10.19 Research and development (R&D)
The 20 th century and particularly, the latter half of the century, witnessed exponential development of technology to travel great distances quickly, to communicate with people on the other side of the world, to kill people quickly in large numbers and to make complex calculations quickly. Products which facilitate these capabilities can make the companies which develop these products highly profitable.
The downside is that an exponential rate of development means that product life cycles are becoming shorter. Lead times, that is, the time between an idea and its commercialisation, are in some cases becoming longer, in others shorter. One other fact of significance in this context is that relatively few products are successfully commercialised. Some textbooks quote figures of 80-88% for products which fail commercially. In the field of inventions (which may of course become products) the failure rate is even higher, somewhere between 95-98%.
In making the link between marketing and R&D, your textbook notes that many new products fail because they are not adequately commercialised. The word 'commercialised' ultimately has to do with making the product acceptable to the consumer.
Many products fail because consumers do not like the way the products look, feel, or operate. The need to link the producer and the consumer has led to the development of the profession of industrial design. Research takes an idea and leads to the production of a product or service. The D in R&D is the development of the product or service to the point where it becomes saleable. Development is usually a team effort between the researcher and the industrial designer.
MNEs may have five different reasons for engaging in international R&D and you should read what follows here in conjunction with Hill (2005). These reasons are:
- to take advantage of skills, expertise and talents which are not found in any one country
- to gain competitive intelligence by establishing R&D centres in local markets to keep 'tabs' on inventions and innovations being pursued by competitors
- to take advantage of lower R&D costs in other countries
- to support subsidiary manufacturing and sales operations by setting up R&D departments in major overseas installations
- to promote the development of host country economies.
International R&D makes an important contribution to the political, economic and social environment of host countries by:
- providing opportunities for R&D people in different locations to exchange ideas with one another
- encouraging local scientists to stay in their own country
- increasing the scope for local training
- enhancing the prestige of the local scientific community (and perhaps enhancing the company image of the MNE).
We end Part B - and the chapter - by referring to Hill's (2005) exposition of R&D in which he explains, among other things, how lead markets - the markets where most new products are developed and introduced - become the best locations for R&D activities. The reading by Hayward (2002) is a useful addition because it highlights that sometimes there is an easier solution to a problem rather than using technologically innovative R&D.
In your text
Hill 2005, Chapter 17, pp. 605-609.
Reading 10.7
Hayward , B. 2002, 'The low-tech advantage', Business Review Weekly , 10-16 January, p. 24.
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