Emerging Markets Connect

How Global Should R&D Be?

Our colleagues over at the Global Value Network blog had a nice recent piece on global R&D. The basic takeaway, which draws from research from CEB's Research & Techology Executive Council (RTEC): companies with high performing R&D organizations are those that freely change their organizational structure, and those who freely make those changes are most likely to do it to get closer to their key innovation partners around the world. By transitive clause then, high performing R&D organizations work really hard to put R&D as close as they can to where the innovation and talent are, no matter where that is in the world. This links well with recent Booz & Co. research that found that:

• companies that deploy 60% + of their R&D outside their home countries outperform peers, and
• companies that invest more than 10% of their global R&D spend in low cost countries like China and India do better than others.

What Booz also finds, though, is that there needs to be some concentration, or focus, to global R&D activities. Companies with too widely dispersed R&D tend to underperform others. Our RTEC findings agree here, and take things a step further by noting that high performing R&D organizations focus heavily on knowledge exchange across locations, and avoid extensive decentralization, particularly during growth slowdowns.

So how do we globalize to capture innovation where-ever it is, but ensure we're effectively sharing information across locations and staying in line with our larger strategies? Three things our research has found companies need to be doing here:

1. Optimize Global R&D Location Strategies: Remember, global, but not overly dispersed. Of course, locations will be company-specific. Our conversations with members find that global R&D presence tends to evolve, beginning with basic support operations in countries where the company already has a sales presence. As manufacturing moves in-country, R&D support builds out a bit more, and then begins considering getting bigger in-country. But for many companies, manufacturing in-country is a pre-requisite for "big" R&D there, followed by an assessment of the local market demand for innovation. What we think companies have been considering less, but what RTEC demonstrates is important, is how local innovations can drive growth outside emerging markets themselves. That's the next generation opportunity.
2. Communicate Better Across Sites: R&D teams, and all teams really, need to get better at allowing globally dispersed staff to share knowledge across sites. Our members are innovating by building tools for communities to self-organize, with flexible access rights to protect IP but still share information, classification guidelines to allow for better-organized information, and senior-level accountability for monitoring activity.
3. Increase the Effectiveness of Global Managers: Global managers need a new set of skills to be effective: cultural adaptability, global strategic thinking and team building skills, new market savvy, government-relations capabilities, and others. Successful companies are customizing their manager development programs to transition them from technically-skilled project managers, to global team-builders.

RTEC members can access the Council's Globaly R&D Management Handbook at this link.

On Intellectual Property, Emerging Markets No Different from Your Home Markets

We hear time and again the intellectual property "leakage" fears, and actual horror stories, from companies entering emerging markets, particularly China: there are no standards, employees don't understand intellectual property, the legal/judicial systems don't enforce the laws on the books. This has led many of our members to think twice about entering emerging markets at all, and when entering to think twice about sending their "leading edge" products and processes to those markets. While this may or may not have actually kept them safe, it has certainly kept them from fully capitalizing on growth opportunities.

Today we heard a different perspective and one that was quite instructive from a member (nearly $5 billion in sales last year, 60% of that outside the US) during one of our "EPNDesk" sessions. Among many valuable take-aways, two were particularly relevant to the emerging markets context:

1. Emerging Markets Aren't Standing Still: If you bring your "B Game" to China, you will be quickly surpassed by local competitors, who will copy it, improve it, and sell it for less. This member is committed to aggressively serving customers to China, and finding new ones there, and recognizes that the need for innovation in emerging markets is just as strong as in Western markets.
2. A Globally Consistent IP Strategy Is Critical for A Global Business: As this member's global footprint continued to grow, so did its need to be more cautious about how intellectual assets are managed. But a deliberate decision was made to globalize this effort, not singling out particular locations for added attention or vigor. The imperative here is two-fold: "calling out" particular geographies doesn't win you many points in the battle for employee commitment, and uncommitted employees anywhere are more dangerous and real than "rogue" employees from lawless countries. Further, global collaboration and the innovation and ideas that follow don't happen when the rules are different across locations.

So if you're entering a new geography or are already there, ask yourself, your colleagues down the hall, and your colleagues around the world whether you've got a global strategy for protecting your intellectual assets that is focused on, as our member put it today, (1) teaching all employees what intellectual assets are and why they're important ("so you have a place to work tomorrow"), (2) ensuring access to what people need to do their jobs well, (3) clear business-focused (not geograpy-focused) protocols for managing exceptions, and (4) minimizing barriers to aggressively pursuing new ideas and new growth opportunities.