Corporate Research and Development in a Late Industrializing

Transcrição

Corporate Research and Development in a
Late Industrializing Context
The Case of Singapore
DISSERTATION
der Universität St. Gallen,
Hochschule für Wirtschafts-,
Rechts- und Sozialwissenschaften (HSG)
zur Erlangung der Würde einer
Doktorin der Wirtschaftswissenschaften
vorgelegt von
Yvonne Elise Helble
aus
Deutschland
Genehmigt auf Antrag der Herren
Prof. Dr. Li Choy Chong
und
Prof. Dr. Martin Hilb
Dissertation Nr. 2848
Difo-Druck GmbH, Bamberg 2004
Die
Universität
St.
Gallen,
Hochschule
für
Wirtschafts-,
Rechts-
und
Sozialwissenschaften (HSG), gestattet hiermit die Drucklegung der vorliegenden
Dissertation, ohne damit zu den darin ausgesprochenen Anschauungen Stellung zu
nehmen.
St. Gallen, den 4. November 2003
Der Rektor:
Prof. Dr. Peter Gomez
II
Acknowledgements
This dissertation could only be achieved with the support and collaboration of many
individuals and organizations. First, I would like to sincerely thank Prof. Dr. Li Choy
Chong, my doctoral advisor, and Prof. Dr. Martin Hilb, my co-supervisor. I am deeply
indebted to Prof. Dr. Li Choy Chong, who far exceeded his duties as doctoral advisor
in terms of academic guidance and support. Whether in Switzerland or Singapore, he
would always take time to discuss my research topic and he continuously encouraged
me to progress further. I would also like to express my sincere gratitude to Prof. Dr.
Martin Hilb for his enthusiasm, positive motivation and academic guidance.
I would also like to extend my gratitude to Prof. Dr. Arnoud De Meyer, INSEAD
Deputy Dean, Dean of Administration, and Prof. Dr. Hellmut Schütte, Dean of Asia
Campus, for accepting me as Visiting Research Associate at INSEAD, while carrying
out field research in Singapore and during the writing stage in Fontainebleau, France. I
would especially like to thank Prof. Dr. Arnoud De Meyer for his academic expertise.
As a pioneer in the field of international R&D management, he gave me very valuable
academic guidance. I considered it a great privilege to be able to discuss my research
with him.
I am also indebted to Prof. Dr. Roberto Mariano and Prof. Dr. Augustine Tan for
accepting me as Visiting Research Associate at the Wharton-SMU (Singapore
Management University) Research Center in Singapore. In addition, I greatly
appreciate the support from Dr. Jasbir Singh from the Agency of Science, Technology
and Research, Singapore.
This dissertation would not have been accomplished without interviews with many
executives who took time off from their hectic schedules to discuss their R&D
activities and strategies with me. I would particularly like to thank Prof. Dr. Paul
Herrling, Head of Corporate Research at Novartis, Dr. Thomas Keller, Head of
Chemistry at the Novartis Institute for Tropical Diseases, and Dr. Richard Harrison,
Head of Staff of Novartis Pharma Research. Special thanks go to Prof. Dr. Paul
Herrling for his exceptional support. I would also like to thank Mr. Ah Bee Goh,
III
Managing Director of Leica Instruments Singapore (LIS), and Ms. Germaine Tan,
Senior R&D Manager at LIS, for their extraordinary help and kind support. I am also
greatly indebted to Dr. Santosh Mishra, Managing Director of Lilly Systems Biology
Singapore, Mr. Thomas Frischmuth, Managing Director of Siemens Singapore, and
Mr. Michael Tiefenbacher, Vice President, Development Center Singapore, Infineon
Technologies.
I am truly thankful to the Schweizer Nationalfonds for granting me a scholarship,
which enabled me to be a Visiting Research Associate at INSEAD in Singapore and
France and at the Wharton-SMU Research Center in Singapore. I am equally indebted
to the Cusanuswerk e.V. for granting me a PhD scholarship. I would like to thank in
particular Dr. Ingrid Reul of the Cusanuswerk e.V.
In addition to my supervisors, the interview partners and the scholarship institutions, a
number of friends have been important during my doctoral studies. My two friends,
Dr. Kyung-won Kim and Marla Kameny, were critical for my social life during my
doctoral studies. Special thanks go to Dr. Kyung-won Kim for proofreading and
encouragements in the final phase of my dissertation. I would also like to thank Nicole
Köhmstedt and Andreas Kühn for their wonderful friendship and for being the best
hosts in St. Gallen! Furthermore, I would like to thank Verena Hässig for her
friendship and support and for being my Swiss guide. Special thanks also go to Dirk
Böhe, who gave me excellent research suggestions and comments, and to Dr. HansPeter Hentze, who provided me with the inspiration for my dissertation topic.
I would also like to thank Linda, Wilson and Ethan Fong for being my family ‘away
from home’ during my stay in Singapore. Their loving support, friendship and
kindness made my stay in Singapore unforgettable. I would also like to sincerely thank
Doris Lee, Wang Liang Toon and Alin Nainggolan for their extraordinary friendship
during my stay in Singapore. The same is true for my friend Cheihwee Chua and Mr.
and Mrs. Delaunay, my hosts in Fontainebleau.
IV
My brother Matthias Helble and his girl-friend Nathalie Benoît are highly regarded for
their inexhaustible patience in editing this thesis and for giving me continuous moral
support in the final writing stage. I would especially like to thank Matthias for always
being a great brother.
Finally, I would like to express the most sincere appreciation to my parents, Johanna
and Carl Helble, who always supported me in their best way during my academic
education. Without their love and unconditional support, I would not be where I am
today. I would especially like to thank my mother, the best mum in the world, for
always being there for me. Her love and encouragement make it all worthwhile.
This thesis is dedicated to my loved ones, my parents, my brother and my
grandmother.
St. Gallen, November 2003
Yvonne Elise Helble
V
This dissertation is dedicated to my parents Johanna und Carl Helble,
to my brother Matthias Helble
and to my grandmother Maria Helble.
VI
Wer glaubt, etwas zu sein, hat aufgehört, etwas zu werden.
(Sokrates)
VII
Table of Contents
EXECUTIVE SUMMARY ___________________________________________ IX
1
INTRODUCTION ________________________________________________1
2
LITERATURE REVIEW __________________________________________6
2.1
Definition of International Corporate R&D Activities _________________6
2.2
Development of the Literature on International R&D__________________7
2.2.1 Determinants of R&D Internationalization ________________________7
2.2.2 International R&D Organization and Management ________________13
2.2.3 R&D Internationalization Process______________________________21
2.3
3
Research Gaps in the International R&D Literature __________________26
RESEARCH METHODOLOGY___________________________________31
3.1
Fundamental Approaches to Research Methodology _________________31
3.2
Research Methods Used in this Dissertation ________________________32
3.2.1 Archival/Theoretical Analysis _________________________________32
3.2.2 Case Study ________________________________________________33
3.2.3 Survey____________________________________________________35
3.2.3.1 Large Scale Survey_______________________________________36
3.2.3.2 In-depth Survey _________________________________________37
3.3
4
Overview of Research Methods Applied___________________________39
LATE INDUSTRIALIZING CONTEXT: SINGAPORE AS A NONTRADITIONAL R&D LOCATION ________________________________41
4.1
Singapore’s Science and Technology Policy________________________41
4.2
Challenges for Singapore as a Non-Traditional R&D Location _________47
4.2.1 Structural Factors __________________________________________48
4.2.1.1 Insufficient Local Human Resources _________________________48
4.2.1.2 Overdependence on MNEs for Innovation _____________________48
4.2.2 Social and Cultural Factors___________________________________49
4.2.2.1 Lack of Entrepreneurship __________________________________49
4.2.2.2 Lack of Creativity________________________________________50
4.3
Concluding Remarks __________________________________________52
i
5
EMPIRICAL EVIDENCE ________________________________________54
5.1
Quantitative Empirical Findings: R&D Internationalization Determinants
and International R&D Organizations ____________________________54
5.1.1 Conceptual Framework of a Metanational R&D Organization _______54
5.1.1.1 The Metanational Organization _____________________________54
5.1.1.2 The Metanational R&D Organization ________________________55
5.1.2 Operationalization of Major Variables __________________________63
5.1.2.1 Leveraging of Technological Hierarchy_______________________63
5.1.2.2 Number of Knowledge Bases _______________________________65
5.1.2.3 R&D performance _______________________________________67
5.1.3 Discussion of Results ________________________________________70
5.1.3.1 Different Types of R&D Organizations _______________________70
5.1.3.2 Exploratory Performance Implications________________________73
5.2
Quantitative Empirical Findings: R&D Internationalization Process _____81
5.2.1 Conceptual Framework ______________________________________81
5.2.1.1 Technological Capability __________________________________81
5.2.1.2 Technological Capability Upgrading _________________________82
5.2.2 Levels of Technological Capabilities of R&D Subsidiaries___________88
5.2.3 Typology of Technological Paths of R&D Subsidiaries______________92
5.2.3.1 Derivation of Technological Paths ___________________________92
5.2.3.1.1 Technological Path I _________________________________93
5.2.3.1.2 Technological Path II and Technological Path III ___________94
5.2.3.2 Performance Implications of Technological Paths _______________95
5.2.3.2.1 Technological Path I _________________________________96
5.2.3.2.2 Technological Path II and Technological Path III ___________97
5.2.3.2.3 Temporal Sequence of Technological Stages ______________99
5.2.3.2.4 Discussion of Results_________________________________99
5.2.3.3 Impact of Key Factors on Technological Capability Upgrading ___106
5.2.3.3.1 Role of Internal R&D Network Linkage _________________106
5.2.3.3.2 Role of External R&D Network Linkage_________________108
5.2.3.3.3 Discussion of Results________________________________110
ii
5.2.4 Managerial Implications ____________________________________115
5.2.4.1 Internal and External R&D Management Needs in a Late
Industrializing Context ___________________________________115
5.2.4.2 Discussion of Results ____________________________________120
5.3
Qualitative Findings _________________________________________123
5.3.1 A Metanational R&D Organization in the Making: Novartis Institute for
Tropical Diseases (NITD) in Novartis’ Research Organization ______123
5.3.1.1 Introduction ___________________________________________123
5.3.1.2 The NITD in Novartis’ Research Organization ________________123
5.3.1.3 Novartis’ R&D Organization as Metanational R&D Organization _125
5.3.1.4 Leveraging of the Technological Hierarchy ___________________125
5.3.1.4.1 Sensing of the Knowledge Base in the Periphery __________125
5.3.1.4.2 Mobilizing the Knowledge Base in the Periphery __________126
5.3.1.4.3 Integrating the Knowledge Base into the R&D Organization _127
5.3.1.5 Knowledge Base in the Periphery __________________________130
5.3.1.6 Conclusion ____________________________________________131
5.3.2 Case Study: R&D Activities at Leica Instruments Singapore ________132
5.3.2.1 Introduction ___________________________________________132
5.3.2.2 Underlying Rationale for Initiation of R&D Activities __________132
5.3.2.3 General Technological Path at LIS__________________________133
5.3.2.4 Methods of Technological Capability Upgrading ______________136
5.3.2.5 Leica Microsystems: Process of Technological Capability Upgrading
_____________________________________________________137
5.3.2.6 Leica Geosystems: Process of Technological Capability Upgrading 139
5.3.2.7 Management Capabilities During the Process of Technological
Capability Upgrading ____________________________________142
5.3.2.8 Impact of Technological Capability Upgrading on LIS’ Performance
_____________________________________________________143
5.3.2.9 Main Challenges Ahead __________________________________145
iii
5.3.3 Internal and External R&D Network Linkage: The Establishment of Lilly
Systems Biology in Singapore ________________________________146
5.3.3.1 Introduction ___________________________________________146
5.3.3.2 Motivation for Establishing Lilly Systems Biology in Singapore __147
5.3.3.3 Internal R&D Network Linkage ____________________________147
5.3.3.4 External R&D Network Linkage ___________________________148
5.3.3.5 Interaction between Internal and External R&D Network Linkage _149
5.3.3.6 Management Capabilities and Challenges Ahead ______________150
5.4
6
Summary of Findings ________________________________________150
IMPLICATIONS FOR THEORY, PRACTICE AND POLICY ________153
6.1
Implications for Theory _______________________________________153
6.2
Implications for Practice ______________________________________155
6.3
Implications for Policy _______________________________________158
7
CONCLUSION ________________________________________________161
8
REFERENCES ________________________________________________165
9
APPENDIX ___________________________________________________177
9.1
Questionnaire as a Basis for the In-Depth Interviews ________________177
9.2
Open-ended questions asked during the in-depth interviews __________183
9.3
Definition of Technological Stages provided for Section C of the
Questionnaire ______________________________________________184
9.4
Letter Asking for Interview Participation _________________________185
9.5
Interview Partners ___________________________________________187
iv
List of Exhibits
Exhibit 1:
Structure of Dissertation
5
Exhibit 2:
Overview of Literature on R&D Internationalization Determinants
8
Exhibit 3:
Major Determinants of R&D Internationalization
12
Exhibit 4:
Overview of Literature on International R&D Management
17
Exhibit 5:
Different International R&D Organizational Models
19
Exhibit 6:
Literature on the R&D Internationalization Process from a Corporate
Perspective
Exhibit 7:
22
Literature on the R&D Internationalization Process on a Subsidiary Level
24
Exhibit 8:
Research Gaps in the International R&D Literature
29
Exhibit 9:
Research Questions
30
Exhibit 10: Selected Macroeconomic Indicators for Singapore 1965-2000
43
Exhibit 11: Determinants of R&D Internationalization
57
Exhibit 12: Leveraging of Technological Hierarchy in the Metanational R&D
organization
59
Exhibit 13: Proposed Model for the Metanational R&D Organization
60
Exhibit 14: Comparison of Traditional R&D Models versus the Metanational R&D
62
Organization
Exhibit 15: Classification Scheme for Different International R&D Organizations
66
Exhibit 16: Classification of R&D Organizations
71
Exhibit 17: Regression Results on Number of New Product Developments versus
Ethnocentric and Meta/Hub/Integrated R&D Organizations (Electronics
Industry only)
76
Ethnocentric and Meta/Hub/Integrated R&D Organizations (Other
Industries)
78
v
Exhibit 19: Framework for a Metanational R&D Organization: Implications for the
80
Periphery
Exhibit 20: Framework for Technological Capability Upgrading at R&D Subsidiary
Level
84
Exhibit 21: Level of Technological Stages
86
Exhibit 22: Industry Breakdown of Different Technological Stages Followed by
R&D Subsidiaries of MNEs (1995-2002)
89
Exhibit 23: Comparison of Technological Levels of R&D Subsidiaries of MNEs
versus Local R&D Subsidiaries (1995-2002)
91
Exhibit 24: Typology of Technology Paths of R&D Subsidiaries
Exhibit 25: R&D Performance Behavior of Technological Paths I, II and III
92
101
Exhibit 26: Performance Behavior of R&D Subsidiaries (Fast and Slow Path
Sequence)
105
Exhibit 27: Internal R&D Network Linkage Level
107
Exhibit 28: External R&D Network Linkage Level
109
Exhibit 29: Technological Sophistication and Internal as well as External R&D
Network Linkage (All Industries)
111
Network Linkage (Electronics Industry only)
112
Network Linkage (Biomedical Sciences Industry only)
113
Exhibit 32: Classification of R&D Subsidiaries according to their Internal and
External R&D Network Linkages
117
Exhibit 33: Classification of R&D Subsidiaries in the Sample
121
Exhibit 34: LIS’ General Technological Path (Technological Path I)
135
Exhibit 35: Process of Technological Capability Upgrading at BU-SM
139
Exhibit 36: Process of Technological Capability Upgrading at Leica Geosystems
141
Exhibit 37: LIS’ Financial Ratios 1992-2003
vi
144
Abbreviations
A*Star
Agency for Science, Technology and Research
AG
Aktiengesellschaft
BMRC
Biomedical Research Council
BU-SM
Business Unit Stereomicroscopy
CEO
Chief Executive Officer
COE
Create, Own and Exploit
CPAD
Corporate Planning and Administration Division
CRO
Clinical Research Organization
DF
Dengue Fever
EDB
Economic Development Board
et al.
and others (in Latin: et alii)
ETPL
Exploit Technologies Private Limited
FDI
Foreign Direct Investment
FMI
Friedrich Miescher Institute
FY
Fiscal Year
GDP
Gross Domestic Product
GNF
Genomics Institute of the Novartis Research Foundation
GNP
Gross National Product
vii
HQ
Headquarters
IP
Intellectual Property
IT
Information Technology
LIS
Leica Instruments Singapore
MNE
Multinational Enterprise
NITD
Novartis Institute for Tropical Diseases
NUS
National University of Singapore
PA
Patent Applications
PD
Product Developments
R&D
Research and Development
RISC
Research Initiative Scheme
SERC
Science and Engineering Council
SIMTech
Singapore Institute for Manufacturing Technology
TB
Tuberculosis
TP
Technological Path
UK
United Kingdom
US
United States
WHO
World Health Organization
viii
Executive Summary
This dissertation examines international R&D (research and development)
organizations in Singapore. After introducing the topic in chapter 1 and reviewing the
literature pertinent to international R&D in chapter 2, the research methodology is
discussed in chapter 3. Based on the literature review, research gaps have been
identified. In essence, R&D internationalization has so far been confined to the triad
nations, so that implications beyond this geographical area have been neglected. The
research questions in this dissertation therefore address these implications by
analyzing what type of R&D model enables an R&D organization to tap into
knowledge existing in non-traditional R&D locations; this dissertation also
demonstrates why R&D subsidiaries in non-traditional R&D locations are still at the
periphery and how they can increase their level of technological sophistication; it also
analyzes performance and managerial implications in the periphery context. The
research thus aims to provide a first study on international R&D organizations, present
also in late industrializing countries, a major, but neglected research area.
