What Are The Major Drivers Of Globalization

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What Are The Major Drivers Of Globalization Powered By Docstoc
					Globalization of R&D – Drivers and
success factors
Excerpts of the study

Robert Ohmayer – Competence Center Operations Strategy
Stuttgart, April 19, 2007

                                           STR-94000-626-01-01-E   I 1
CONTENT



1   Introduction


2   Drivers for R&D Globalization


3   Global R&D Organizations


4   Recommendations

                                    STR-94000-626-01-01-E   I 2
1    INTRODUCTION


Facts on globalization – Foreign direct investments grew four
times stronger than GDP and twice as strong as exports
World-GDP / World Exports / World FDIs [1985=100]

                                                        CAGR

                                          762 FDI       10,7%
                                  629


                                  324     312 Exports   5,9%
           100
                                  156     164 GDP       2,5%

           1985     90     95    2000     2005


                                                          STR-94000-626-01-01-E   I 3
  1          INTRODUCTION


Our R&D study showes a strong trend to re-locate R&D
activities into the growth regions in Eastern Europe and Asia
Current distribution of R&D locations and trend (next 5 years)

                     -3%
      -7%
                                                                                              > Decreasing R&D
                                                                                                activity in Germany
                                              +4%
                                                                                              > High growth in
                                                                                                – China
                                       +29%               +40%
                                                    +7%                   +10%      +1%         – Eastern Europe
                                                                  +22%
                                                                                                – India

                                                                                              > Stagnation in
                                                                                                Western Europe
 Home Western Eastern North    South                      China   India   Rest of   Rest of
                                                                                                and North America
country Europe Europe America America                                      Asia     world


               average no of locations
Source: Study "Globalization of R&D"                                                               STR-94000-626-01-01-E   I 4
  1          INTRODUCTION


Globalization of R&D is driven into various directions by
different companies

Cost leverage                               Global concentration
System engineering remains in Ger-          Consolidation of research in three locations
many – detail engineering is outsourced     worldwide
to India to leverage cost advantages                                               Bayer
                             ThyssenKrupp

Centralization                              Global decentralization
Focus of R&D activities is in Germany       180 researchers in two central locations –
because of the availability of experts      1,200 developers in all relevant local
             German machinery producers     markets
                                                                                Givaudan

Differentiation                             Global coordination
New research centers have been opened       32 R&D locations in 30 countries
in Shanghai and Singapore to benefit        coordinated by one global research center
from local trends and know-how
                                Novartis                                              3M
Source: Study "Globalization of R&D"                                            STR-94000-626-01-01-E   I 5
  1          INTRODUCTION


The study on globalization of R&D tackles five main questions


Guiding questions for the study

1                What drives companies in globalizing their R&D?


2                How do companies select their R&D locations?


3                How do companies organize their global R&D network?


4                What tools do companies apply for managing the global R&D process?


5                How do companies communicate and exchange know-how globally?

Source: Study "Globalization of R&D"                                            STR-94000-626-01-01-E   I 6
  1          INTRODUCTION


Over 100 companies from six industries have been interviewed
for the study

By industry                                          By turnover [EUR m]                         QUANTITATIVE
                                                                                                 SURVEY
Consumer goods                         Engineering                                               > 103 highly structured
                                       products                                                    telephone interviews
                                                               E2,000                              with multinational
                         17    17                                   17                             companies
                       (17%) (17%)                                (17%)
               17             20   Auto-                                            41
Chemicals                                                                                 <500
             (17%)          (19%) motive
                                                      1,000-
                                                       1999
                                                                 23
                                                               (22%)
                                                                                  (40%)          QUALITATIVE
                   15    17                                               22                     INTERVIEWS
                 (15%) (17%)
                                                                        (21%)
      Electronics                                                                                > Over 20 semi-struc-
          and IT          Pharmaceuticals                               500-999                    tured personal inter-
                                                                                                   views to obtain a
                                                                                                   deeper understanding
Evenly balanced responses                            Majority of companies with more               of challenges and best
from six industries                                  then EUR 500 m turnover                       practices


Source: Study "Globalization of R&D"                                                                        STR-94000-626-01-01-E   I 7
  2          DRIVERS FOR R&D GLOBALIZATION


