast Asia, making it an international focus of innovations in hair care, skin care, fragrances, fabric care, home care and health and grooming products that previously came almost all out of U.S. facilities. Other big western companies also are offshoring more of their R&D—even as many of them also are onshoring more manufacturing.

Ford, for instance, plans to expand its R&D operation in China, boosting its workforce by about half to roughly 2,000 people by 2018, helping the company anticipate and react more quickly to market changes in China and other growth markets in Pacific Rim.

Even the U.S. Department of Defense is looking to partner with foreign defense contractors,  exploring the offshoring of R&D as it faces new cost pressures from the Obama administration’s downsizing of the U.S. military.

Offshoring R&D can be beneficial, one new study says, but only up to a point. After studying a wide range of German companies, researchers at the Center for European Economic Research concluded that offshoring too much of a firm’s innovation is likely to be costly. There’s “a trade-off between global knowledge sourcing and a firm’s ability to use this knowledge effectively,” the research concluded, suggesting that offshoring more than 15 to 30 percent of a firm’s innovation activities “becomes challenging for maintaining the effectiveness of the organization.”

One part of this phenomenon deserves more study, and certainly consideration by corporate decision makers: The more a firm offshores R&D functions, the higher the ratio between low-paid and high-paid R&D jobs in America, according to a new study of offshoring by MIT and the University of Michigan. This is the opposite of the effect in all other corporate functions in the study, where the more companies offshored a particular function, the fewer low-paid jobs they had in the same function at home.

Additional reading:

Get a First Look at Our New Innovation Center in Singapore

Research: Don’t Offshore Your R&D

The Impact on Innovation Offshoring on Organizational Adaptability

 


MORE LIKE THIS

  • Get the CEO Briefing

    Sign up today to get weekly access to the latest issues affecting CEOs in every industry
  • upcoming events

    Roundtable

    Strategic Planning Workshop

    1:00 - 5:00 pm

    Over 70% of Executives Surveyed Agree: Many Strategic Planning Efforts Lack Systematic Approach Tips for Enhancing Your Strategic Planning Process

    Executives expressed frustration with their current strategic planning process. Issues include:

    1. Lack of systematic approach (70%)
    2. Laundry lists without prioritization (68%)
    3. Decisions based on personalities rather than facts and information (65%)

     

    Steve Rutan and Denise Harrison have put together an afternoon workshop that will provide the tools you need to address these concerns.  They have worked with hundreds of executives to develop a systematic approach that will enable your team to make better decisions during strategic planning.  Steve and Denise will walk you through exercises for prioritizing your lists and steps that will reset and reinvigorate your process.  This will be a hands-on workshop that will enable you to think about your business as you use the tools that are being presented.  If you are ready for a Strategic Planning tune-up, select this workshop in your registration form.  The additional fee of $695 will be added to your total.

    To sign up, select this option in your registration form. Additional fee of $695 will be added to your total.

    New York, NY: ​​​Chief Executive's Corporate Citizenship Awards 2017

    Women in Leadership Seminar and Peer Discussion

    2:00 - 5:00 pm

    Female leaders face the same issues all leaders do, but they often face additional challenges too. In this peer session, we will facilitate a discussion of best practices and how to overcome common barriers to help women leaders be more effective within and outside their organizations. 

    Limited space available.

    To sign up, select this option in your registration form. Additional fee of $495 will be added to your total.

    Golf Outing

    10:30 - 5:00 pm
    General’s Retreat at Hermitage Golf Course
    Sponsored by UBS

    General’s Retreat, built in 1986 with architect Gary Roger Baird, has been voted the “Best Golf Course in Nashville” and is a “must play” when visiting the Nashville, Tennessee area. With the beautiful setting along the Cumberland River, golfers of all capabilities will thoroughly enjoy the golf, scenery and hospitality.

    The golf outing fee includes transportation to and from the hotel, greens/cart fees, use of practice facilities, and boxed lunch. The bus will leave the hotel at 10:30 am for a noon shotgun start and return to the hotel after the cocktail reception following the completion of the round.

    To sign up, select this option in your registration form. Additional fee of $295 will be added to your total.