Innovation offshoring : can R&D processes be outsourced?

Abstract

Competition is still increasing in automotive industry and other industries. Outsourcing is one of the strategies to improve the cost situation of enterprises. Up to now outsourcing was limited to work-intensive production processes and low-cost sites. A current trend extends this strategy to administrative processes, IT services, SW development and engineering services. Low-cost countries such as India and China offer beside low wages also a vast talent pool of well educated engineers and IT specialists. But not only SW development and IT services are done in low-wage countries today, also R&D and knowledge intensive processes are moving towards competence centers in low-cost countries, which have realized large investment in education and research. To analyze the underlying research question if R&D activities, partially or in total, could be outsourced to offshore low-cost sites in the (near) future, desk research on selected sectors that are considered cutting edge in outsourcing of R&D (e.g. automotive engineering, information technology, biotechnology, and pharmaceutical industry) has been made. It was examined which types of tasks are or can be outsourced, which role technical infrastructures play in this context and what are related opportunities and risks for the customers, the R&D service suppliers and the national innovation systems in general. In the first part of the thesis different service outsourcing strategies shall be defined and explained - from Business Process Outsourcing to Knowledge Process Outsourcing. Offshoring will be discussed from different points of view as e.g. a national perspective, a company's perspective and a research perspective. In the second part successful offshore engineering examples from literature have been analyzed to discuss the strengths and weaknesses, challenges and threats of offshore engineering. The drivers of offshore engineering have been explained and analyzed. The analysis focused on management, organizational, technical and political aspects of offshore engineering. Three case studies of offshoring projects concerning engineering services related to R&D have been discussed. Last but not least another trend in R&D management to use external resources worldwide have been introduced and shortly discussed: the open innovation. It has been shown that outsourcing/offshoring of R&D is definitively a trend - however not a homogeneous one. However, a set of first strategic recommendations could be formulated concerning the management of R&D outsourcing and offshoring.