The periphery context is analyzed in chapter 4. Singapore is a late industrializing
country, which has been able to attract high quality foreign direct investment,
involving activities of higher value added and more complex technology. However, it
has yet to develop full-fledged R&D activities. So far only few R&D organizations
conduct research in Singapore and most R&D subsidiaries’ focus is on development.
Lessons learned from the Singapore experience include the need to develop sufficient
local R&D expertise as well as to change the general mindset to focus on creativity
rather than on precise execution.
The empirical study in this dissertation is based on 85 in-depth interviews with 61
R&D subsidiaries of MNEs (multinational enterprises) in Singapore, 10 Singaporebased R&D subsidiaries, two public research institutes (Singapore Institute of
Manufacturing Technology and Institute of Bioengineering) and the two main
government bodies (Agency for Science, Technology and Research and the Economic
Development Board). In the in-depth interviews, responses to a standard questionnaire
ix
were sought, but open-ended questions were also asked and thus important firmspecific contexts could be discussed.
Based on these in-depth interviews, the fifth chapter presents and discusses both the
quantitative and qualitative empirical findings of this dissertation. The first part of
chapter 5 proposes a framework for a metanational R&D organization. Metanational
R&D organizations are characterized as R&D organizations that are capable of
optimally leveraging the technological hierarchy internationally and which use a large
number of knowledge bases to their advantage. This means that metanational R&D
organizations leverage different technological stages within their R&D organization
based in many critical knowledge clusters, including non-traditional R&D locations.
From the data analysis in the first part of chapter 5, it is found that (1) the metanational
organization applies to only a limited extent to R&D organizations, that (2) there is a
relationship between the type of international R&D organization and R&D
performance at subsidiary level and (3) that the notion of the metanational R&D
organization is certainly not mere imagination, even if it is reality for only a few R&D
organizations today. It could, however, possibly be the new organizational model of
international R&D organizations in the future. In such a transition to a metanational
R&D organization, R&D subsidiaries’ managers face the challenges of non-existent or
marginal perceptions of the periphery by headquarters and a lack of full-fledged R&D
activities in their context. Given this situation, therefore, a change in the perception of
the periphery is necessary. Such a change can be achieved by increasing the level of
technological sophistication of R&D subsidiaries in the periphery, thus creating a
critical knowledge cluster, a necessary condition for R&D organizations to tap into the
periphery and thus to become metanational.
A second part of chapter 5, therefore, concentrates on how R&D subsidiaries can
achieve such an increase in their technological sophistication, which will allow R&D
subsidiaries to manage increasingly complex knowledge and thus to remain
competitive. Both the level and the evolution of technological capabilities are
investigated. While the level of technological capabilities gives a static picture, the
evolution of technological capabilities shows the dynamics behind technological
x
upscaling. Key factors which influence technological sophistication are analyzed,
namely internal and external R&D network linkage. Based on this analysis, this
dissertation draws some implications for management.
Analysis of the data in this second part of chapter 5 shows that (1) the level of
technological capability is mostly at the technological stages of development, that (2)
interfirm differences in technology paths may result in differential R&D performance,
that (3) technological capability upgrading within the same type of technological
capabilities occurs at a faster pace than between different types of technological
capabilities, that (4) internal R&D network linkage has a greater impact on
technological sophistication than external R&D network linkage and that (5) the
interaction of internal and external R&D network linkage is critical for an R&D
subsidiary in the periphery. The last two findings imply that R&D subsidiary managers
need to increase the strategic importance of their R&D site within the internal
corporate R&D organization and need to create an efficient local network of external
players. If these internal and external R&D management issues are properly addressed,
the R&D subsidiary can contribute effectively to the internal corporate R&D
organization and be a crucially important partner in the local external research
network. Through such an interaction of internal and external R&D network linkage
an R&D subsidiary in a non-traditional R&D location may reach the same status as
R&D sites in the triad nations.
A third part of chapter 5 discusses qualitative findings in the form of case studies. The
first case uses Novartis’ R&D organization as an example of a metanational R&D
organization in the making. The Novartis Institute for Tropical Diseases (NITD) is
currently being built up as an R&D site in Singapore for conducting research into the
tropical diseases of tuberculosis and dengue fever. Consequently, Novartis’ R&D
organization has tapped into knowledge residing in the periphery and has mobilized
and integrated this knowledge in the overall R&D organization, creating a
metanational advantage. The second case study analyzes the technological capability
upgrading of Leica Instruments Singapore (LIS). LIS started its R&D activities as a
manufacturing support unit and increased its level of technological sophistication to
that of an exploratory development unit, engaging in several external research
xi
collaborations. Management capabilities and challenges during this process are
discussed. The third case study investigates the internal and external R&D network
linkage of Lilly Systems Biology. This R&D site has been created recently in
Singapore. The building of an internal and external R&D network linkage is examined
and how its interaction is managed is shown. A final part in chapter 5 summarizes the
empirical findings of this dissertation.
Chapter 6 points out implications for theory, practice and policy. In theoretical terms,
this dissertation hopes to provide a small step towards a more advanced understanding
of international R&D management by analyzing the implications of R&D
internationalization beyond the triad nations. It thus develops a framework for a
metanational R&D organization and investigates the process of technological
upgrading of R&D subsidiaries in the periphery. Certainly, more theoretical
development is warranted in future studies. Practical implications refer mostly to the
perception gap between headquarters and R&D subsidiaries. It is frequently found that
the R&D subsidiary’s level of technological sophistication is overestimated by the
R&D subsidiary itself and is underestimated by headquarters. Intense communication
with headquarters and the creation of an awareness of the local context are important
managerial implications. With respect to policy implications, the role of the Singapore
government is decisive in fostering more and higher level R&D activities. Singapore’s
science and technology policy may indeed serve as a role model for other late
industrializing countries. Chapter 7 presents conclusions, indicates limitations of the
dissertation and suggests areas for future research. There is a need for studies
examining, for instance, more late industrializing countries and their differences with
regard to R&D. These and other issues provide ample scope for future studies in the
field of international R&D management.
xii
1 INTRODUCTION
Different corporate functions show a different development regarding their
internationalization. Multinational enterprises (MNEs) first largely internationalized
their sales and production functions. The R&D (research and development) function,
however, was typically concentrated in the home country. Concerned that the potential
benefits of overseas research would be outweighed by the costs incurred from
duplicated efforts, scale diseconomies and knowledge leaks, few organizations were
willing to internationalize their R&D activities.
During the past fifteen years, however, a large number of MNEs have located
considerable portions of their R&D activities abroad (Boutellier, Gassmann and von
Zedtwitz, 2000: 3-8; Florida, 1997: 85-86; Kuemmerle, 1997: 61-62). The emergence
of more knowledge centers worldwide, for instance, has provided a strong incentive to
internationalize corporate R&D activities in order to tap into and leverage on new
knowledge. A study by Kuemmerle (1999) of 32 multinational firms in 5 countries
shows that overseas R&D efforts by these firms increased from 6,2% in 1965 to 25,8%
in 19951. At the beginning of corporate R&D internationalization, knowledge centers
were limited to the triad nations (US, Europe and Japan). More recently, this
development has extended beyond the triad nations and also includes the ‘periphery’,
non-traditional R&D locations, which are emerging as critical knowledge bases
(Boutellier, Gassmann and von Zedtwitz, 2000: 38).
Given the increasing propensity to internationalize the corporate R&D function, there
is a correspondingly strong interest in firms’ international R&D activities from an
academic perspective (Penner-Hahn, 1998: 149). Research in the field of international
1
European firms are at the forefront of this internationalization process, but US firms and Japanese firms seem
to have less internationalized their R&D activities compared to their European counterparts. European MNEs
operating in small countries have particular high shares of foreign corporate R&D. Firms based in Belgium and
the Netherlands, for instance, perform more of their R&D activities outside the home country than inside it
(Granstrand, Hakanson and Sjölander, 1993: 414). Swiss firms spend more than 50% of their R&D expenditure
abroad (Boutellier, Kloth and Bodmer, 1996: 282). Foreign shares of R&D for firms in larger European countries
such as Sweden and the UK vary between 23 and 42% (Granstrand, Hakanson and Sjölander, 1993: 414;
Granstrand, 1999: 279). These figures contrast with foreign R&D activities of 10%-12% by US firms (v.
Zedtwitz, 1999: 31). Japanese firms are late, but fast internationalizers regarding their R&D internationalization
(Grandstrand, 1999: 278).
1
R&D management has examined various issues such as the determinants, the
management and the process of this R&D internationalization.
First, the determinants of R&D internationalization have been the subject of various
studies (De Meyer, 1993; Florida, 1997; Kuemmerle, 1999; Le Bas and Sierra, 2002;
Patel and Vega, 1999; Ronstadt, 1977, 1978; Westney, 1993). A second research
stream focuses on the management of the internationally dispersed R&D facilities and
their respective roles because the ongoing process of the internationalization of R&D
raises the issue of its effective management (Boutellier, Kloth and Bodmer, 1996;
Gassmann and von Zedtwitz, 1998; Gerpott, 1990; Gerybadze and Reger, 1999;
Medcof, 1997; Medcof, 2001; Nobel and Birkinshaw, 1998; von Zedtwitz, 1999; von
Zedtwitz and Gassmann, 2002). Third, researchers have investigated the
internationalization process of corporate R&D (Belderbos, 2003; Cantwell, 1989;
Cantwell, 1992; Grandstrand, 1999; Kuemmerle, 1999; Pearce, 1989; Pearce and
Pooni, 1996; Pearce and Singh, 1992)
As can be seen, most studies of overseas R&D activities address three research
questions: 1) What are the determinants to conduct R&D outside the home country? 2)
How should MNEs manage a globally dispersed portfolio of R&D sites? and 3) What
is the nature of the R&D internationalization process?
Unfortunately, these research questions have only been explored for R&D sites in the
triad nations and neglect further implications beyond that geographical area, ignoring
non-traditional R&D locations, namely late industrializing countries, which are
increasingly gaining in importance as critical knowledge bases. This observation is
confirmed by Mahmood and Singh (2003: 1053) who state that so far research has
focused on developed countries, leaving room for further research on innovation in
late industrializing countries. Little is known about technological capability
development in late industrializing countries and its impact on the R&D organization
(Figueiredo, 2002: 73).
Furthermore, the current literature focuses mostly on the phenomenon of R&D
internationalization from a corporate perspective. The general subsidiary literature (for
2
instance Birkinshaw and Hood, 1998 and Andersson, Forsgren and Holm, 2002)
addresses subsidiary specific issues, but not related to the R&D function. Almost no
attention has been paid to R&D subsidiaries as such. In an increasingly competitive
environment, however, the capability of deploying and leveraging technological
competencies at R&D subsidiary level is a major source of gaining and sustaining
competitive advantage for MNEs (Birkinshaw and Hood, 1998: 773). In essence, there
has been no examination of how R&D internationalization affects R&D subsidiaries in
the periphery. Previous studies examined R&D internationalization from a
headquarters perspective and focused on the triad nations.
The present dissertation represents a modest attempt to illuminate this blind spot in the
literature. The research gap identified leaves several important questions unanswered:
What type of international R&D model enables R&D organizations to tap into
knowledge in non-traditional R&D locations? Why are non-traditional R&D locations
still at the periphery and how can R&D subsidiaries in non-traditional R&D locations
increase the importance of the periphery? What are management and performance
implications in non-traditional R&D locations?
Hence, this dissertation attempts to address these important, unanswered questions of
R&D internationalization for the periphery. More specifically, it examines and
proposes a metanational R&D organization, investigates why R&D subsidiaries in
non-traditional R&D locations are still at the periphery and how R&D subsidiaries in
the periphery can increase their level of technological sophistication, discusses internal
and external R&D management needs and draws performance implications.
It is one of only a few empirical research projects which examine R&D subsidiaries in
the periphery. It attempts to advance our understanding of international R&D
organizations and of technological capability development in non-traditional R&D
locations. The study’s principal contribution to the field include the creation of a new
primary data set, the formulation of simple theories and associated propositions that
address the neglected research questions. This dissertation also develops measures that
operationalize the leveraging of technological hierarchy, technological paths, internal
and external R&D network linkage and innovative performance.
3
This dissertation is organized as follows: chapter 2 reviews the existing literature on
international R&D management. Chapter 3 discusses the research methodology.
Chapter 4 analyzes the context of the periphery, namely Singapore, where the R&D
investment under investigation takes place. This chapter is devoted to Singapore’s
science and technology policy and its recent efforts to create a biomedical sciences
hub. It considers in particular Singapore’s transition towards more research activities.
Chapter 5 presents and discusses both the quantitative and qualitative findings of this
dissertation. Chapter 6 draws implications for theory, practice and policy. Chapter 7
identifies limitations of the study, suggests directions for future research and presents
conclusions. The structure of the dissertation is shown in exhibit 1:
4
Exhibit 1: Structure of Dissertation
Introduction
Literature Review
Research Methodology
Late Industrializing Context:
Singapore as a Non-Traditional R&D Location
Empirical Evidence
Quantitative Findings
Qualitative Findings
Implications for Theory, Practice and Policy
Conclusion
Source: Author
5
2 LITERATURE REVIEW
2.1 Definition of International Corporate R&D Activities
Before reviewing the literature on the internationalization of corporate R&D, the
central term must be defined. R&D refers to the systematic approach of gaining new
scientific knowledge through the combination of production factors (Gauglitz-Lüter,
1998: 6). Research, the ‘R’ of R&D, denotes the process of discovering this
knowledge, thus providing a platform for product and process development for
specific markets, which is the major task of the development unit (v. Zedtwitz, 1999:
16-17). In general, R&D activities show several singular characteristics: First, they
exhibit a high degree of innovation. This degree varies according to the development
or research function. Second, the tasks within R&D are of a unique and non-repetitive
nature or in other words R&D activities are often unstructured and intangible. Third,
the R&D process reveals a high degree of complexity. This being the case, R&D
activities are also characterized by a high degree of uncertainty and risk. Fourth,
strategic control of R&D activities is considered crucial since R&D knowledge is an
important invisible asset of the firm (De Meyer, 1993: 110; for technology as a source
of competitive advantage also see Barney, 1991; Mahoney and Pandian, 1992;
Wernerfelt, 1984).
Internationalization of corporate R&D refers to the fact that a significant portion of a
firm’s R&D activities are conducted in an international setting. Global R&D
management is defined as the management of corporate R&D efforts in different
countries (De Meyer and Mizushima, 1989: 135).
The R&D definition used in this dissertation relies on the R&D classification
developed by Amsden and Tschang (2003) and Medcof (1997), who distinguish
between different technological stages within R&D. This classification has been
adopted because it is a comprehensive definition of R&D and is suitable for the late
industrializing context (for more details see chapter 5).
6
2.2 Development of the Literature on International R&D
The internationalization of corporate R&D was a marginal subject for research up to
the 1980s (e. g. Behrman and Fischer, 1980; Ronstadt, 1977, 1978). Academic interest
in this topic started in the early 1990s (e. g. De Meyer and Mizushima, 1989; De
Meyer, 1993). Up to that point in time, the internationalization of R&D attracted only
peripheral and passing attention in the literature (Granstrand, Hakanson and Sjölander,
1993: 414; Granstrand, 1999: 276; Gerybadze and Reger, 1999: 251). One of the
reasons for the relatively late development in theory and practice of R&D
internationalization was a widely held assumption that corporate R&D activities
needed to be centralized. It was argued that the protection of firm-specific technology
was only possible by centralizing corporate R&D activities. Furthermore, it was
believed that only through such centralization could economies of scale, and as such
the necessary efficiency in corporate R&D, be reached. Another important reason for
centralized corporate R&D is historical: R&D facilities were traditionally established
close to headquarters (Gerpott, 1990: 230).
However, with the internationalization of other corporate activities such as sales and
production, the internationalization of corporate R&D activities followed suit,
overthrowing the long-held belief in the centralization of corporate R&D activities
(Gerybadze and Reger, 1999: 251).
A literature review in the field of international R&D management revealed that
previous studies in international R&D management include R&D internationalization
determinants, international R&D organization and management and the R&D
internationalization process. These different literature streams are discussed in more
detail in the following sections.
