Outsourcing And R&D

If companies outsource manufacturing, will R&D cost allocations be affected? "Depending on the technical content of the product, outsourcing can lead to global proliferation of small R&D engineering support centers." says Bill Hartman, vice president, industrial relations, Eaton Corp., Cleveland. Craig Black, Eaton's chief technology officer, adds that the cost benefits of outsourcing can depend on providing that support. Hartman also notes that some R&D related costs in a business strategy tend to get hidden. One example: the acquisitions that are done when there isn't enough time to innovate internally. Manufacturers are always challenged for the need for speed, he adds. U.S. industrial spending on R&D for 2003 is predicted to be virtually flat at $194 billion -- an increase of less than 1% (0.13%), says Jules Duga, a senior research leader at Battelle Memorial Institute, Columbus, Ohio. He authors Battelle's annual R&D forecast, a joint effort with R&D Magazine. Is that flat U.S. spending rate the major R&D crisis in a period of globalization? Carl Kohrt, Battelle's president and CEO, focuses instead on the need for establishing global R&D listening posts. "If you don't have them, that could be a competitive crisis. "If you're doing R&D, it's important to be cognizant of people doing similar things in different parts of the world. Unfortunately many companies don't do that very well. They might know the fundamentals of who is doing research in another country, but they don't have great insight as to how that technology is being used to make a product. "A struggle for U.S. companies is whether to assume that the technology trends we see here are uniform around the world. Other global cultures often tailor technology for their markets in unique ways that U.S.-based R&D organizations miss. Having a global perspective and a knowledge network or presence for acquiring technology and using other people's technology, when appropriate, is really becoming a critical competitive skill." Winning with global R&D insight needs a well-coordinated strategy, warns Harvard Business School professor Henry Chesbrough (and former Silicon Valley executive). In "Open Innovation" (2003 Harvard Business School Press) he emphasizes the value of external ideas, but makes the point that it takes internal R&D to claim a portion of that value. At General Electric Co., the issue is extending the domain knowledge of researchers and bringing R&D closer to customers, says Niskayuna, N.Y.-based Christine Furstoss, Global Technology Leader for Ceramic and Metallurgy Technology. GE is currently building its fourth R&D center on the Garching campus of the Technical University of Munich, Germany. The other two: the John F. Welch Technology Center in Bangalore, India, and one being completed in Shanghai, China. In 2002 GE reported R&D investments totaling $2.6 billion in 2002.