Reasons behind the Growing Demand for R&D and Innovation Outsourcing

Posted on January 31, 2011

Recent research by the National Science Foundation stated that a number of US firms ranging from pharmaceuticals to semiconductors are outsourcing R&D and Innovation, with foreign-based Automotive R&D accounting for nearly 40% of the total R&D among all US companies. India and China rank foremost among suppliers of innovative research and development by providing the complex knowledge that only a broad network of specialists can offer. Here are some of the reasons behind the growing demand for R&D and innovation outsourcing.

Availability of a huge talent pool: Countries like India and China continue to be important suppliers of intellectual property, since they have an abundant supply of talented technical and engineering graduates.Jeffrey Phillips, a senior leader at OVO Innovation says, “Soon, countries like India and China will do what Finland has done – match the US in innovation research and output, no longer following our lead but competing with us for the innovation lead.”

Cheaper costs and infrastructure: Lower cost innovation and resource limits on in-house innovation are very often the deciding factors that lead a company towards outsourcing its R&D functions. With R&D being the biggest single remaining controllable expense to work on, Allen J. Delattre, head of Accenture Ltd’s high tech consulting practice says, “Companies either will have to cut costs or increase R&D productivity”. This can be achieved by outsourcing.

Speedy delivery: Getting a new product to the market faster than a competitor is absolutely essential. James Brian Quinn, Professor of Management at Amos Tuck School, Dartmouth College says, “Companies can get to market faster through outsourcing and avoid time delays in hiring, infrastructure development and internal resistance to new ideas. “ He also feels that smaller companies that take in the outsourced work, are often more flexible, nimble and objective than the larger companies themselves.

Development risks are lowered: Outsourcing R&D and Innovation can help larger companies to reduce development risks for every desired innovation. On the other hand outsource suppliers can spread risks across multiple present and future customers. According to Professor Quinn, “The company that outsources upstream and partners downstream significantly lowers its innovation-adoption risk.”

Specialized aptitudes: Larger companies often decide to outsource R&D since they may not have the motivation or depth of knowledge in all necessary technical fields. Peter Chow, President of HTC, a company which creates and manufactures smart phones for service providers such as Vodafone and Cingular echoes this concept when he says, “We have the capability to integrate all the latest technologies. We do everything except the Microsoft operating system.”

Outsourcing R&D and Innovation helps companies out-innovate their competitor and sustain their leadership position.

Looking for R&D solutions for your organization? Contact Flatworld Solutions today and find out how we can help you with R&D and Innovation outsourcing.

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