2.2.1 Determinants of R&D Internationalization
A
substantial
body
of
literature
examined
the
determinants
for
R&D
internationalization (for instance De Meyer, 1993; Florida, 1997; Kuemmerle, 1999;
Le Bas and Sierra, 2002; Patel and Vega, 1999; Ronstadt, 1977, 1978). The different
7
determinants indicate why R&D organizations conduct R&D abroad. The following
exhibit gives on overview of this literature stream:
Exhibit 2: Overview of Literature on R&D Internationalization Determinants
Authors
Purpose of Study
Main Findings of R&D
Internationalization
Determinants
Creamer, 1976
Differences between homecountry R&D and overseas
R&D
Market-driven and labor cost
determinants
Ronstadt, 1977;
1978
In-depth case studies of
overseas R&D investment of
seven US MNEs
Four types of R&D units:
Transfer technology units,
indigenous technology units,
global technology units and
corporate technology units ⇒
Market-driven determinants and
technology driven determinants
Hewitt, 1980
Foreign R&D activities by US Market-driven determinants
MNEs based on 1966 data
(technical support) and
technology-driven determinants
Pearce, 1989
R&D activities by US MNEs
Market-driven and technologydriven determinants
Pearce and
Singh, 1992
Survey of the
internationalization process of
corporate R&D by the world’s
leading enterprises
Various determinants
(characteristics of parent and
subsidiary laboratories
important)
Westney, 1993
Cross-Pacific
Technology driven determinants
internationalization of R&D by for Japanese firms versus market
US and Japanese firms
driven determinants for
American firms
Serapio and
Dalton, 1993
Survey of 255 US research
facilities of foreign firms
8
Japanese R&D facilities more
oriented towards commercial
markets than European R&D
facilities
Exhibit 2 continued:
Authors
Purpose of Study
Main Findings of R&D
Determinants
De Meyer, 1993
16 clinical case studies of
Technical learning
European, North American and
Japanese firms
Kuemmerle,
1996; 1999
Investigation into the
international allocation of
R&D activities by MNEs
Home-base augmenting
(technology driven) versus
home-base exploiting (marketdriven) determinants
Florida, 1997
Foreign direct investment into
R&D in the US by foreignaffiliated R&D laboratories
Technology-driven determinants
Serapio, 1999
Foreign direct investment in
R&D in the US
Different determinants depending
on R&D subsidiary’s nationality
Patel and Vega
1999
US patenting activities of 220
of the most internationalised
firms in terms of their
technology in the 1990s.
Market driven determinants still
important
Le Bas and
Sierra, 2002
345 MNEs with greatest patent Confirmation of findings by Patel
activities (replication of Patel and Vega (1999) and four types
and Vega’s study for Europe) of strategy according to a firm’s
technological advantage
Gassmann and
von Zedtwitz,
2002
290 research interviews and
Technology and market-driven
database research in 81 MNEs determinants; research is
concentrated in only five regions
worldwide; development is more
globally dispersed.
Source: Author
The various studies on R&D internationalization determinants identified two main
categories of determinants: technical and market driven determinants.
9
The first determinant, namely, the need to provide technical support to the operations
of foreign affiliates, is important, as overseas subsidiaries evolve and become
differentiated from their parent companies. This type of determinant implies that
different consumer preferences and/or government regulations need to be considered.
Foreign R&D subsidiaries are responsible for adapting extant product ranges or, in
some cases, for creating new products to satisfy local needs.
Creamer (1976) examines the difference between home country and host country R&D
and found that market-driven as well as cost-related criteria are important determinants
for R&D internationalization. In more recent studies, Patel and Vega (1999) and Le
Bas and Sierra (2002) examine patterns of technological activities outside their home
countries. The study of Patel and Vega (1999) is based on data of US firms, while Le
Bas and Sierra (2002) based their analysis of R&D internationalization determinants
on data of European firms. Both studies indicate that adapting products and processes
to suit foreign markets and hence to provide technical support are still major factors
for R&D internationalization, which means that R&D subsidiaries exist to extend
abroad the firm-specific advantage of the parent firm (Meyer-Krahmer and Reger,
1998: 2). This implies that R&D knowledge created in the home base is transferred
and applied to the host country’s market or in other words the home base R&D
knowledge is exploited by applying it to the host market.
In contrast to these market driven determinants, a second stream of literature
emphasizes technology driven determinants for R&D internationalization, which
imply that R&D knowledge created in the home base is augmented by R&D
knowledge created in overseas R&D subsidiaries.
Florida (1997) analyzes foreign direct investment (FDI) into R&D in the US by
foreign-affiliated R&D laboratories, and as such European MNEs’ R&D
internationalization into the US. Kuemmerle (1999) focuses on two industrial sectors,
namely electronics and pharmaceutical, and examines laboratory sites of 32
multinational firms domiciled in five countries. Both authors agree that the major
determinant for R&D internationalization is more technology driven than market
driven; that is MNEs seek to harness external new scientific and technological
10
capabilities abroad. Other authors also suggest that firms in many industries
decreasingly undertake overseas R&D activities as a mere support function for
existing sales or production operations (Belderbos and Iwasa, 1999: 3). The
competitiveness of firms is becoming increasingly dependent on their ability to
establish a presence at an increasing number of locations in order to access new
scientific capabilities (Edler, Meyer-Krahmer and Reger 2002: 149-150, Kuemmerle,
1996: 69-71 and Shan and Song, 1997: 268-269). This development is particularly
important in the context of increasing R&D costs, fiercer foreign and domestic
competition, intensifying product differentiation, and market globalization (Mutinelli
and Piscitello, 1998: 491).
Besides these two literature streams, which identified either market or technology
determinants, several studies have identified both market and technology driven
determinants for R&D internationalization, for instance Ronstadt (1977, 1978), Pearce
(1989), Gassmann and von Zedtwitz (2002). Ronstadt (1977; 1978) argues that an
overseas R&D unit can evolve from being a technology transfer unit to being an
indigenous technology unit. Such a transition implies that the original market-driven
determinant (to transfer technology and adapt it to local conditions) can shift to a
technology-driven determinant (indigenous technology is developed) (Ronstadt, 1978:
15-16).
The following exhibit summarizes the main determinants of R&D internationalization.
11
Exhibit 3: Major Determinants of R&D internationalization
Technological
Advantage of
Home Country
Strong
Weak
Home-Base
Exploiting
Home-Base
Augmenting
Market
Seeking
Technology
Seeking
Weak
Strong
Technological
Advantage of
Host Country
Source: Kuemmerle (1996); LeBas and Sierra (2002)
Analysis of the literature on the determinants of R&D internationalization shows most
notably the distinction between home and host country base. In effect, the literature is
characterized by a dichotomous nature. Depending on the home country’s strengths or
weaknesses either the home base is exploited or augmented. A home country’s
strengths or weaknesses refer to the technological advantage or disadvantage of the
home base.
It is argued here that the R&D internationalization determinant home base exploiting is
logically also a market seeking determinant, since the home base is exploited by
adapting products and processes to a new market and hence the market is sought after.
This market-seeking determinant applies even if the home country is not strong in this
particular technical field. Existing products of the parent firm are adapted to a local
12
market even though these products may not be of a high level of technological
sophistication. The same holds true for the technology-seeking determinant, which at
the same time is also a home base augmenting determinant. The home base is
augmented by seeking new technologies in the host country, meaning investment in
cross-border R&D takes place in order to acquire knowledge from overseas locations
with a specific scientific or technological competence.
The review of the literature shows that the determinants of R&D internationalization
have been the subject of a variety of studies. Without more formal development in
theory, however, little progress will be made towards explaining and predicting how
different processes influence overseas R&D subsidiaries. The literature suggests that
the determinants of R&D internationalization are characterized by a dichotomous
nature (home base exploiting versus home base augmenting).
What is missing in the literature, however, is a more holistic view of the determinants
for R&D internationalization. Consequently, this dissertation attempts to overcome the
dichotomy of home versus host country base in the literature on the determinants of
R&D internationalization and develops a more holistic view of the determinants of
R&D internationalization (see chapter 5).
2.2.2 International R&D Organization and Management
As has been stated in the introduction, the internationalization process of R&D
activities has intensified over the years. As a result of this development, it is important
to manage the benefits and costs of this increasing R&D internationalization optimally.
The literature on international R&D organization and management elucidates the
interplay of these benefits and costs:
There are numerous benefits resulting from the internationalization of corporate R&D
activities and an effective R&D management would attempt to take advantage of these
benefits, which include resource access, product market access and infrastructure
access (Brockhoff, 1998: 28-29; Boutellier, Kloth and Bodmer, 1996: 282-283).
Resource access usually refers to know-how as well as personnel access, the latter
13
being for instance the availability of qualified R&D personnel. The first refers to local
scientific communities as centers of excellence. A MNE can thereby profit from the
latest technology trends and from innovation impulses created by these foreign R&D
subsidiaries. This is confirmed in a study by Gerybadze and Reger (1999), who
emphasize the importance of the knowledge generating capacities of foreign R&D
locations and the dynamic interactions between different R&D locations. The
importance of foreign R&D locations as knowledge generating units was also pointed
out in a study by Birkinshaw and Hood (2001) who found that crucial innovations
often emerge from foreign R&D units due to their local proximity and their low
attachment to headquarters’ procedures.
Product market access is a pre-condition for local adaptation of manufacturing
conditions, product development and processes (Belderbos, 2001: 314). Hence, local
R&D allows proximity to local customers and hence to suit local markets (v. Zedtwitz,
1999: 43; Gerybadze and Reger, 1999: 261). Such a product market access is
important if a company plans to enter new markets.
Infrastructure access implies, for instance, a favorable political infrastructure, highly
supportive of the respective R&D unit or a positive cultural and educational structure,
fostering technology awareness and acceptance (Gassmann and v. Zedtwitz, 1998:
150-152). The MNE can benefit from such a favorable infrastructure, for example in
the form of different national governments’ support in establishing foreign R&D units
through subsidies, as is the case in Singapore.
A further benefit of internationalizing corporate R&D activities is the possibility of
making use of different time zones. R&D units in Asia, for instance, may start working
on R&D projects, transferring their data to the R&D unit in Europe and then to the
R&D unit in the US. This assures a 24-hour research effort.
Furthermore, firms can gain comparative advantage by having R&D facilities in
several countries since customer demands, knowledge bases, and regulatory
requirements differ from country to country. This means that it might be
comparatively more advantageous to conduct corporate R&D activities in one country
14
as compared to another, even though one particular country might have an absolute
advantage in all R&D fields.
Besides the benefits accruing from internationalizing corporate R&D activities, there
are also costs involved in the internationalization of corporate R&D activities.
Effective international R&D management would attempt to neutralize these costs.
High coordination costs, for instance, are the consequence of intense communication
between the international R&D units and between the international R&D units and
headquarters in order to provide a well-functioning global R&D organization.
Furthermore, information and transfer costs arise due to knowledge exchanges
between the different locations (Granstrand, Hakanson and Sjölander, 1993: 415).
At the same time, global R&D activities can result in headquarters partially losing
control of research results. This is because R&D activities are conducted in a more
international and hence more decentralized setting. Since R&D knowledge is a firm’s
invisible asset, then the partial loss of strategic control of such an asset can result in
major costs (De Meyer, 1993: 110).
An international R&D setting with various R&D locations might also induce parallel
R&D efforts and thus create redundancies (Reger, 1999: 72). This problem might
especially occur if coordination mechanisms between the various R&D locations are
weak.
Another cost arising from the internationalization of corporate R&D comes from the
fact that an international R&D organization might not be capable of fully realizing
economies of scale and synergy effects in contrast to a centralized R&D organization
(Brockhoff, 1998: 31). The underlying reasoning behind this argument is that a critical
number of researchers is needed in order to be able to realize economies of scale and
scope (De Meyer, 1993: 110).
15
Based on studying the diverse benefits and costs of R&D internationalization, the
literature on managing overseas R&D units is concerned with structural arrangements
for the coordination and control of worldwide R&D activities. These studies are
devoted to managing international R&D activities so as to carefully balance benefits
and costs resulting from R&D internationalization. In the ideal case, benefits are
maximized and costs minimized. The following exhibit gives an overview of the
relevant literature.
16
Exhibit 4: Overview of Literature on International R&D Management
Authors
Purpose of Study
Main Findings of International
R&D Management
Behrman and
Fischer, 1980
Structured interviews with 56
R&D subsidiaries of US,
European and Japanese
MNEs
Managerial styles range from
absolute centralization to total
freedom for R&D units; majority
of R&D units either managed by
participative centralization or
supervised freedom
De Meyer and
Mizushima, 1989
In-depth case studies of
global R&D activities by 7
European and 15 Japanese
firms
Need for a new model for the
management of internationally
dispersed R&D laboratories
pointed out
Gerybadze and
Reger, 1999
In-depth analysis of R&D
internationalization in 21
large corporations in Europe,
Japan and the US
Streamlining of R&D activities,
resulting dominant form of R&D
organization: multiple R&D
centers with one dominant center
of coordination
Gassmann and von Analysis of R&D activities
Zedtwitz, 1999
by 33 MNEs
Identification of five different
types of R&D organizations
Boutellier,
Gassmann and v.
Zedtwitz, 2000
International R&D
Major International R&D
Management (18 case studies Management Practices
in the pharmaceutical,
electronics/software and
electrical/machinery
industry)
Medcof, 2001
Analysis of internal R&D
networks and their strategic
importance
Overseas technology units
heterogeneous with regard to
their resources, therefore
different management styles are
required
Source: Author
In an early study, Behrman and Fischer (1980) conducted structured interviews with
R&D managers at 56 U.S., European, and Japanese MNEs and found that in a
continuum from absolute centralization to total freedom the managerial styles of
17
supervised freedom or participative centralization are the most frequent managerial
modes for R&D subsidiaries.
De Meyer and Mizushima (1989) examined global R&D management and suggest that
new types of organizational structures are necessary to address increasing R&D
internationalization. They make several assertions as a basis for such a new framework
of international R&D organization. In essence, these assertions state that R&D
internationalization has become a key component of the MNE, driven by both
unrelated and related technology determinants. Due to this development global R&D
management requires new organizational types. The authors suggest a network
organization of peer laboratories, but also point out that the precise mechanisms of
managing such a network are not clearly specified (De Meyer and Mizushima, 1989:
144-145).
A later study, which assesses the management of international corporate R&D in 21
MNEs, has been published by Gerybadze and Reger (1999). Their analysis focuses on
recent changes in the global management of corporate R&D activities. Their findings
suggest that due to the strong internationalization of corporate R&D between 1985 and
1995, R&D organizations of international firms proved to be extremely complex and
hence difficult to manage. As a consequence, these transnational firms streamlined
their R&D activities. The dominant form of organization resulting from this
consolidation is multiple centers with one dominant coordinating center.
Five different types of R&D organizations are identified by Gassmann and von
Zedtwitz (1999). These types are illustrated below based on Gassmann (1997) and
Gassmann and v. Zedtwitz (1999). This classification is important since it provides an
overview of different international R&D organizations. This classification is extended
in this dissertation (see chapter 5). The exhibit below visualizes these different
international R&D organizations:
18
Exhibit 5: Different International R&D Organizational Models
Decentralized R&D
Polycentric,
decentralized
R&D
Distribution of
Internal
Competences and
Knowledge Bases
Centralized R&D
Integrated
R&D
Network
R&D
Hubmodel
Ethnocentric,
centralized
R&D
Competition
Geocentric,
centralized
R&D
Cooperation
Degree of Cooperation
between Locations
Source: Gassmann, 1997a: 49 and 1997 b: 49; Gassmann and von Zedtwitz,
1999: 245
In the ethnocentric, the most traditional model, all corporate R&D activities are
centrally located at headquarters. As a result, no transnational R&D processes take
place. Such a centralized approach is based on the assumption that corporate R&D
must be centralized and implies that only such R&D activities allow economies of
scale and synergies to be realized and unintended technology transfer to be avoided.
Given the primacy of the home base in this model, this organizational form is
insensitive to local market demands. Moreover, an ethnocentric R&D organization
cannot benefit from external technologies since knowledge is created only in the home
base.
19
As opposed to the first concept, the second model is international in nature and adopts
a geocentric, centralized approach to R&D. In this model international R&D
knowledge is acquired through intense collaboration with local manufacturing,
suppliers and lead customers. The physical R&D location, however, is located in the
home base. As a result of this, this R&D structure is sensitive to local markets and may
benefit from foreign technological trends. The international awareness of the R&D
personnel is fostered as well, since researchers are exposed to international markets.
This model might be inadequate if an R&D organization becomes increasingly
international for its centralized character might then hinder achieving a critical
presence in diverse R&D locations.
The third model is the polycentric approach, where various R&D locations in different
foreign markets exist without centralized control. These R&D units have mostly been
established as a result of the presence of local distribution facilities and manufacturing
plants. Consequently, the decrease in the primacy of the home base assures a high
degree of local sensitivity and the utilization of local resources. Due to the strongly
decentralized character of this R&D organization and its lack of coordination
mechanisms, parallel R&D efforts might result in duplication and thus in major costs
for a MNE. Opportunities for innovation through combination are foregone in this
model.
The fourth model, the Hub-Model, is basically an ‘in-between’ model, which has on
the one hand a central R&D location similar to the ethnocentric model, but on the
other hand has dispersed R&D locations. The central R&D location leads in most
technological fields. On the dimension of the degree of cooperation, it is situated
between cooperation and competition. Due to coordination of R&D efforts, a high
degree of efficiency is achieved and a suboptimal resource allocation avoided.
Potential high coordination costs might, however, be a drawback of this model.
The last model, and similar to the hub model, is that of the integrated network. Within
this concept, the central R&D location loses its overall dominance. All R&D locations
are equally important, play a strategic role and interact through multiple and complex
coordination mechanisms. Each R&D location focuses on one specific product,
20
component or technology area. Consequently, the home versus host country dichotomy
loses its significance. The obvious benefits of this model are the realization of
specialization, learning and synergy effects, and the utilization of local competencies.
On the other hand, high coordination costs occur because of its complexity.