Drivers for globalization of R&D – Market and technology
access clearly more important than costs

Drivers for globalization of R&D (average scores)         Rationale

                                                          > Market and technology access
                                                            play the most important role in
  Access to                                                 decisions to globalize R&D
                                                    3,7
  markets                                                 > Cost considerations play a role in
                                                            individual projects, but generally
                                                            less for strategic globalization
  Access to                                                 decisions
                                               3,4
  technologies                                            > Only exception is the electronics/
                                                            IT industry, where cost considera-
                                                            tions drive off-sharing of software
  Reduction of                                              development, but still market and
                                         2,4                technology are more important
  costs
                                                            drivers


Assessment of likert scale (1-5)
Source: Study "Globalization of R&D"                                             STR-94000-626-01-01-E   I 8
  2          DRIVERS FOR R&D GLOBALIZATION


Four different clusters have been identified in the study, depen-
ding upon the significance of market and technology drivers
Drivers for globalization of R&D – Cluster segmentation

Technology
access


                                TECHNOLOGY      GLOBALIZATION
                                HUNTERS         LEADERS



                                OPPORTUNISTIC   GLOBAL
                                PLAYERS         MARKETERS

                                                                Market access

Source: Study "Globalization of R&D"                                    STR-94000-626-01-01-E   I 9
  2          DRIVERS FOR R&D GLOBALIZATION


Industries show distinctly different patterns regarding their
drivers for R&D globalization
Drivers for globalization of R&D – Cluster segmentation
CHEMICALS                              ELECTRONICS / IT   AUTOMOTIVE SUPPLIERS




CONSUMER GOODS                         PHARMACEUTICALS    ENGINEERED PRODUCTS




Source: Study "Globalization of R&D"                                    STR-94000-626-01-01-E   I 10
  2          DRIVERS FOR R&D GLOBALIZATION


In Pharmaceuticals technology access is a more important
driver for globalization than market access
Drivers for globalization of R&D – Technology hunters
                                                             > Technology orientation is important to
TECHNOLOGY                                                     access know-how in global hot spots,
                                                               local know-how, patient availability and
                                                               study doctors
                                                             > Market orientation is particularly important
                                                               for development e.g. for clinical studies,
                                                               bridging studies
                                                             > Know-how is spread globally, while only
                                                               few markets (Western Europe, USA,
                                       PHARMACEUTICALS         Japan) are really important. Therefore
                                                               technology overweights market orientation


                                                    MARKET


Source: Study "Globalization of R&D"                                                        STR-94000-626-01-01-E   I 11
  2          DRIVERS FOR R&D GLOBALIZATION


In engineered products some companies focus on central R&D,
while others globalize for better market access
Drivers for globalization of R&D – Opportunistic players/ global marketers
                                                 > Based on the study, companies can be
TECHNOLOGY                                         segmented into two clusters
                                                   – companies focusing on a central R&D
      ENGINEERED PRODUCTS                            footprint – e.g. export oriented
                                                     machinery producers in Germany
                                                   – companies globalizing R&D for better
                                                     market access – e.g. to provide local
                                                     application support or local design

                                                 > Technology access does not play a vital
                                                   role, since it is typically available in
                                                   Germany

                                        MARKET


Source: Study "Globalization of R&D"                                          STR-94000-626-01-01-E   I 12
  2          DRIVERS FOR R&D GLOBALIZATION


Automotive suppliers typically globalize R&D to provide local
application support to customers
Drivers for globalization of R&D – Global marketers
                                                    > Automotive suppliers typically differentiate
TECHNOLOGY                                            between basic engineering and
                                                      application engineering
                                                    > Basic engineering is often conducted
                                                      centrally in the big technology cluster of
                                                      the industry (Germany, Japan)
                                                    > Application and production engineering
                                                      are close to customers/manufacturing
                                                    > Since automotive suppliers are already
                                                      located in the technology clusters of the
                                                      industry, globalization decisions are
                    AUTOMOTIVE SUPPLIERS              mainly taken to follow markets
                                                    > Costs are expected to play a much
                                           MARKET     stronger role in the future