Furthermore, the decision making process is more difficult due to the equal status of
the different international R&D locations.
While this division into five different international R&D models provides an overview
of international R&D models, it is not an all-encompassing classification. Not all R&D
activities of international companies can be clearly attributed to one of these models.
Furthermore, the differentiation between the different models is not always completely
clear-cut; the hub-model in particular as an ‘in-between’ model does not seem to be
fully defined. However, this classification of international R&D models is a
contribution to visualizing different international R&D concepts and serves in
enhancing our understanding of international R&D activities. This dissertation
attempts to expand this framework in chapter 5.
While the review of this literature stream revealed how different R&D organizations
can be managed, it does not provide any insights on the evolution of overseas R&D
subsidiaries. The third literature stream, R&D internationalization process, is reviewed
in the next section.
2.2.3 R&D Internationalization Process
The increasing internationalization of corporate R&D activities raises two important
research questions. First, previous literature has examined this development from a
firm level perspective. Or in other words, corporate internationalization patterns have
been studied. Second, later studies have examined the role and charter change on a
subsidiary level, resulting from the intensified R&D internationalization. The
following exhibit shows the literature on the R&D internationalization process from a
corporate perspective:
21
Exhibit 6: Literature on the R&D Internationalization Process from a Corporate
Perspective
Authors
Purpose of Study
R&D Management
Cantwell, 1992
Analysis of corporate R&D
internationalization patterns
Implications for competitiveness
on a firm as well as a country
level
Kuemmerle, 1999
Analysis of corporate R&D
internationalization patterns
and entry modes
Greenfield investments
prevailing entry mode;
incremental R&D
internationalization process
Grandstrand, 1999 Comparison of corporate
R&D internationalization
patterns in Swedish and
Japanese firms
Swedish firms early R&D
internationalizers in contrast to
Japanese firms; psychic distance
more relevant for research than
for development
Source: Author
Cantwell (1992), for instance, analyzes corporate R&D internationalization patterns of
corporate R&D activities of MNEs and their implications for competitiveness on a
firm as well as a country level. Kuemmerle (1999) investigates this internationalization
process by analyzing the entry modes for foreign R&D. His findings suggest that
greenfield investments are the prevailing mode of entry, firms establishing R&D sites
first at home before establishing such sites abroad. This suggests that R&D
internationalization takes place in incremental steps, an observation in line with the
thinking of Johanson and Vahlne (1977: 25), who found that firms first establish
foreign sites in nearby markets and then further expand into more distant markets and
incrementally increase their foreign activities, an incremental internationalization
process.
A further study by Granstrand (1999) examines the internationalization process of
corporate R&D in two different countries, namely Sweden and Japan. The starting
point of corporate R&D internationalization and its speed seem to be important criteria
22
which determine how this internationalization process unfolds over time. While
Swedish firms were early internationalizers in their R&D activities, Japanese firms
started late in this process, but later were rapid in their R&D internationalizing
process. Granstrand (1999) also applies the concept of psychic distance, first
introduced by Johanson and Vahlne (1977), to the internationalization process of
corporate R&D. Psychic distance denotes the distance the parent firm has from certain
foreign markets, for instance in terms of differences in economic development,
language and culture. Psychic distance seems to have less explanatory power for the
internationalization process of corporate R&D, having more influence on the
internationalization process of research rather than on the internationalization process
of development and limited influence on the internationalization process of R&D in
Japanese firms (Granstrand, 1999: 293).
While these studies examine the R&D internationalization process on the level of a
firm, there is not a corresponding research stream, which analyzes the process from a
subsidiary perspective. Characteristically, these studies have examined the nature of
the subsidiary as a result of firm internationalization. The exhibit below gives on
overview of this literature:
23
Exhibit 7: Literature of the R&D Internationalization Process on a Subsidiary Level
Authors
Purpose of Study
R&D Management
Lall, 1992
Implications of industrial
strategy on corporate and
national technological
capabilities
Careful and selective government
intervention is critical for
industrial success in late
industrializing countries
Birkinshaw, 1998
Analysis of Subsidiary
Initiatives
Global, local, internal, and
global-internal hybrid initiatives;
entrepreneurship at subsidiary
level is critical
Birkinshaw and
Hood, 1998
Subsidiary Evolution and
Initiatives
Subsidiary evolution is a function
of capability and charter change,
five generic subsidiary evolution
processes are identified
influenced by parent, subsidiary
and host country factors
Frost, 2001
Investigation into the
geographical sources of
knowledge sources utilized
by foreign subsidiaries
Illustration of the conditions
under which foreign subsidiaries
tap into knowledge in the home
country or host country
Birkinshaw, Hood Study of 24 MNEs with
and Young, 2002 regard to their competitive
dynamics
Three types of subsidiaries,
internally focused, externally
focused and dual focused arena,
with different performance
implications
Costa and De
Queiroz, 2002
Analysis of technological
learning in MNEs versus
local firms
Higher level of technological
sophistication reached by
subsidiaries of MNEs compared
to local firms
Figueiredo, 2001
and 2002
Two case studies on
technological capability
accumulation paths in two
Brazilian steel firms
Operational performance
improvements can be accelerated
if technological capabilities are
deliberately enhanced, possibly
resulting in financial benefits
Source: Author
24
The general literature on subsidiaries discusses foreign subsidiary roles and their
dynamics. One study within this literature focuses on the geographical sources of
foreign subsidiaries’ innovations by analyzing the conditions under which innovating
subsidiaries are likely to draw upon sources of knowledge located in the home base of
the firm and/or the subsidiaries’ host country environment (Frost, 2001: 101-123).
While Frost (2001) emphasizes the dichotomy between home and host country and its
impact on the origin of knowledge sources for the subsidiaries, Birkinshaw, Hood and
Young (2002) distinguish between internal and external competitive forces on MNEs’
subsidiaries and their impact on subsidiary performance. More specifically, their study
distinguishes between an internally focused competitive arena, an externally focused
competitive arena, and a dual-focused arena and analyzes the implications for
subsidiaries’ performance. An earlier study by Birkinshaw and Hood (1998) examines
multinational subsidiary evolution with regard to capability and charter change in
foreign-owned subsidiary firms. Based on the identification of five subsidiary
evolution processes, their findings suggest that charters are mobile for subsidiaries and
that subsidiary capabilities are critical for MNEs (Birkinshaw and Hood, 1998: 783792). Yet another study by Birkinshaw (1998) characterizes subsidiary initiatives in
multinational corporations by looking at 39 such initiatives, classifying these
initiatives in global, local, internal, and global-internal hybrid initiatives and
concluding that entrepreneurship at the subsidiary level has the potential to enhance
local responsiveness, worldwide learning and global integration.
The subsidiary literature has also examined technological capabilities in foreign
affiliates. Costa and de Queiroz (2002), for instance, analyze the deepening of
technological capabilities of foreign affiliates. Their results indicate that foreign
affiliates are engaged in more complex technologies than their local counterparts
(Costa and de Queiroz, 2002: 1432-1433). Figueiredo (2002) found that technological
capability-accumulation paths account for interfirm differences in operational
performance improvement in his study of two Brazilian steel firms. His findings show
a strong association between rates of operational performance improvement and the
rate of accumulation and the consistency over time of the technological capability
accumulation paths. Furthermore, Figueiredo (2002) points out that it has not been
25
discussed how firms’ efforts on learning and technological capability accumulation
can be a competitive advantage, especially in the late industrializing context.
This dissertation attempts to fill in this void in the R&D subsidiary literature. Previous
research has investigated general subsidiary evolution in terms of their roles and
technological capability upgrading. However, what has been neglected is what
consequences R&D internationalization entails for overseas R&D subsidiaries in a late
industrializing context. This dissertation makes an attempt to analyze this issue by
examining the technological capability upgrading of R&D subsidiaries in a late
industrializing country.
This literature review has discussed previous research on R&D internationalization
determinants, international R&D management and R&D internationalization process.
Research gaps are derived in the final section of this chapter.
2.3 Research Gaps in the International R&D Literature
While the literature on the determinants of R&D internationalization has focused on
the dichotomous nature of these determinants (home-base augmenting versus homebased exploiting), a more comprehensive understanding of these determinants is
lacking. Consequently, this dissertation attempts to overcome this dichotomy by
proposing a holistic determinant.
Closely linked to the determinants of R&D internationalization are different types of
international R&D organizations. While the ethnocentric R&D organization
centralizes all international R&D activities in one location, an international R&D
network manages various strategic R&D locations of equal status. The basic tradeoff
in international R&D management is to find an optimal balance between the benefits
and costs of R&D internationalization. This also implies that an optimal balance
between internal (inside the corporate R&D organization) and external (in the local
research environment) needs to be achieved. Based on a more comprehensive
understanding of the determinants of R&D internationalizations, this dissertation
26
attempts to provide a new framework for an international R&D organization and aims
thus to enhance the literature stream on international R&D management.
The literature review of the R&D internationalization process showed that previous
studies have examined the process of R&D internationalization mainly from a
corporate perspective and to a very limited extent from a subsidiary perspective. While
technical learning is an important determinant for foreign R&D activities (De Meyer,
1993: 111-112), there is no clear understanding of technological capability
accumulation in an overseas R&D subsidiary (Figueiredo, 2002: 73). It has only been
pointed out that an increase in credibility in the subsidiary R&D site is important for
the evolution of the R&D subsidiary (De Meyer, 1993: 112-113). Such an increase in
credibility is only possible if the competence of the laboratory is acknowledged (De
Meyer, 1993: 112). Such competence acquisition can only be achieved through
technological capability upgrading, especially in the context of a late industrializing
country, which then increases the importance of the periphery. This deepening of
technological capabilities is crucial for R&D subsidiaries in late industrializing
economies if they are to reach the economic status of the most advanced nations and
increase their strategic importance in the internal R&D organization. Such a
technological capability upgrading in late industrializing countries has frequently been
associated with local affiliates of foreign MNEs (Lall, 1992: 166-169). However, these
MNEs retain the more complex technologies (such as R&D) in their home countries.
This, on the other hand, means that MNEs transfer technological knowledge, but not
the process of generating new knowledge (Costa and De Queiroz, 2002: 1432).
Therefore, a clear framework analyzing different technological capabilities and key
influencing factors on technological capability upgrading is lacking. Moreover,
previous literature has not investigated the relationship between technological
capability upgrading and its performance implications at a subsidiary level. Therefore,
this research will be advanced by examining the evolving process of technological
capability upgrading at overseas R&D subsidiaries in a late industrializing country and
its implications for R&D performance.
27
Managerial implications are drawn as well: more specifically, how R&D subsidiary
managers need to address both internal as well as external R&D management needs in
a latecomer country such as Singapore. These needs are examined from a network
perspective in this dissertation, with the goal of contributing to a more differentiated
view on these internal and external R&D management needs than exists at present.
The following exhibit summarizes the research gaps in the international R&D
literature and shows how this doctoral dissertation attempts to fill these gaps.
28
Exhibit 8: Research Gaps in the International R&D Literature
Current Findings of
Current Findings of
Current Findings of
R&D Inter-
International R&D
R&D Inter-
nationalization
Management
nationalization
Determinants
Different types of
Process
Home-base
international R&D
Sequential R&D
augmenting and
organizations and
home-base
different managerial
exploiting
styles
determinants
Research Gaps
Research Gaps
Research Gaps
More comprehensive
International R&D
Implications of R&D
approach lacking
Management: Need
for new framework
on R&D subsidiaries
Contribution of the
Contribution of the
Contribution of the
Dissertation
Dissertation
Dissertation
Development of a
Development of a
Analysis of
holistic determinant
framework of a
technological
metanational R&D
capability upgrading
organization
of R&D subsidiaries
Source: Author
The following exhibit presents the corresponding research questions:
29
Exhibit 9: Research Questions
1. What type of international R&D model enables an R&D
organization to tap into knowledge existing in non-traditional R&D
locations?
2. What characteristics would such an international R&D organization
show?
3. What is the relationship between the type of R&D organization and
R&D performance at subsidiary level?
4. Why are R&D subsidiaries in non-traditional R&D locations at the
periphery?
5. How can R&D subsidiaries in non-traditional R&D locations create
a critical knowledge base?
6. What is the nature of the process of upgrading the level of
technological sophistication of R&D subsidiaries in non-traditional
R&D locations?
7. What are managerial implications for R&D managers in a late
industrializing context?
Source: Author
30
3 Research Methodology
3.1 Fundamental Approaches to Research Methodology
The researcher with a positivist view of the world regards reality as objective.
Positivists assume that the researcher is independent of and is not biased by his/her
research matter and that independent causes lead to observed effects (Bentz and
Shapiro, 1998: 125). From this positivist point of view, quantitative analyses of data
obtained are emphasized in an attempt to identify common patterns or processes, with
the objective of generalizability (Bryman, 1998: 139).
Phenomenologists, on the other hand, assume that the researcher is not independent of
the
phenomenon
under
investigation
and
that
reality
is
not
objective.
Characteristically, phenomenologists focus on qualitative methods, their models not
necessarily being mathematical, but rather verbal, diagrammatic, or descriptive
(Remenyi at al., 1998: 32-37).
Many scholars suggest that to overcome this distinction and hence overcome the
drawbacks of single research methods using a variety of research methods in the form
of triangulation is recommendable (Jick, 1979: 608-609). Research methods inform us
only of narrow realities and are only capable of providing descriptions that reflect
incomplete images of organizations, which are complex. Therefore, several paths of
inquiry are recommendable and their individual quality is to be distinguished in order
to increase the overall validity of findings (Daft, 1980: 633).
This dissertation adopts empirical understanding as a basis for the research, while a
systematic approach is undertaken, both with regard to gathering data as well as to the
testing of propositions (Black, 1999: 3). Most noticeably, this dissertation adopts the
point of view that combining both qualitative and quantitative research methods leads
to superior results than those achieved when only one approach is applied. The aim
thereby is to combine the advantages of both methods and to eliminate the
disadvantages of a single method research design (Jick, 1979: 608-609; Daft, 1980:
31
633). Hence, a multi-method approach in the form of triangulation is used in order to
gain an improved understanding of the research subject. How this dissertation attempts
to achieve such an improved understanding is explained in the next sections, where
three research methods, namely archival analysis, case study and survey, are evaluated
in more detail.
3.2 Research Methods Used in this Dissertation
3.2.1 Archival/Theoretical Analysis
In an archival analysis, the sources of data are various types of documentation, public
records, or other units of analysis. Dane (1990) defines archival research as any
research which deals with public records as the unit of analysis. Content analysis as
one form of archival analysis, for instance, proceeds systematically and makes
inferences from theory (Dane, 1990: 170). What distinguishes archival analysis from
other research methods is that information is available through archival analysis before
one’s own research has begun (May, 1997: 160-161).
Disadvantages of archival analysis include the potentially considerable age of data and
differences in the unit of analysis used in previous studies and that used in one’s own
research. Dependence on the quality of data from previous research is a further
problem, the reliability and validity of data collected by others being difficult to
determine (Dane, 1990: 187).
Through such an archival analysis in the form of a formal theoretical inquiry, however,
new knowledge based on extant knowledge can be created by means of combining,
extending, analyzing, and integrating existing research areas. This means making use
of cross-fertilization (Bentz and Shapiro, 1998: 141). Consequently, one advantage of
archival analysis is that such an analysis of different disciplines and theories, namely
an interdisciplinary approach, allows the researcher to gain new insights. For example,
the international R&D literature stands at the intersection of at least five intellectual
domains – organizational theory, international business, technology and innovation
management, strategic management, and economics. Therefore, no single perspective
32
is able to provide a complete understanding of such a multifaceted subject. As a result,
archival analysis may help one to gain new insights.
A further advantage is that this research method is economical regarding research
resources (such as financial, temporal, and human constraints). This is especially true
where access to the research object is costly due to geographical or social barriers or
non-reactive research.
Archival analysis/theoretical inquiry is used in this dissertation to derive the research
questions from the identified research gaps. Equally importantly, archival
analysis/theoretical inquiry into different research areas, for instance on international
business and technology and innovation management, can create new knowledge by
means of cross-fertilization of the individual research areas. Moreover, constant
archival/theoretical analysis is necessary to ensure that the findings of the latest
publications on international R&D management are included in the dissertation. And
finally, archival research (for instance in the form of analysis of corporate information)
is a valuable complement to other research methods, for instance, in the form of data
made available through in-depth interviews.
Hence, archival/theoretical analysis is an essential element in this dissertation, not
sufficient on its own, but used to complement other research methods. Such analysis
focuses on data collected in the past, the case study approach, however, focuses on
contemporary events. This research method is explained below.
3.2.2 Case Study
According to Eisenhardt (1989: 534), a case study is a “research strategy, which
focuses on understanding the dynamics present within single settings”. The case study
can be of a qualitative as well as a quantitative nature, depending on the data collection
methods (Eisenhardt, 1989: 534-535). Case studies are well suited to answer how/why
research questions. Furthermore, case studies can be used when there is little or no
control over behavioral events, when the research questions examine a contemporary
33
event, and when the boundaries between phenomenon and context are not clear (Yin,
1981: 59; Yin, 1989: 17).
Case studies can be used for providing description, testing theory, and building theory
(Eisenhardt, 1989: 535). Eisenhardt (1989) focuses on the last aspect and proposes an
eight-step approach for generating theory from case study research. First, the research
questions need to be defined. Second, the researcher is confronted with the selection of
cases (for a discussion of single versus multiple case study research see Dyer and
Wilkins, 1991 and Eisenhardt, 1991) based on theoretical sampling. Furthermore,
multiple data collection methods are applied. In a next step, the data is analyzed,
dealing primarily with within-case issues as well as with cross-case patterns. The
shaping of hypotheses constitutes the sixth step before the generated theory is
compared both with similar as well as conflicting literature and closure is reached.
Weaknesses of this research method are that it can result in overly complex theory due
to the large amount of data or in excessively narrow theory because the case study
research is very specific (Eisenhardt, 1989: 547). Moreover, case study research only
allows theoretical generalization, but no empirical generalization. Another problem
which is highlighted by Gable (1994: 113) refers to the difficulty experienced in case
study research when seeking to manipulate independent variables. This in turn implies
that it is not a single task to establish causality in case study research. Moreover, there
is the risk of improper interpretation and the lack of ability to randomize cases (Gable,
1994: 113). Consequently, certain limitations seem apparent in case study research.
On the other hand, the case study approach also offers unique strengths. This research
method is especially appropriate for new topic areas (Gable, 1994: 113), very likely to
generate new theory, to be testable and to be highly empirically valid (Eisenhardt,
1989: 546-547). Moreover, the case study method allows the researcher to
comprehend the nature and complexity of the research matter under investigation (Yin,
1989: 14).
Evidently, case studies are suitable for examining highly complex, recent phenomena
(for instance R&D internationalization beyond the triad nations) and for obtaining in34
depth insights into the research topic. Such research brings the researcher detailed
insights and contributes to a richer understanding of international R&D management.
For these reasons, case study research is important in this dissertation. The first case
which is analyzed in this dissertation is Novartis’ Research Organization as an
example of a metanational R&D organization in the making. The second case analyzes
the technological capability upgrading of Leica Instruments in Singapore. Analysis of
the newly established R&D site of Lilly Systems Biology and its internal and external
network linkage is part of a third case study. Managerial implications are also drawn
from these cases. Consequently, the case study approach is very appropriate as a way
of obtaining in-depth insights into the research questions this dissertation addresses.
Based on the recognition that different research methods lead to superior results, better
than those provided by one research method, this case study approach is
complemented by an in-depth survey of 61 R&D units in Singapore.
3.2.3 Survey
A survey allows information to be obtained from participants directly or indirectly,
either orally or in a written form. It allows “questioning persons and record their
responses for analysis” (Emory and Cooper, 1991: 318). The survey can be directed at
single respondents in a firm, multiple respondents, single or multiple expert panels,
and to both the corporate and subsidiary offices of a firm (Snow and Thomas, 1994:
462). Surveys can be conducted in various ways: face-to-face interviews, telephone
interviews, mail and electronic surveys (Emory and Cooper, 1991: 320-343; for
electronic surveys see Zhang, 2000). Three different types of information can be
collected: facts, opinions, and behaviors (Dane, 1990: 119-123). The data analyses
depend on the particular study and type of data that needs to be collected. A survey is
considered an appropriate research method when the research question is of a
“who/what/where/how many/how much” nature (Yin, 1989: 17). Furthermore, a
survey is applicable when no control over behavioral events is required and when
contemporary events are examined (Yin, 1989: 17). A survey is also suitable when
data across several time periods is to be collected (Snow and Thomas, 1994: 462).
35
Remenyi at al. (1998) distinguish between two forms of a survey, in-depth surveys and
large scale surveys. Whereas the in-depth survey attempts to obtain detailed and rich
evidence from a relatively small number of informants, the large scale survey, on the
other hand, attempts to collect large quantities of data or evidence (Remenyi at al.,
1998: 56), its sample ideally that which is the most representative and most consistent
with the hypotheses (Black, 1999: 28).
3.2.3.1 Large Scale Survey
A large scale survey is addressed to an important number of informants, the objective
being to discover relationships based on a quantitative analysis, relationships that are
common across organizations. It aims to provide generalizable statements about the
phenomenon under investigation (Gable, 1994: 114).
Evidently, a major strength of a large-scale survey is its good geographical coverage
since respondents in various geographical areas can be researched. Equally
importantly, by conducting a large-scale survey a large sample can be covered in a
cost efficient and convenient manner (Snow and Thomas, 1994: 462; Remenyi et al.,
1998: 56). This is especially valuable when statistical relationships are examined and
are to be generalized (Bechhofer and Paterson, 2000: 75). A further strength of a large
scale survey is that the respondent can take more time to answer questions, rethink
them, and can reply more carefully than is the case in an in-depth survey, which
usually involves face to face interviews (Cooper and Schindler, 1998: 304). In addition
since the large-scale survey is more anonymous, the respondent may be more willing
to reveal more information than in a direct interview (Emory and Cooper, 1991: 333).
Since a large-scale survey addresses an important number of informants, the nature of
evidence may, however, be rather superficial (Remenyi at al., 1998: 57). A large-scale
survey encompassing objectivity and testability might be carried out at the cost of a
richer understanding of the phenomenon under investigation (Gable, 1994: 114).
Moreover, the informant might interpret a question or concept very differently from
what the researcher’s intends and, hence, may answer a different question (Cooper and
Schindler, 1998: 304). Furthermore, the informant might deliberately give a false
answer or an answer without knowing, because he/she feels obliged to respond (Emory
36
and Cooper, 1991: 319). A further disadvantage of a large scale survey is its low
response rate, which reduces the confidence in generalizability; or in other words, a
low response rate questions the extent to which results from the survey can be
generalized to the whole sample (Snow and Thomas, 1994: 462). Given these
weaknesses, an in-depth survey seems to be more suitable for this dissertation, as can
be seen in the discussion of the following section.
3.2.3.2 In-depth Survey
Since an in-depth survey involves personal or telephone interviews, this method is
very time-consuming and requires good cooperation from respondents. The researcher,
however, can obtain more detailed evidence in comparison to a large-scale survey
(Cooper and Schindler, 1998: 291). Due to the direct interaction between researcher
and research subject, the researcher can immediately respond to the information given,
can ask additional questions, can clarify doubts, and can gather supplemental
information through observation (Emory and Cooper, 1991: 320). This research
method also allows the researcher to constantly improve the in-depth interview, for
instance questions may be phrased more clearly and the interaction between
respondent and researcher may be optimized.
Given the advantages of such a research method, it seems that an in-depth survey is
important for the research questions of this dissertation, in order to complement the
case study research and hence to obtain more generalizable results. At the same time,
by using an in-depth survey, the researcher overcomes a potentially low response rate,
a major problem of large-scale surveys, especially in an Asian context. The Asian
context is rather intransparent, with respondents reluctant to volunteer information.
That a large-scale survey results in a very low response rate in Asia has been
confirmed by my conversations with several academic scholars and R&D managers in
Singapore2.
2
One academic scholar, for instance, sent out a large-scale survey to more than 4,000 firms and the response rate
was so low (despite measures to increase the response rate) that it was impossible to work with the sparse data
received.
37
In an in-depth survey involving personal interviews, non-response as well as response
error can occur. In the first case, the researcher is not able to locate the interviewee or
to encourage the person to participate. In the second case, the response error, the data
reported differs from the actual data (Cooper and Schindler, 1998: 297-298). These
two types of error, however, also apply to a large-scale survey.
Various measures have been taken in order to avoid non-response errors as well as
response errors. The identified R&D managers received a letter asking them to
participate in the research project (see appendix). Those R&D managers who did not
reply automatically were sent a second or third letter and/or contacted by phone in
order to persuade them to agree to an appointment for an interview. Of the 100 firms
identified, 61 participated in this research study, resulting in a response rate of 61%.
The sample of 100 firms contains the R&D subsidiaries with the highest technological
sophistication based on information of A*Star (Agency for Science, Technology and
Research). 39 R&D subsidiaries declined to cooperate for various reasons, for instance
due to corporate restructuring, time constraints or discontinuation of their operations in
Singapore.
In order to avoid response error, the researcher explained the purpose of the research
study, attempted to phrase questions clearly and to clarify doubts or misunderstandings
immediately during the interviews. Through the in-depth interviews of 61 R&D
subsidiaries in Singapore, the researcher was able to obtain a rich primary data set on
R&D organizations in the periphery, namely Singapore.
The three research methods, archival analysis, case study and in-depth survey
involving personal interviews, allow a detailed investigation in the form of case
studies and a general overview in the form of an in-depth survey on R&D
organizations in Singapore, complemented by archival research. Hence, this work
bridges the different research traditions of quantitative versus qualitative research and
takes advantage from such a triangulated approach.
38
3.3 Overview of Research Methods Applied
A preliminary exploratory field study was conducted in April 2002 (in-depth
interviews with seven R&D subsidiaries of MNEs in Singapore were conducted),
which allowed the researcher to identify important variables and problems for further
investigation and to discuss major issues pertinent to international R&D management.
This exploratory phase, which allowed getting close to the phenomenon under
investigation, led to the development of a survey (see appendix) whose objective was
to examine the relationships among the key variables identified. This survey is of an
explanatory and statistical nature. The exploratory phase was also used for pre-testing
the survey instruments and as a crosscheck against questionnaire responses, which
improved internal validity and the interpretation of quantitative findings.
The subsequent fieldwork was carried out in personal, face-to-face, in-depth
interviews, with the survey as a basis, and complemented by archival research. This
approach allows standardized data to be obtained by addressing a specific set of
questions for each company (in the form of a questionnaire). Besides this, the
researcher can investigate important firm-specific issues in the personal interview
which enhances an understanding of the firm-specific context. For instance, the
researcher gains knowledge of the firm’s technology strategy, its geographical R&D
dispersion, and its R&D management practices. The firm-specific context is further
explored by case studies focusing on the issues under investigation.
The unit of analysis is the firm specific R&D organization (R&D site or R&D
department). Interview partners are R&D directors, senior R&D managers of the
respective R&D units/R&D departments at subsidiary level and managing directors of
the subsidiary in Singapore. As unit of analysis an R&D site/R&D department was
chosen because it is relatively easy to identify, its size can be determined and involves
a longer-term commitment than for instance a single research agreement (Kuemmerle,
1996: 50). The study examines mostly R&D subsidiaries of MNEs, since they are
particularly active in establishing R&D sites abroad (Boutellier, Gassmann and von
Zedtwitz, 2000: 8-10); local R&D subsidiaries are also examined in order to establish
interesting comparisons.
39
External validity refers to the generalizability and representativeness of the sample
(Black, 1999: 49). This type of validity shows the extent to which the inference drawn
from a research method can be generalized to or across time, settings, and persons
(Mitchell, 1985). The sample was chosen carefully. Overall, the researcher conducted
85 interviews with 51 R&D subsidiaries of MNEs, 10 Singapore based R&D
organizations, two research institutions (Singapore Institute of Manufacturing
Technology and Institute of Bioengineering) and the two main government bodies
(Economic Development Board and A*Star) in this cross-sectional study. A specific
set of R&D subsidiaries was revisited several times to gain more in-depth insights into
the type of R&D organization they presented. Both the managing directors as well as
the R&D managers of the different R&D departments were interviewed. Out of the 51
R&D subsidiaries of MNEs, 20 are American, 19 European, 10 Japanese and 2 R&D
subsidiaries with other parent firm nationalities. Out of the 51 R&D subsidiaries of
MNEs, 14 R&D subsidiaries belong to the biomedical sector, 13 to the electronics
sector, 7 to the chemical sector, 9 to the information technology and communication
sector, 4 to the engineering sector and 4 to other sectors (food and aviation sectors).
The industry classification is based on the National Survey of R&D in Singapore 2001,
which is conducted annually by A*Star. According to this survey, there are 206 private
firms (either wholly foreign owned or with less than 30% local ownership) conducting
R&D in Singapore in 2001 in the above-mentioned industries. The sample of 51 R&D
subsidiaries therefore translates into a response rate of 25% for R&D subsidiaries of
MNEs only. Besides these 51 R&D subsidiaries of multinational firms, 10 Singaporebased firms were interviewed. Hence, 61 R&D organizations have been interviewed
overall. Based on the 100 most technologically sophisticated R&D organizations
according to information provided by the A*Star, the response rate is 61%.
As has been discussed, the research methods applied in this dissertation bridge the
different research traditions of quantitative (questionnaire) versus qualitative research
(firm-specific context) and take advantage of such triangulation.
After reviewing the literature and evaluating the research methodology, the following
chapter analyzes the context of the R&D subsidiaries under investigation, namely a
non-traditional R&D location, Singapore.
40
4 Late Industrializing Context: Singapore as a NonTraditional R&D Location
4.1 Singapore’s Science and Technology Policy
The following outline of Singapore’s science and technology policy serves as a basis
for understanding the periphery context in terms of a non-traditional R&D location.
The internationalization of R&D has up to today mainly been confined to the triad
nations (Europe, Japan and the US). Singapore is a non-traditional R&D location, with
R&D investment into Singapore a relatively recent phenomenon. Only under the
recent science and technology policy adopted by the Singapore government3 has the
focus on R&D activities been intensified. The following discussion attempts to
illustrate this recent science and technology policy, based on a short analysis of
Singapore’s historical economic development.
Singapore’s general industrial policy focused on manufacturing at the start of its
industrialization process after gaining national independence in 1965. Singapore
adopted a technology leverage strategy from MNEs due to its limitations of natural
resources and the size of its domestic market. FDI by MNEs has been encouraged
through highly favorable conditions. This strategy, which focused mainly on FDI in
manufacturing, allowed the country to gain access to new technologies and to create a
significant number of jobs. The favorable incentive schemes offered by the Singapore
government have also generated a self-sustaining positive feedback loop (Song, 2002:
192; 196). This is the case because domestic firms’ skills and expertise have been
enhanced through the supply of goods and services to MNEs (also see Feinberg and
Majumdar, 2001). Furthermore, these incentive schemes have created a first mover
advantage by attracting high value added production. They also provide a motivation
for MNEs to keep on upgrading local operations. The overall goal of this industrial
3
The Agency for Science, Technology and Research (A*Star) was established in 1991 in order to implement
Singapore’s science and technology policy. Three five-year national technology plans (1991-1996, 1996-2001,
2001-2006) have been adopted since then.
41
policy is to raise the level of technological sophistication. This outward oriented policy
led to accelerated industrialization from 1967-79 (Hobday, 1995). The electronics
industry started as the first industry with manufacturing (assembly) of simple
consumer goods thanks to cheap labor costs and stable working conditions (Hobday,
1995: 1173; Matthews, 1999: 56). Due to Singapore’s technology leverage strategy
from MNEs, Singapore’s electronics industry relied almost exclusively on foreign
companies. For instance, Philips began its operations in 1951 with a trading office of
four employees and expanded into the production of transistor radios in the early
1960s (Hobday, 1995: 1174). MNE investment in the electronics sector helped to start
up and further train local firms. In the 1970s, simple manufactured goods were
produced, before the next phase of professional electronics was entered into in the
1980s. From 1982-85, a cluster of hard disk drive producers was created and by 1991
Singapore was a major producer of such components (for a discussion on the hard disk
drive industry see McKendrick, Doner and Haggard, 2000). This example shows how
the technology leverage strategy adopted led to the building up of expertise in the
electronics industry. By the 1980s and 1990s, Singapore had developed a high-tech
industry and a regional services center, shifting low wage production into the
surrounding region (Song, 2002: 192).
Overall, this technology leverage strategy, which was mostly based on manufacturing,
has resulted in sustainable industrial development (Matthews, 1999: 56). The
annualized real GDP growth rate, for instance, was 9.6% for the time period 19701974, 8.5% for 1975-1979, 6.3% for 1980-1984, 8,5% for 1985-1989, 9.2% for 19901994 and 4.3% for the years 1995-1999. The following exhibit gives a more detailed
overview of major macroeconomic indicators:
42
Exhibit 10: Selected Macroeconomic Indicators for Singapore 1965-2000
Years
Real GDP
Consumer Price
growth rate %
Index Inflation
Unemployment Indigenous GNP
Rate %
Rate %
GNP per
per capita in
capita in
Singapore dollars
Singapore
per year
dollars per
year
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
6.6
10.6
13.0
14.3
13.4
13.4
12.5
13.3
11.3
6.8
4.0
7.2
7.8
8.6
9.3
9.7
9.6
6.9
8.2
8.3
-1.6
2.3
9.7
11.6
9.6
9.0
7.1
6.5
12.7
11.4
8.0
7.6
8.5
0.1
5.9
9.9
0.3
2.0
3.3
0.7
-0.3
0.4
1.8
2.2
19.6
22.3
2.6
-1.9
3.2
4.8
4.0
8.5
8.2
3.9
1.2
2.6
0.5
-1.4
0.5
1.5
2.4
3.4
3.4
2.3
2.3
3.1
1.7
1.4
2.0
-0.3
0.0
1.3
n.a.
8.9
n.a.
7.3
n.a.
8.2 (census)
n.a.
n.a.
4.4
3.9
4.5
4.4
3.9
3.6
3.3
3.5 (census)
2.9
2.6
3.2
2.7
4.1
6.5
4.7
3.3
2.2
1.7 (census)
1.9
2.7
2.7
2.6
2.7
3.0
2.4
3.2
4.6
4.4 (census)
n.a.
n.a.
n.a.
n.a.
n.a.