Source: Study "Globalization of R&D"                                                STR-94000-626-01-01-E   I 13
  2          DRIVERS FOR R&D GLOBALIZATION


Chemical industry typically conducts its basic engineering in
global development centers and application engineering locally
Drivers for globalization of R&D – Globalization leaders
                                                     > Generally there is a strong differentiation
TECHNOLOGY                                             between basic engineering and application
                                                       engineering
                                                       – Basic engineering are conducted in
                                                         large R&D centers typically in Germany,
                                                         USA, but more and more in India and
                                                         China
                                                       – Application engineering requires
                                                         proximity to markets for instance in
                                                         agriculture, petrochemicals
                        CHEMICAL INDUSTRY
                                                     > Organical chemistry generally more
                                                       technology oriented, similar to the
                                                       pharmaceutical industry, since focus is
                                            MARKET     often on API development


Source: Study "Globalization of R&D"                                                STR-94000-626-01-01-E   I 14
  3           GLOBAL R&D ORGANIZATIONS


R&D globalization for identified clusters follows four different
patterns
Organizational models for globalizing R&D
TECHNOLOGY HUNTERS                                              GLOBALIZATION LEADERS
                                  >R&D locations in global                 >Network of central research
                                   centers of excellence                    and local development
                                  >R&D locations focused on                >Strong coordination among
    Coordi-                        individual research areas                central and de-central units
    nation
                                  >Research efforts centrally              >Significant development /
                                   coordinated                              customization for local markets
                                  >Example: Novartis                       >Example: 3M

                                  >R&D mainly done in home                 >Basic innovation in global
                                   country                                  research centers
                                  >International locations                 >Development of local products
                                   managed independently                    in local development centers
                                  >Example: Sartorius                      >Example: Givaudan


OPPORTUNISTIC PLAYERS                                           GLOBAL MARKETERS
Source: Study “Globalization of R&D”; interviews                                            STR-94000-626-01-01-E   I 15
  3         GLOBAL R&D ORGANIZATIONS


Research Institutes of Novartis are located at international
biotechnology hubs with access to world-class researchers
Technology hunter – Novartis
                                                                London
                                 Cambridge Boston
                                 Infectious Diseases
                                                                Resp. Diseases                    GLOBAL R&D NETWORK
                                                                Chronic pain
 New Jersey                      Diabetes
 Oncology                        Cardiovascular                             Japan
                                                                                                  > Nine research centers within the
 Arthritis                       Oncology                                   Oncology                “Novartis Institutes for BioMedical
 Functional Genomics                                                                                Research” organization
                                                                            Arthritis
                                                                            Diabetes
                                                                            Cardiovascular        > Centers located in international
                                                                                                    knowledge hubs for know-how access
                                                                                                  > Presence close to universities and
                                                                                                    other biotech companies
      La Joila
      GNF                                                                                         COMPANY PROFILE
      Functional               Basel                           Singapore
      Genomics                 FMI                             Tropical                           > Industry: Pharmaceutical
                               Nervous system                  diseases           Shanghai
                               Transplantation                                    Local           > Headquarters: Basel, CH
                               Oncology                                           diseases
                               Arthritis/Bone
                                                       Vienna
                                                                                  (Asia, China)
                                                                                                  > Sales (2006): USD 37.0 bn
                                                       Dermatology
                               Functional Genomics                                Oncology        > R&D (2006): USD 5.4 bn (14.5%)
                               Ophthalmics



Source: Study “Globalization of R&D”; RB research                                                                        STR-94000-626-01-01-E   I 16
  3        GLOBAL R&D ORGANIZATIONS


Novartis leverages knowledge from own worldwide research
with discoveries of external institutions
Technology hunter – Novartis
BUSINESS CHALLENGES                                 R&D ORGANIZATION                    BENEFITS
> Business success depends                            Novartis Institutes for           > Attraction of highly qualified
  on high-potential break-                            BioMedical Resarch                  personnel globally
  through innovations
                                                    > Coordinated global research       > Access to best available
> Long research and                                   organization                        know-how worldwide
  development cycles and                            > Institutes focusing on specific
  significant first mover                                                               > Critical mass in research hubs
                                                      disease areas                       to effectively drive new drug
  advantages
                                                    > Locations in major global           development
> High risk of project failure                        biotechnology research hubs       > Strong know how leverage
                                                    > Coordination via R&D nodes          from collaboration with
                                                      in Basel and Cambridge              external institutions
Key success factors:                                                                      (universities, independent
                                                    > Global teams across locations
> Availablility of most talented                    > Extensive collaboration with        research institutes, etc.)
  researchers and access to                           external research institutions
  state of the art know-how
Source: Study “Globalization of R&D”; RB research                                                          STR-94000-626-01-01-E   I 17
         3        GLOBAL R&D ORGANIZATIONS