2478
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
8343
9798
11027
12474
13515
12973
12842
13814
15692
17788
20075
21380
23887
258893
29500
30998
32489
35098
34423
35928
38445
Source: Adapted from Peebles and Wilson, 2002: 273
43
1618
1773
1945
2188
2499
2825
3233
3798
4575
5498
5996
6353
6817
7558
8577
9962
11067
11942
13574
14853
14666
14576
15515
18093
20381
22411
24021
25510
28200
31872
34420
35482
39494
37226
38832
42212
The macroeconomic indicators presented in the exhibit show that Singapore has
experienced sustainable economic growth since its independence in 1965. GNP per
capita, for instance, increased from 1618 Singapore dollars in 1965 to 42,212
Singapore dollars in 2000. Indigenous GNP per capita refers to GDP earned by
Singaporeans only. The difference between GNP per capita and indigenous GNP per
capita is thus the amount of GDP which is produced by foreigners. These two
measurements have been adopted since a large number of foreigners works in
Singapore (Peebles and Wilson, 2002: 135-136). The consumer price index inflation
has been low with the exception of the years 1973, 1974 and 1980, 1981. The real
GDP growth rate is 8.7% on average for the years 1965-2000.
There are two views on this continual development of growth in the literature. The
accumulation view of growth sees it as result of high savings and investments that
made it possible for late industrializing countries to use technologies inherited from
the world’s technological leaders and to use them better (proponents of this view are,
for instance, Young, 1995; Collins and Bosworth, 1996). This view assumes that the
output growth can be explained by the increase in the quantities of inputs of capital
and labor (Peebles and Wilson, 2002). On the other hand, the assimilation view states
that the source of growth is an outcome of productivity growth resulting from
increases in the learning, entrepreneurship and innovation that these economies have
experienced. Thus, not only the adoption of foreign technologies but also development
of indigenous technologies have been possible (proponents of the assimilation view
are, for instance, Hobday, 1995 and Kim, 1998). This dissertation assumes that the
accumulation view probably applies to the beginning of Singapore’s economic
development. With Singapore’s transition towards more R&D activities, however, the
latter view (assimilation view) should gain in importance as a way of explaining the
country’s economic growth. More R&D activities may result in indigenous innovation,
entrepreneurship and learning. Therefore, the assimilation view may be a way of
explaining Singapore’s present and future economic growth.
The reasoning for a shift towards more R&D activities is based on recent economic
developments. Emerging economies, such as China and Malaysia, have increasingly
gained importance in manufacturing due to their lower manufacturing costs compared
44
to those in Singapore. China in particular has attracted a large number of foreign
producers. Therefore, it follows that Singapore’s economy can no longer rely only on
manufacturing for its present and future economic development. Singapore’s most
recent economic policy thus aims at the growth of economic activities beyond
manufacturing. This in turn implies that a strong emphasis is placed on fostering R&D
activities. Singapore’s recent science and technology policy is therefore based on
building up R&D activities as they are conducted in the triad nations (US, Europe, and
Japan; the internationalization of R&D is still confined to these triad nations, see
Edler, Meyer-Krahmer and Reger 2002: 159-160). The objective is for new and
innovative products and services to contribute at least 15% to the revenue of
manufacturing companies by 2008, to reach the Swiss standard (1993) of 237 patents
per 100,000 inhabitants and to have at least 50 successful new seed venture capitaltype start-ups per year (Haley and Low, 1998: 545-546).
R&D activities are already to some extent conducted in the electronics industry, but
Singapore’s science and technology policy attempts to promote such R&D activities in
the biomedical sciences field also. The R&D capabilities in this sector comprise the
pharmaceuticals, medical devices, biotechnology, and healthcare services sector
according to the definition of the Agency for Science, Technology and Research
(A*Star). As part of its strategy, the Singapore government has decided to build the
biomedical sciences industry as the economy's ‘fourth pillar’, the other three ‘pillars’
being electronics, chemicals, and engineering (Wess, 2002: 1). The two main
government institutions, the Economic Development Board (EDB) and the Agency for
Science, Technology and Research (A*Star), are responsible for Singapore’s
technology policy in all of these four fields.
The major government institution in charge of the national science and technology
policy is A*Star, which has established two research councils – the Biomedical
Research Council (BMRC) and the Science and Engineering Council (SERC) to
support and advance research. The BMRC is responsible for strengthening R&D
capabilities in genomics, molecular biology, bioinformatics, bioengineering, and
bioprocessing and oversees five public research institutes (Agency for Science,
Technology and Research, 2001: 1). Furthermore, an intellectual property framework
45
and a research infrastructure, have been created, for instance Singapore Science Park I,
II, and III, and the Tuas Biomedical Park (Wess 2002: 2-3). In addition, the education
system has undergone changes in order to create local expertise in the biomedical
sciences. BMRC, for instance, initiated a new graduate scholarship scheme in which
the hundred top graduates will be given scholarships to pursue their PhDs at the
National University of Singapore and to take up a two-year post-doctoral fellowship at
a foreign university. Besides this new scheme, BMRC also initiated the National
Science Scholarships Program in 2001 to provide scholarships from undergraduate to
PhD level (Yong, 2003: 4).
An example of one of the first firms investing in the biomedical sciences is the Swiss
pharmaceutical firm Novartis, which has established a Novartis Institute for Tropical
Diseases to conduct research on the diseases of dengue fever and tuberculosis (also see
case study). A further example is the investment by the American pharmaceutical firm
Eli Lilly in the form of Lilly Systems Biology, which was as one of the first firms to
receive funding from the Singaporean government’s US$600 million biomedical
sciences fund (also see case study). The growth target for the biomedical sciences
sector is a 10% contribution to Singapore’s total manufacturing output by 2010 (Yong,
2003: 4).
The SERC is responsible for the enhancement of R&D capabilities in areas such as
microelectronics,
material
science,
electronics,
engineering,
information
communication and chemistry and oversees eight public research institutions (Agency
for Science, Technology and Research, 2001). In addition, Exploit Technologies Pte
Ltd (ETPL) was formed to commercialize the intellectual property created by A*Star’s
Research Institutes and Centers. The Corporate Planning and Administration Division
(CPAD) supports the two research councils and ETPL.
A*Star has identified three key thrusts in its science and technology policy: to
strategize public research to integrate with industry clusters; to train human capital for
research and industry; and to create, own and exploit (COE) intellectual capital, for
instance by offering incentives schemes such as the ‘R&D Assistance Scheme’ or the
‘Cooperative Research Program’. The stimulation and entrenchment of R&D in
46
Singapore-based private sector firms are key goals (Agency for Science, Technology
and Research, 2001).
Besides A*Star, the EDB also plans and executes strategies to sustain Singapore’s
competitiveness. It enables multinational and Singapore-based companies to start
operations, to enhance them and to upgrade them to higher value-creating operations.
Furthermore, the EDB offers various incentives for fostering R&D activities.
Examples include the ‘Research Incentive Scheme for Companies’ (grants may be
offered to support the development of in-house R&D capabilities among Singaporebased companies for a maximum of 50% of the total research efforts for a period of
five years) (Swinbanks, 1997: 2).
This overview of Singapore’s science and technology policy shows how a nontraditional R&D location can foster R&D activities and thus increase its level of
technological sophistication and create a critical knowledge cluster. The barriers
Singapore as a non-traditional R&D location is facing in this process are discussed in
the next section.
4.2 Challenges for Singapore as a Non-Traditional R&D Location
Despite the efforts of the recent science and technology policy in Singapore,
challenges remain on the way to more R&D activities. Since Singapore has a relatively
short industrial history, it faces the challenges of a smaller R&D scale compared to the
triad nations. It also has a weaker technical capability since the Singapore economy
was mostly based on manufacturing, as has been illustrated above. It is therefore
important to increase technological sophistication. This may help to change the
perception of the periphery and create a critical knowledge cluster.
Three major challenges to Singapore’s transition towards more R&D activities have
been identified, namely insufficient local human resources, overdependence on MNEs
for innovation, and lack of entrepreneurship and creativity. Many interview partners
referred to these challenges during the personal interviews conducted for this
47
dissertation. The first challenge to be tackled lies in overcoming the current deficiency
in local human resources.
4.2.1 Structural Factors
4.2.1.1 Insufficient Local Human Resources
A barrier in the transition towards more R&D activities, which has been reiterated in
many of the interviews the researcher has conducted, is a significant deficiency in the
availability of scientific and technical manpower. When the R&D managers were
asked how they acquired the first human resources to build up the R&D subsidiary,
most of them indicated that they had to rely on foreign talent rather than local
manpower. The majority of the interview partners of MNEs indicated that either
foreign talent from within the R&D organization had been transferred to Singapore or
foreign talent was newly hired either on a global or regional basis in order to build up
R&D subsidiaries. This foreign personnel help to train and upgrade local manpower,
either at headquarters or at the respective R&D subsidiary and the Singapore
government often supports such training.
The Singapore government has implemented various measures to meet the lack of
local human resources. Various scholarship programs and reforms of the university
system have been undertaken (Peebles and Wilson, 2002: 264-266). It will, however,
take time to fill the void.
Besides this challenge to develop critical human resources, Singapore’s future
economic growth depends on the building up of indigenous innovative capabilities,
which would mean that the relative overdependence on MNEs for innovation would be
reduced.
4.2.1.2 Overdependence on MNEs for Innovation
According to Mahmood and Singh (2003), who study technological dynamism in
various Asian countries, the relative contribution of innovation by multinational
subsidiaries is highest in Singapore and India and minimal in Taiwan and South Korea.
Peebles and Wilson (2002) confirm that a high share of innovation results from MNEs
48
and state that much of Singapore’s technological base has been imported with MNEs,
but not through indigenous innovation and enterprise. Although Singapore appears to
have developed relative specialization in electronics and other high technology areas, a
large part of Singapore’s patenting activity continues to come from MNEs rather than
from domestic entities: 46% of the patenting activity arising from Singapore in the
years 1990-1999 is the result of MNEs’ R&D efforts (Mahmood and Singh, 2003:
1044). Furthermore, the innovative activity is highly concentrated; the fraction of
Singapore’s patents held by its top 50 assignees is 70% (Mahmood and Singh, 2003:
1052).
The relative role of domestic entities in patenting activity, however, is increasing: 59
out of 148 patents were granted to domestic entities for 1990-1994 and 287 out of 499
total for 1995-1999 (Mahmood and Singh, 2003: 1044). It seems that the recent
adoption of a more R&D oriented policy by the government is helping Singapore to
begin developing indigenous innovative capabilities. While MNEs are important in
Singapore’s transition towards more R&D activities, the creation of indigenous
innovative capabilities is critical in sustaining the transition towards more R&D
activities.
Besides these structural challenges, social and cultural factors play an important role in
Singapore’s transition towards more R&D activities.
4.2.2 Social and Cultural Factors
4.2.2.1 Lack of Entrepreneurship
An important factor in Singapore’s transition towards more R&D activities is the
creation of an entrepreneurial climate. Different perspectives on entrepreneurship exist
in the literature. Authors such as Cooper and Dunkelberg (1986) and Schumpeter
(1934) view entrepreneurship as the identification and pursuit of market opportunities
by recombining and allocating diverse resources. Other authors such as Usbasaran,
Wright and Westhead (2003) emphasize heterogeneity in entrepreneurship.
49
The literature has also emphasized the economic importance of entrepreneurship.
Especially in times of strong international competition, entrepreneurial activities are
regarded as a driving force for innovation and as such sustained competitive advantage
(Luethje and Franke, 2003: 135). The literature has analyzed the proclivity for
entrepreneurship as a function of various factors such as personal and cultural factors
(e. g. Huefner, Hunt and Robinson, 1996 and Smith, 2003).
An adverse social attitude to failure, both on an individual as well as societal level,
may lead to an unfavorable environment for entrepreneurship (Peebles and Wilson,
2002: 254-255). Since entrepreneurship may involve high risk, failure might occur.
Singapore has an adverse social attitude to failure, an attitude which may be
detrimental for the creation of an entrepreneurial environment. In Singapore, more
secure career options, as offered by the public sector or by MNEs, are preferred. The
public sector may skim off outstanding entrepreneurial talent because it offers high
salaries, prestige and security (Haley and Low, 1998: 540). The various MNEs also
offer highly attractive career paths. These options discourage entrepreneurialism. In
Singapore’s transition to more R&D activities then, the Singapore government is
attempting to stress the need for more entrepreneurship and risk-taking in order to
create a more favorable environment for entrepreneurialism.
4.2.2.2 Lack of Creativity
Lack of creativity is a major hindrance to indigenous innovation since all innovation
begins with creative ideas (Amabile et al., 1996: 1154). Three dimensions of creativity
are distinguished, namely individual creativity, group creativity and organizational
creativity (Amabile, 1997: 39; Oldham and Cummings, 1996: 607). On the individual
level, creativity depends on creative thinking skills, task motivation and expertise
(Amabile, 1998: 76). Individual creativity affects group creativity, which is in turn
characterized by group composition (e.g. individuals of diverse backgrounds), group
characteristics (e.g. group size, group cohesiveness) and group processes (e.g.
communication patterns, problem solving strategies) (Woodman, Sawyer and Griffin,
1993: 301). Organizational creativity is seen as the creation of valuable, relevant
output for the organization by a complex social system, be it in the form of a new
product, new service or process (Woodman, Sawyer and Griffin, 1993: 303). Hence,
50
organizational creativity is viewed as subset of innovation, which can also encompass
the adaptation of preexisting products or services, or those created outside the
organization (Woodman, Sawyer and Griffin, 1993: 293). Other authors agree with
this definition of creativity as the production of new and useful outcome and
emphasize the implementation aspect of innovation, which is viewed as the successful
functioning of the creative output (Oldham and Cummings, 1996: 607; Amabile, 1996:
1155). Thus, organizational creativity is by nature idiosyncratic, rare, hard to imitate
and not substitutable. It is thus a source of competitive advantage.
Previous studies explored the relationship between organizational properties and
organizational creativity in order to determine what the key enablers of organizational
creativity are. Woodman, Sawyer and Griffin (1993), for instance, found out that the
availability of resources, free internal and external communication and information
flows, as well as organizational structures, such as R&D networks, foster
organizational creativity. These results are confirmed by Amabile (1997), who views
the properties of organizational encouragement (for instance in the form of orientation
towards risk), the availability of resources, and management practices as important for
the prospering of organizational creativity. Similar findings are provided by Shalley,
Gibson, Blum (2000), who regard organizational complexity, autonomy, and low
organizational controls as crucial for organizational creativity. Oldham and Cummings
(1996) looked both at individual and organizational creativity and found out that R&D
scientists’ creative output was significantly related to the extent to which supervisors
developed an understanding for the employees’ feelings, one of their key results being
that the contextual measure, that is the organizational properties are independently and
positively related to organizational creativity, hence underlying the importance of
organizational creativity (Oldham and Cummings, 1996: 616-617). All of the above
authors consider the following organizational properties, namely organizational
encouragement
(including
free
information
and
communication
flows
and
organizational autonomy), organizational complexity, and the availability of resources
as enablers of organizational creativity.
It is a critical question whether Singapore can create creativity potential. While
Singaporean culture – well crafted by the government – transformed Singapore into an
51
attractive investment location for MNEs, providing a good infrastructure and a graftfree business environment, it also appears hierarchical and highly disciplined (Haley
and Low, 1998: 532-534). These characteristics seem to diminish creativity and the
ability to innovate since they are in contrast to the properties of autonomy and
complexity, which are enablers of organizational creativity. Haley and Low (1998:
550-551), for instance, point out that that the technocratic and authoritarian Singapore
government system has a negative impact on creativity and entrepreneurship. A study
by Shane (1992) also indicates that the extent to which a society stresses social
hierarchy is negatively related to inventiveness.
Hence, it is essential for Singapore to create an environment conducive to R&D
creativity, where regulations are only minimal in order to reach continued
competitiveness (Man, 2001: 230-233). The government-led policy more recently
attempts to retain and foster creativity among Singaporeans, for instance in the
education sector. Yet, despite these governmental efforts, it remains to be seen if such
further engineering of the Singaporean culture may result in the creative
entrepreneurial labor force that is vital for R&D activities. Whether Singapore can
strike this balance of government intervention and the increasing need for creativity
and entrepreneurship has not yet been demonstrated (Haley and Low, 1998: 551).
4.3 Concluding Remarks
While Singapore faces challenges in its transition towards more and higher level R&D
activities, it seems well on the way in this transition. The Singapore government has
adopted a large number of measures to create a local pool of highly skilled labor and to
create indigenous innovation (Yoshida, 2001: 6). For example, several spin-offs of
research institutions resulted in new local enterprises. Creative Technology, a leading
sound card maker, for instance, was founded by entrepreneur Sim Wong Hoo (Haley
and Low, 1998: 547). The researcher conducted interviews with such spin-offs, which
have been acquired by MNEs.
Given this development towards more R&D activities, social and cultural factors may
change over time as well. An entrepreneurial and more creative environment may
52
result from a general change towards more R&D activities in the economic structure.
As can be seen, the Singapore economy is already in the process of overcoming some
of the barriers which have been discussed. It will be interesting to see how Singapore’s
future economic development will evolve.