       3M has R&D locations in 30 countries supported by a central
       research center at corporate headquarters in St. Paul, USA
       Globalization leader – 3M
                                                                                          GLOBAL R&D NETWORK
                                                                                          > Central basic research in St. Paul
                                                                                            USA
                                                                          Japan           > Further corporate research centers in
                                                                                            Japan and China
                                                                                          > 32 R&D locations worldwide in 30
                                                                                            countries affiliated to BUs
Basic research in                                                                 China
St.Paul Minnesota USA                                                                     COMPANY PROFILE
(about 600 researchers)
                                                                                          > Industry: Highly diversified
                                                                                            conglomerate
                                                                                          > Headquarters: St. Paul, Minnesota
                                                                                            USA
                                                                                          > Sales (2006): USD 22.9 bn
                                                                                          > R&D (2006): USD 1.5 bn (7%)
             Basic research            Laboratories affiliated with BUs

       Source: Study “Globalization of R&D”; RB research                                                          STR-94000-626-01-01-E   I 18
  3        GLOBAL R&D ORGANIZATIONS


3M develops products in close co-operation with customers
and shares the technology with the whole company
Globalization leader – 3M
BUSINESS CHALLENGES                                 R&D ORGANIZATION                    BENEFITS

> High diversity of products                          Corporate research center         > Integration of customer
  and services (over 50,000                                                               know how in R&D process
  different products)                               > R&D strategy definition
                                                                                        > Leverage of know-how
> Highly decentralized                              > Basic technology development        across markets and BUs
  organization                                      > Coordination of development       > Creation of a strong global
> Different customer needs in                         activities across R&D locations     innovation culture
  local markets                                       Business unit R&D                 > High recognition of 3M as
                                                      locations                           innovation leader
Key success factors:
> Customized product                                > Regional product development
                                                      with close customer interaction   “The product belongs to the
  development in local                                                                  division, the technology to
  markets and transfer of                           > Strong focus on R&D staff         the whole company”
  know-how across                                     exchange across BUs
  BUs/markets

Source: Study “Globalization of R&D”; RB research                                                          STR-94000-626-01-01-E   I 19
  3        GLOBAL R&D ORGANIZATIONS


Givaudan has a market oriented global R&D network – Centers
for basic research support the local development
Global marketer – Givaudan
                                                                                            GLOBAL R&D NETWORK
                                                                                            > One research center for flavors and
                                                                                              two research centers for frangrances
                                                                                            > Around 20 development sites
                                                                                            > 180 R&D staff in basic research and
                                                                                              1200 developers in marketplaces
                                                                                              worldwide

                                                                                             COMPANY PROFILE
                                                                                             > Industry: Flavors and fragrances
                                                                                             > Headquarters: Vernier, CH
                                                                                             > Sales (2006): CHF 2.9 bn
                                                                                             > R&D expenses: 7 – 10%


      Basic research                 Creation centers (Flavor and fragrance)   Creative centers (Fragrance)

Source: Study “Globalization of R&D”; RB research                                                                   STR-94000-626-01-01-E   I 20
  3        GLOBAL R&D ORGANIZATIONS


Knowing local trends and finding unique tastes is the key for
success for Givaudan
Global marketer – Givaudan (Example: flavor creation)
BUSINESS CHALLENGES                                 R&D ORGANIZATION                  BENEFITS