53
5 Empirical Evidence
5.1 Quantitative Empirical Findings: R&D Internationalization
Determinants and International R&D Organizations
5.1.1 Conceptual Framework of a Metanational R&D Organization
5.1.1.1 The Metanational Organization
According to Doz et al. (1997) and Doz, Santos and Williamson (2001), MNEs face
two major challenges today in maintaining their competitiveness. First, transferring
knowledge created in the home base to the host country is insufficient for creating
sustained competitive advantage. In today’s competitive environment, the international
exploitation of strategic advantages coming from the home base is no longer a
valuable strategy. This is the case because new important locations of technology and
sophisticated customer demand emerge in non-traditional geographical areas. For
example, initially manufacturing sites were established in low cost locations. Over
time, such manufacturing sites can, however, develop their own abilities to create new
technologies. Semiconductor manufacturing plants in South East Asia, for instance,
have made innovations in the technologies for packaging semiconductors (Doz et al.,
1997: 5). The challenge lies therefore in overcoming the dichotomy of home versus
host country base (see chapter 2). This is called the location challenge.
The second challenge comes from the fact that MNEs increasingly face more and more
complex knowledge. Knowledge originates from more dispersed parts of the world;
products and customers require more complex knowledge combinations (Doz, et al.,
1997: 6-10). Firms so far have been able to manage simple knowledge, but are now
required to manage increasingly complex knowledge. This challenge is especially
important in an R&D context where knowledge is of a highly complex nature,
especially in research. It is assumed that the higher the degree of knowledge
complexity, the higher the resulting sustainable competitive advantage (Doz et al.,
1997: 6).
54
According to the metanational framework, a metanational advantage is necessary
when these challenges become relevant for MNEs. Three distinct capabilities are
required to build such a metanational advantage, namely sensing, mobilizing ever
more complex knowledge and putting it into operations. In other words, MNEs need to
create sensing nodes to detect critical knowledge, mobilize this specific knowledge
and then connect as well as apply this knowledge (Doz, Santos and Williamson, 2001:
5-9). That means that MNEs need to project, integrate and orchestrate knowledge,
while at the same time improving their capability to address ever more complex types
of knowledge, following a metanational strategy. This in turn implies that MNEs need
to augment their capabilities to leverage highly complex and dispersed knowledge to
create competitive advantage (for more details see Doz, Santos and Williamson, 2001).
The term ‘meta’ stands for ‘beyond’. According to Doz, Santos and Williamson
(2001), this term has been chosen because metanational firms do not draw their
competitive advantage from their home country or from various host countries, a
dichotomy which is overcome in the metanational context. Metanational organizations
view the world as an entirety with pockets of different, specialist knowledge.
5.1.1.2 The Metanational R&D Organization
The following section analyzes how an R&D organization could respond to the two
challenges identified by proposing a metanational R&D organization:
Location challenge: Large number of knowledge bases
In accordance with the metanational framework, the international R&D organization is
viewed in its entirety. Thus, overall R&D allocation is optimized and integrated
accordingly. R&D organizations adopt a comprehensive strategy, allocating their R&D
activities anywhere in the world where specific knowledge is available. This
knowledge does not only refer to internal, but also to external knowledge bases, in
contrast to the traditional R&D models, where only internal knowledge bases are
considered (see chapter 2). Internal knowledge bases are knowledge bases within the
R&D organization, whereas external knowledge bases are knowledge bases residing
outside the organizational boundaries, namely in the external research environment.
55
The following example attempts to illustrate this comprehensive approach: While
Bangalore (in India) has specific knowledge in software development, Ang Mo Kio (in
Singapore) has specific expertise in the development of electronic related products and
Shanghai (in China) has a strong manufacturing base. Hence, an R&D organization
would conduct its software development activities in Bangalore, its electronic
development activities in Ang Mo Kio, and an R&D unit with manufacturing support
in Shanghai and thus would take advantage of the technological hierarchy within
R&D. Following such a metanational strategy, the R&D organization is no longer
concerned with exploiting or augmenting their knowledge base from a home country
perspective. The corporate R&D organization is more concerned with tapping into
specialized knowledge centers anywhere in the world and integrating this
technological expertise to the fullest for the R&D organization, resulting in a highly
specialized R&D organization. This means that the international R&D organization is
not determined from a home versus host country perspective, but is determined by a
holistic perspective (where it is best to allocate R&D activities based on the global
landscape of the R&D organization). The international R&D organization acts as a
‘global scanner’ picking up and exploiting new technology wherever it evolves
(Zander, 1998: 19). Hence, previous literature is extended by including this
determinant, which will be referred to in the following as a non-dichotomous
determinant of R&D. It is depicted below.
56
Exhibit 11: Determinants of R&D Internationalization
Technological
Advantage of
Home Country
Strong
Home-Base
Exploiting
Home-Base
Augmenting
Non-dichotomous
determinant (globally
optimizing)
Weak
Market
Seeking
Technology
Seeking
Weak
Strong
Technological
Advantage of
Host Country
Source: Author extending Kuemmerle (1996) and Le Bas and Sierra (2002)
This non-dichotomous determinant is presumably a metanational R&D organization’s
starting point for tapping into different knowledge bases worldwide. The idea of such a
non-dichotomous determinant can be found in the notion of an international network
of R&D laboratories (De Meyer and Mizushima, 1989: 145; De Meyer, 1993: 112;
115-119) which is considered crucial for the creation and diffusion of both internal as
well as external know-how (De Meyer, 1993: 117-119). This network idea is further
developed in the concept of the metanational organization.
A metanational R&D organization needs to be able to sense, mobilize and integrate
knowledge bases world wide, regardless of home or host country base. It is assumed
here that sensing different knowledge bases worldwide would require MNEs to
increase their degree of R&D internationalization. Otherwise, if R&D activities are
57
restricted to a low number of knowledge bases, it would be difficult to sense dispersed
knowledge. This difficulty applies to a great extent to R&D since R&D is mostly
focused on the triad nations (namely US, Europe and to some extent Japan). The
periphery (non-traditional R&D locations) has so far been neglected, especially
because it is considered that due to lower value added activities there, the R&D
organization does not need to consider the periphery. But examples prove that through
developments in their science and technology policy (see chapter 4) and constant
technological capability upgrading (see second part of this chapter), the periphery can
contribute to the whole R&D organization and should not be neglected. The negative
perception of the periphery also renders the mobilizing of different knowledge bases
difficult. Integration of knowledge refers again mostly to the integration of knowledge
residing in the triad nations. A metanational R&D organization, however, would take
advantage of a large number of knowledge bases (internal and external knowledge
bases) including the periphery (see dimension of knowledge bases on the x-axis in
exhibit 13).
Knowledge Complexity Challenge: Leveraging of the technological hierarchy
The second dimension of the proposed metanational R&D organization (see exhibit
13) refers to leveraging the technological hierarchy, which refers to all the
technological levels depicted in the technology ladder in exhibit 12. The hierarchy can
provide R&D knowledge with regard to market support, manufacturing support,
development or research. As stated in the above-mentioned example, this R&D
knowledge can reside in development expertise in South East Asia, in R&D
knowledge related to manufacturing in East Asia and research expertise in Europe. It is
essential to sense this knowledge within the technological hierarchy. The next step is
to mobilize it. It is important that the periphery is not ignored during this step and that
all relevant R&D knowledge regardless of its technological level is considered,
especially because different R&D functions require different technological capabilities
(also see exhibit 12). To integrate this knowledge is the third component in the
metanational advantage and requires the capability to not only integrate the different
knowledge bases, but also to integrate operation, improvement and generation
capabilities in a fruitful way to create competitive advantage, since different
technological stages require different management skills (for a more detailed
58
explanation of the technological hierarchy also see the second part of this chapter).
This second dimension is shown in exhibit 12 below and is depicted on the y-axis in
exhibit 13:
Exhibit 12: Leveraging of Technological Hierarchy in the Metanational R&D
Organization
R&D subsidiary
R&D
in host country
Other R&D
subsidiaries
headquarters
Technological Hierarchy:
Sense and mobilize
different knowledge
bases in the technological hierarchy
Integration Capabilities
Pure Science Unit (S)
Basic Research Unit (R2)
Applied Research Unit (R1)
Generation Capabilities
Exploratory Development Unit (D2)
Advanced Development Unit (D1)
Improvement Capabilities
Manufacturing Support Unit (M2)
Market Support Unit (M1)
Operation Capabilities
Source: Author’s extension of Medcof, 1997; Costa and de Queiroz, 2002; Amsden
and Tschang, 2003.
After describing the different dimensions of the metantional R&D organization, the
proposed framework for the metanational R&D organization is visualized below.
Furthermore, the positioning of the metanational R&D organization is compared to the
traditional R&D models (for an illustration of the international R&D models see
chapter 2).
59
Exhibit 13: Proposed Model for the Metanational R&D Organization
Metanational
Geocentric
high
R&D organization
Leveraging of
Technological
Hierarchy
R&D organization
Integrated R&D
network
R&D Hub Model
low
Ethnocentric R&D
Polycentric R&D
organization
organization
few
many
Number of Knowledge Bases
Source: Author
Traditional international R&D models have been discussed in chapter 2. The
elaboration of a metanational R&D organization has been presented in this chapter.
How the different types of R&D organizations can address the location and knowledge
complexity challenges is now to be analyzed.
As can be seen from exhibit 13 and based on the discussion of the traditional
international R&D models in chapter 2, the metanational R&D organization is an
extension of the integrated R&D network. Within the model of the integrated R&D
network, the home base loses its overall dominance, all R&D locations being equally
important, play a strategic role and interact through multiple and complex coordination
mechanisms. As can be seen, the three capabilities for a metanational advantage,
namely sensing, mobilizing and integrating different knowledge bases, are partly
60
apparent in this international R&D model. Hence, an integrated R&D network may
have to reinforce these capabilities to reach the state of being a metanational R&D
organization.
The same holds true, but to a lesser degree for the R&D Hub Model, an in-between
model as described above. The home base is more important than in the integrated
R&D network. The central R&D location leads in most technological fields. On the
dimension of the degree of cooperation, it is situated between cooperation and
competition. The importance of the home base should be decreased and knowledge
management skills increased.
The ethnocentric R&D organization is furthest away from the metanational R&D
organization, the primacy of the home base being critical. As opposed to this concept,
the geocentric, centralized approach of R&D is more international in nature. The same
applies to the polycentric R&D organization. Both the geocentric as well as the
polycentric R&D organization are strong in one dimension of the metanational R&D
organization (namely leveraging of the technological hierarchy for the geocentric
model, and a large number of knowledge bases for the polycentric model), but lack
another dimension. The geocentric R&D model can leverage the technological
hierarchy because international R&D activities are coordinated. In contrast, the
polycentric R&D organization can tap into different knowledge clusters, but is highly
decentralized.
Finally, the metanational R&D organization acts as ‘global scanner’, picking up and
integrating technologies in all relevant and emerging critical knowledge clusters. Thus,
this proposed type of R&D organization takes advantage of a large number of
knowledge bases and at the same time is highly effective in leveraging the
technological hierarchy.
The following exhibit gives an overview of the differences of all traditional R&D
model versus the metanational organization.
61
Exhibit 14: Comparison of Traditional R&D Models versus the Metanational R&D
Organization
Dimensions of Conceptual Framework
Traditional R&D Metanational
models
R&D
organization
Location
Challenge:
Number of
Knowledge
Bases
Determinants of R&D
internationalization
Dichotomous in
nature
Comprehensive in
nature
Extension of R&D
internationalization
Only in the triad
nations
Triad nations and
periphery
Knowledge
Complexity
Challenge:
Leveraging of
Technological
Hierarchy
Degree of specialization Low to medium
High
Knowledge development Critical R&D
personnel at
headquarters or at
key R&D
subsidiaries
Development of
critical R&D
personnel also in
the periphery
Locus of critical
knowledge (innovation)
At headquarters
Anywhere in the
and/or at key R&D R&D organization
subsidiaries
Source of knowledge
Mostly internal
Internal and
external
Source: Author
As illustrated in exhibit 14, the metanational R&D organization is based on a
comprehensive strategy of dropping the home base versus host country perspective, is
present also in the periphery and is highly specialized (the different stages in the
technological hierarchy are optimized). In contrast, the traditional R&D models
emphasize the home versus host base dichotomy (to a lower or higher degree
depending on the R&D model). Characteristically, the traditional R&D models are
also restricted to the triad nations and are characterized by a lower degree of
specialization than the metanational R&D organization. These differences apply to all
traditional R&D models in comparison to the metanational R&D organization.
62
The metanational R&D organization also differs in its leveraging of the technological
hierarchy. Critical knowledge development takes place in the whole R&D
organization, the locus of knowledge is anywhere in the R&D organization and the
source of knowledge is internal and external in nature. In contrast, traditional R&D
models develop critical knowledge mostly at headquarters and at key R&D
subsidiaries. As a result, the locus of knowledge is residing at headquarters and at key
R&D subsidiaries and its source is mostly internal.
After proposing this framework for the metanational R&D organization and discussing
its differences in comparison to the traditional R&D models, we shall empirically
examine the extent to which existing R&D organizations present in the periphery have
evolved into metanational R&D organizations. The periphery is a good location for
examining metanational R&D organizations because in contrast to traditional R&D
models, a metanational R&D organization is also present in the periphery and taps into
knowledge residing in the periphery. Singapore, as the context of periphery, is well
suited because it has a long history of MNE investment and has evolved from being a
manufacturing base into a base where high value added activities are carried out, e.g.
R&D activities. Equally importantly, Singapore is still at the periphery, i.e. not part of
the triad nations, and has little tradition in carrying out R&D activities.
The following section elaborates on the operationalization of the major variables for
the classification of the R&D subsidiaries under investigation.
5.1.2 Operationalization of Major Variables
5.1.2.1 Leveraging of Technological Hierarchy
The R&D subsidiaries under investigation are classified according to the conceptual
framework. This is done by analyzing the illustrated dimensions, namely leveraging of
the technological hierarchy and number of knowledge bases. The leveraging of the
technological hierarchy is measured according to the R&D subsidiaries’ relationships
with other R&D subsidiaries and R&D headquarters. In the R&D organization, three
types of relationships (tie modalities) have been distinguished (Vereecke, Van
Dierdonck and De Meyer, 2002: 9-12). First, relationships of human resources refer to
63
the human resources flow between the different R&D sites and with headquarters.
More specifically, the human resources flow refers to the development of critical R&D
personnel in the internal R&D organization. It shows if such R&D personnel is also
developed in the periphery. In the in-depth interviews, the R&D managers were asked
about the composition of their R&D personnel (number of personnel at technician
level versus research scientist/engineer level). Technician level refers to R&D
personnel holding a bachelor’s degree, whereas research scientist/engineer level refers
to R&D personnel holding a master’s degree or a PhD. If more than half of the R&D
personnel belonged to the second category, it was assumed that critical R&D
personnel were developed in the periphery. This assumption is similar to the reasoning
of Deeds, DeCarolis and Coombs (2000) who state in another context that the number
of R&D personnel holding a PhD (or master’s degree) as a percentage of the
management team can be an important performance indicator. Here it is not seen as a
performance indicator, but as an indicator for critical human resources development at
subsidiary level. Furthermore, the R&D managers were asked to what extent their
R&D subsidiary has influence on the acquisition and development of human resources
and to what extent they conduct training for their R&D personnel (see survey in
appendix). Overall, these items attempt to reflect to what extent development of
critical R&D personnel occurs in R&D subsidiaries in the periphery.
Second, the innovation configuration is examined to investigate how far the locus of
innovation is at the R&D subsidiary, at headquarters and/or at other R&D sites,
namely whether R&D sources are at the subsidiary R&D site or whether core
technologies are transferred for further development to the respective R&D subsidiary.
This will give an indication of the primacy of the home base. In the in-depth
interviews, respondents (R&D managers/directors or managing directors) were asked
to indicate to what extent they are able to participate actively in the global R&D
program, to what extent they are recipients of core technologies from the home base
and to what extent they can initiate own R&D projects. Moreover, the respondents
indicated to what extent they conduct R&D activities in a field where headquarters or
other R&D sites have no expertise and to what extent the innovation locus in their
R&D organization is equally balanced (also see survey in appendix). Overall, these
items attempt to reflect the innovation configuration.
64
Third, the degree of freedom (autonomy) the R&D subsidiary enjoys is examined.
Respondents were asked to indicate to what extent their R&D site has to follow rules
and regulations by headquarters, to what extent their R&D site can engage freely in
external research collaborations and to what extent their R&D site can interact freely
with other R&D sites (also see survey in appendix).
Overall, these three measures attempt to give an indication of leveraging the
technological hierarchy.
5.1.2.2 Number of Knowledge Bases
The number of knowledge bases is determined partly by the interviews and partly by
corporate archival research. The answers obtained from R&D managers and directors
at subsidiary level were complemented by corporate archival research (annual reports,
corporate web pages) documenting their type of R&D organization and the number of
different knowledge bases of the corporate R&D organizations. In general, the
interview partners indicated the number of knowledge bases. Data on the number of
knowledge bases was also found through corporate archival research.
The number of knowledge bases is considered small when the knowledge base is
essentially located at headquarters. The number is medium when the knowledge base
is located at headquarters and a few key R&D subsidiaries. An R&D organization with
a large number of knowledge bases has R&D locations in all critical knowledge
clusters, also in non-traditional R&D locations.