> Regional differences in                             Central research center         > Proximity to local markets –
  tastes                                                                                know-how of local flavors and
                                                    > Basic flavor research             trends
> Rapidly changing consumer                         > Expeditions of developer
  behaviour requires short                            teams to explore new flavors    > Ability to serve global
  product life cycles                                                                   customers with local variants
                                                    > Set up of mini-labs on site
                                                      (“in the jungle, on farms”…)    > Fast innovation cycle for the
                                                      and extraction of samples         development of unique
Key success factors:                                                                    aromas
                                                    > R&D support to regional
> High level of consumer                              laboratories and coordination
  understanding                                       of global projects
> Ability to sense trends and                         Creation centers
  to find unique flavors
                                                    > Custom flavors creation in
                                                      regional laboratories
Source: Study “Globalization of R&D”; RB research                                                        STR-94000-626-01-01-E   I 21
  3        GLOBAL R&D ORGANIZATIONS


Sartorius is a “global company with German roots” – Major part
of R&D activities are concentrated in Germany
Opportunistic player – Sartorius
                                                                     GLOBAL R&D NETWORK
                                                                     > “Global company with German roots”
                                                                     > Main R&D center in Göttingen (in the
                                                                       “Measurement valley”)
                                                                     > Definition of Technology Competence
                                                                       Centers worldwide
                                                                     > Focus on Core Competencies at each
                                                                       site

                                                                     COMPANY PROFILE
                                                                     > Industry: Laboratory and process
                                                                       technology
                                                                     > Headquarters: Germany, DE
                                                                     > Sales (2006): EUR 521.1 m
                                                                     > R&D (2006): EUR 35.5 m (7%)
       Main R&D center               Technology competence centers

Source: Study “Globalization of R&D”; RB research                                           STR-94000-626-01-01-E   I 22
  3        GLOBAL R&D ORGANIZATIONS


Core technology developed in home country as platform –
Variant creation locally
Opportunistic player – Sartorius
BUSINESS CHALLENGES                                 R&D NETWORK                        BENEFITS

> Customization – Market                              Home base R&D location           > Better access to local
  specific customer needs                                                                customers – enabled by
                                                    > Development of core                knowledge of local customer
> Strong competition from                             technologies: mechatronics         requirements
  Asian competitors
                                                    > Weighing system as platform      > Shorter time to market –
> Price pressure                                                                         Postponement strategy
                                                      Worldwide R&D locations
                                                                                       > R&D cost reduction by
                                                    > High autonomy of local             relocation of low-end product
Key success factors:
                                                      organizations and own              development to low cost
> Efficiency of innovation                            development                        countries and centralized
  process and concentration                         > Localization of products based     R&D footprint for platforms
  of know-how in Germany                              on a common platform
> Technology differentiation


Source: Study “Globalization of R&D”; RB research                                                         STR-94000-626-01-01-E   I 23
  4        RECOMMENDATIONS


A well-designed R&D network is a consequence of a
company's business and R&D strategy
Derivation of R&D network design

                             Business Strategy                             >   Product portfolio
                                                                           >   Target markets
                                                                           >   Value proposition

                                          +                                >   Strategic positioning



                                 R&D Strategy                              > Core technologies
                                                                           > Technology roadmap
                                                                           > R&D project portfolio




                                                                           >   R&D locations
                                                                           >   Internal organization
                          R&D Network Design                               >   Collaboration with external partners
                                                                           >   Management and communication tools
Source: Study "Globalization of R&D"; Interviews; Roland Berger analysis                                      STR-94000-626-01-01-E   I 24
  4          RECOMMENDATIONS


Finally, six common success factors were identified for the
development of a global R&D network

 1 Start from corporate strategy – determine first whether it is technology, market know-how, or
   opportunistic cost reduction that drives global R&D

 2 Concentrate technological know-how as much as possible – leveraging the available know-how is
   most effective if it can be bundled in one place

 3 Develop market know-how in decentralized units – local knowledge requires autonomy, central
   influence should be limited to monitoring and general guidelines

 4 Be pragmatic in applying R&D management methods – standard tools are required for any global
   R&D – advanced methods need to be tailored to their specific purpose to be effective

 5 Manage historical growth – do not let R&D structures develop without a clear strategy and direction,
   but actively manage the development

 6 Implement organizational changes carefully – manage change and transition processes to avoid an
   loss of key personnel and know-how

Source: Study "Globalization of R&D"                                                       STR-94000-626-01-01-E   I 25

				
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