The following exhibit summarizes the classification scheme for the various types of
R&D organizations:
65
Exhibit 15: Classification Scheme for Different International R&D Organizations
Type of R&D
organization
Leveraging of Technological Hierarchy
Critical human Innovation
Degree of
resources
freedom
Locus also at
Number of
Knowledge Bases
development at R&D subsidiary (autonomy) of
R&D
R&D subsidiary
subsidiary
Ethnocentric
No
No
Low
Small
Geocentric
No
Yes4
Low
Small
R&D Hub
Yes
Yes
Medium
Medium
Yes
Yes
High
Medium
Polycentric
Maybe
Maybe
High
Medium
Metanational
Yes
Yes
High
Large
Model
Integrated
R&D network
R&D
organization
Source: Author
An R&D organization would be classified as an ethnocentric R&D organization if the
number of knowledge bases is small, in this case only at headquarters. Logically, the
leveraging of the technological hierarchy is low. Critical human resources
development does not take place at R&D subsidiary level. The innovation locus is at
the home base and hence not at the R&D subsidiary. Due to the primacy of the home
base, the degree of freedom of the R&D subsidiary is low. The geocentric R&D
organization is also present at headquarters only. But in this model, different
international R&D collaborations are entered into. Therefore, the innovation locus is
not entirely at headquarters. Thus, leveraging of technological hierarchy is higher than
under the ethnocentric model.
4
Even though the geocentric R&D organization does not have international R&D subsidiaries, it does engage in
international R&D collaborations. Therefore, the innovation locus is not only at headquarters.
66
The R&D Hub model, the integrated R&D network as well as the polycentric R&D
organization are all present in the triad nations. They differ with regard to their ability
to leverage the technological hierarchy.
By contrast, a metanational R&D organization is present in a large number of
knowledge clusters and is very good at leveraging the technological hierarchy.
5.1.2.3 R&D performance
In order to analyze the performance implications of the different international R&D
organizations, which have been discussed, different R&D performance measures are
discussed in the following:
From an organizational perspective a measure of R&D output refers to criticality,
substitutability, interaction, and immediacy (Brockhoff, 1998: 76-77). In this context,
criticality reflects the degree to which the overall success of the organization depends
on the work of the individual laboratory. The term criticality shows the possibility of
substitution of work done in an R&D unit. The higher this variable, the lower the
positive output of this R&D unit. Intense interaction of one R&D unit with other R&D
units might increase the innovation output of the respective R&D unit. Finally,
immediacy refers to the time lag between the stoppage of work in a laboratory and the
cessation of work in the whole organization, that is, to what extent a stoppage by the
R&D unit constitutes a block for the rest of the organization. These concepts are
relatively hard to measure due to their abstract nature and are more useful in
theoretical discussions than in an empirical study.
Other R&D measures include its efficiency (to do things right) and its efficacy (to do
the right things). Efficiency refers to the use of R&D resources in a favorable relation
between costs and usefulness, whereby efficacy refers to R&D projects which
contribute to overall firm goals. In other words, low efficacy means a high share of
money being wasted for R&D (von Boehmer, 1995: 106-107). The major disadvantage
of these types of measurements is that these measures are exposed to considerable
subjective evaluation by the R&D manager. This might lead to biased results.
67
An alternative measure of R&D output is the number of drugs in development or in the
‘pipeline’. In general, one distinguishes between the number of products at stage I, II
and III and the number of products approved for sale (Coombs and Deeds, 2000: 238).
The strength of a product pipeline ensures future cash flows and increases the
likelihood of firm survival. Hence, this measure of R&D output indicates the future
potential value of a firm. Obviously, a product pipeline does not necessarily translate
one for one into innovative products. Moderator variables, such as the firm’s ability to
commercialize these products effectively, can play a significant role. One possible
solution to this problem would be to consider only the products in stage III of the
pipeline since they have the highest probability of being translated into innovations.
This measure, however, applies solely to certain industries such as the pharmaceutical
industry.
A further R&D performance measure refers to intellectual human capital, which can be
measured as the number of Ph.D.s and/or master’s degrees in sciences as a percentage
of the management team (Deeds, DeCarolis and Coombs, 2000: 221). This
performance measure is difficult to apply in this dissertation since the management of
the R&D subsidiaries under investigation usually consists of only person who in nearly
all cases holds a Ph.D. or a master’s degree.
Other alternatives which reflect R&D performance can be found in the quality of the
R&D personnel, for example in the number of star scientists. While the number of star
scientists may reflect the quality of the R&D personnel, it may not translate into high
R&D performance. This measure is not applicable in this dissertation since the R&D
team at the R&D sites under investigation is usually too small to have a sizable
number of star scientists.
A further, frequently used measure is R&D expenditure, which can be found in annual
reports and 10-K reports and is hence available for all public firms. However, R&D
expenditure is a very crude measure since R&D expenditure does not necessarily
translate into research performance. Knowing that the R&D expenditure is high does
not necessarily mean that the R&D outcome is high. Hence, it is not clear what R&D
68
expenditure really measures. Another disadvantage of this measure is that it is almost
impossible to obtain figures for R&D expenditure for private firms.
Another performance measure refers to the number of innovative strategic actions
undertaken by the R&D subsidiary, which could be found in public sources. However,
there might be a reporting bias to present the R&D organization positively, so that size
and impact of innovative strategic actions (quality vs. quantity) might be unclear.
These actions might also apply for a limited time horizon only.
The number of publications and citations is one more measure of R&D performance
(Boutellier, Gassmann and v. Zedtwitz, 2000: 46). The number of publications is
important since it reflects the degree of research output by the R&D site, but it does
not necessarily reflect the quality of these publications.
A further measure of R&D output can be seen in the introduction of new products and
services. The definition of such new product or service developments, however,
differs. Besides the definition problem, the link between new product developments
and market performance might not be evident. Furthermore, not all new product
developments have the same impact; some new products might have a strong market
impact (i.e. blockbuster), while other new products might result in a minor impact.
Hence, the market performance of the new product is not known or will only be known
in lag time. Despite the weaknesses of this measure, however, it is undeniable that this
measure is easily quantifiable: some authors consider the number of new product
developments as a more appropriate measure than patents (Westhead, 1997: 47). The
weaknesses and strengths of this measure are analyzed below.
R&D output can also be measured by the number of patents applied for by a firm
(Westhead, 1997: 47). Even though patent applications seem to be an obvious measure
for innovation, such a criterion is not without drawbacks. First, patent applications
leading to patented inventions do not automatically result in innovations (Coombs and
Deeds, 2000: 238). Second, patent applications cannot measure all the innovative
activities of a firm since not all intangible assets are patentable (Shan and Song, 1997).
Third, the economic significance of inventions can vary greatly (Ernst, 2001: 145).
69
Fourth, not all patentable innovations lead necessarily to a patent application since
there may be other possibilities of appropriating R&D earnings (Ernst, 2001: 145).
Finally, the quality of patent applications is heterogeneous.
However, patent applications constitute crucial indicators of innovative activity and as
such of important technology positions. One study by Ernst (2001) examines the
relationship between a firm’s patent applications and subsequent changes in its
performance, concluding that patent application data is a major output indicator of
R&D activities. The number of patent applications is important in the context of this
dissertation because it reflects to what extent the R&D subsidiary is research based
versus development based. The latter orientation would be reflected in the number of
new product developments.
This first part of the empirical findings examines the relationship between the type of
organizational form and its performance implications, using the data of the 51 R&D
subsidiaries under investigation, according to the R&D performance measures
applicable, namely the number of patent applications and the number of new product
developments.
5.1.3 Discussion of Results
5.1.3.1 Different Types of R&D Organizations
Based on the dimensions of leveraging of the technological hierarchy and number of
knowledge bases, the R&D subsidiaries under investigation have been classified
(exhibit 16).
The average number of patent applications per researcher and the average number of
product developments per researcher as of year 2001 have been calculated for each
type of R&D organization. The number of R&D organizations belonging to each
category has been listed as well. The sample is 42 since the remaining R&D
subsidiaries, namely 9, started their R&D operations only in 2002.
70
Exhibit 16: Classification of R&D Organizations
Leveraging of
Technological
Hierarchy
high
Integrated
R&D network (4)
Metanational
R&D Organization (1)
Not applicable
Ø no. of PA/R: 0.02
Ø no. of PD/R: 0.17
Geocentric
R&D Hub (1)
R&D organization (11)
Ø no. of PA/R : 0.03
Pre-metanational
medium
Ø no. of PA/R : 0
Ethnocentric
Polycentric
R&D Organization (23) R&D Organization (6)
low
small
medium
Highly dispersed
many
Number of Knowledge Bases
Ø no. of PA/R = Average Number of Patent Applications per Researcher on
Subsidiary Level in Year 2001
Ø no. of PD/R = Average Number of Product Developments per Researcher on
Subsidiary Level in Year 2001
() Number of R&D organizations of this type
Source: Author
71
Exhibit 16 shows the different types of R&D organizations according to the
classification scheme. Besides the six types of R&D organizations, three more R&D
organizations have been identified. In the first case, the number of knowledge bases is
small, but leveraging of technological hierarchy is high. This type of R&D
organization is practically not possible. If present at headquarters only, an R&D
organization can logically not be strong at leveraging the technological hierarchy
internationally. While the geocentric R&D organization can do this to some extent due
to its various R&D collaborations, this type does not seem to be practically possible.
A highly dispersed R&D organization is logically conceivable. It would imply that the
R&D organization is present both in the triad as well as the non-triad nations. Due to
its low leveraging of technological hierarchy, any integration of R&D efforts is
foregone. Even though theoretically conceivable, however, an R&D organization
would forego even more than in the polycentric model any benefits resulting from a
large number of knowledge bases and would probably be highly inefficient. One can
imagine its temporary existence after, for example, a corporate merger. But it does not
seem to be sustainable.
The third ‘new’ type of R&D organization can be seen as a precursor to a metanational
R&D organization. This model is present in all critical knowledge clusters. In contrast
to the highly dispersed R&D organization, this type of R&D organization has learnt to
leverage the technological hierarchy to a medium extent. Therefore, it is considered as
a pre-form of a metanational R&D organization.
The metanational form of R&D activities occurs only rarely in our sample. There was
in fact only one metanational R&D organization with corresponding performance data;
the other two metanational R&D organizations did not have corresponding
performance data. The rare occurrence of this type of R&D organization is the case
despite the factors speaking in favor of a metanational R&D organization, factors
which are the erosion of competitive advantage from simplification through imitation
and expansion of the opportunities for profitable knowledge orchestration. Such a
profitable knowledge orchestration is made possible by the emergence of new
knowledge clusters around the world combined with improvements in the range and
72
efficiency of connectivity mechanisms available (Doz et al., 1997: 20-21). That only
few R&D organizations show the characteristics of a metanational R&D organization
may partly be so because the R&D function differs considerably from other corporate
functions. Due to the sensitive function of R&D (fear of imitation or diffusion of
knowledge), high value added activities such as R&D are still mostly performed in the
triad nations, not in the periphery. This dominance of the home base, plus the
perceived unimportance of R&D subsidiaries in the periphery and the notion that local
adaptations can only be applied locally, are major barriers to creating a metanational
R&D organization (Doz, Santos and Williamson, 2001: 49-51). The primacy of the
home base is reflected by the fact that still most high value added activities are
performed in the home base. The periphery is still perceived more as a location where
corporate functions such as production or marketing are performed, but is not seen as
an R&D hub. And finally, the importance of local applications beyond the local or
regional market may not be taken into account by R&D organizations.
The barriers described apply more notably to research than to development. In
development, they are less pronounced. This is also reflected in a higher degree of
internationalization for development than for research activities of a firm (von
Zedtwitz and Gassmann, 2002: 573-575). How these barriers can be overcome and a
metanational advantage be obtained in an R&D organization are explained in more
detail in the case study on Novartis’ Institute for Tropical Diseases.
5.1.3.2 Exploratory Performance Implications
As can be seen from exhibit 16, the number of patent applications per researcher is
highest for the geocentric R&D organization, followed by the ethnocentric R&D
organization, by the metanational and then by both the integrated R&D network and
the polycentric R&D organization.
In terms of the number of new product developments, the metanational R&D
organization scores highest, followed by the ethnocentric R&D organization, the
integrated R&D network, the R&D hub, the polycentric and geocentric R&D
organization. Overall, the number of new product developments per researcher is
higher than the number of patent applications per researcher. These differences might
73
indicate that technological capabilities at subsidiary level are more focused on product
development rather than on the number of patent applications. This in turn might also
imply that non-traditional R&D locations need to reinforce their research efforts to
move from being a development location to becoming a research hub. These
differences may also be due to various other factors, such as the patenting strategy of
the respective R&D organization or type of industry.
The analysis of this study shows that it is important to distinguish between research
and development in terms of performance. While the geocentric R&D organization
seems to be strong in patenting activity, the ethnocentric and the integrated R&D
network, the R&D hub and the metanational R&D organization show an important
number of new product developments.
Within these four R&D organizations, which are strong in the number of new product
developments, it is important to examine whether there is a difference from one
industry to another. This reasoning comes from the fact that roughly one third of the
R&D subsidiaries in the sample, namely 12, belong to the electronics industry. The
rest belong to other industry sectors such as the biomedical sciences, chemical and
food industry.
It is argued that due to the nature of the electronics industry, the R&D organizations of
metanational, hub and integrated network would be more suited to developing new
products than an ethnocentric R&D organization for R&D organizations in the
electronics sector. This might be the case because the knowledge in the electronics
industry, in particular knowledge about product developments and applications, is
more dispersed than it is in the pharmaceutical sector for instance. Doz, Santos and
Williamson (2001) emphasize this dispersion of knowledge in the electronics sector by
presenting the case of ST Microelectronics, a firm which was only able to sustain its
competitiveness by combining dispersed knowledge in order to create a new
semiconductor chip.
Based on this reasoning, the following regressions were run (also see Emory and
Cooper, 1991: 629). First, the number of new product developments versus the type of
74
R&D organization (ethnocentric organization versus the metanational, hub, and
integrated R&D network taken together), for the electronics industry only. Second, the
same regression was run for all R&D subsidiaries not pertaining to the electronics
industry.
Results are presented below:
75
Ethnocentric and Meta/Hub/Integrated R&D Organizations (Electronics
Industry only)
Variables Entered/Removed(b)
Variables
Model
1
Variables Entered
Removed
Method
.
Enter
SIZE,
METHUBIN,
ETHNO(a)
a All requested variables entered.
b Dependent Variable: PRODEV
Model Summary
Adjusted R
Std. Error of
Model
R
R Square
Square
the Estimate
1
.962(a)
.926
.898
22.32723
a Predictors: (Constant), SIZE, METHUBIN, ETHNO
ANOVA(b)
Sum of
Squares
df
Mean Square
F
Sig.
Regression
49782.376
3
16594.125
33.288
.000(a)
Residual
3988.041
8
498.505
Total
53770.417
11
Model
1
a Predictors: (Constant), SIZE, METHUBIN, ETHNO
Coefficients(a)
Standardized
Unstandardized Coefficients
Model
Coefficients
t
Sig.
2.358
.046
-.171
-1.518
.168
25.247
.951
9.125
.000
-.153
-1.323
.222
B
Std. Error
(Constant)
32.328
13.710
ETHNO
-22.959
15.127
METHUBIN
230.385
-20.713
15.658
Beta
1
SIZE
a Dependent Variable: PRODEV
Source: Author
76
As can be seen from exhibit 17, R squared in our model is 0.926, that is 92.6% of the
variation of the dependent variable, that is the number of new product developments,
is explained by the regressor, namely the type of R&D organization.
The regression results are significant at p < 0.01. The variable ethnocentric R&D
organization shows no statistical significance, however, the variable of meta, hub and
integrated R&D network (‘methubin’) showing statistical significance at p < 0.01. The
F value of our model exceeds the critical F value at p < 0.01.
These findings are a first step towards suggesting that it is important for R&D
organizations in the electronics industry to be organized either as a metanational, hub
or integrated R&D network since these organizational forms have a positive impact on
the number of new product developments. The findings imply as well that an
ethnocentric R&D organization is ill suited for delivering a large number of new
product developments. In the regression, the variable ethnocentric R&D organization
is statistically insignificant (p at 0.168).
The same regression was run for the R&D organizations in the other industries.
Results of this second regression are presented below:
77
Ethnocentric and Meta/Hub/Integrated R&D Organizations (Other
Industries)
Variables
Model
1
Variables Entered
Removed
Method
.
Enter
SIZE, ETHNO,
METHUBIN(a)
Model Summary
Model
1
Adjusted R
Std. Error of
R
R Square
Square
the Estimate
.748(a)
.559
.508
5.80350
a Predictors: (Constant), SIZE, ETHNO, METHUBIN
ANOVA(b)
Sum of
Model
1
Squares
df
Mean Square
F
Sig.
Regression
1110.545
3
370.182
10.991
.000(a)
Residual
875.697
26
33.681
Total
1986.242
29
a Predictors: (Constant), SIZE, ETHNO, METHUBIN
Coefficients(a)
Standardized
Unstandardized Coefficients
Model
Coefficients
t
Sig.
-.133
.895
.451
3.186
.004
3.429
.078
.545
.591
.588
4.444
.000
B
Std. Error
(Constant)
-.243
1.827
ETHNO
7.342
2.304
METHUBIN
1.868
12.838
2.889
Beta
1
SIZE
a Dependent Variable: PRODEV
Source: Author
78
As can be seen from exhibit 18, R squared in our model is 0.559, that is 55.9% of the
variation of the dependent variable, that is the number of new product developments,
is explained by the regressor, namely the type of R&D organization.
The regression results are significant at p < 0.01 The variable ethnocentric R&D
organization shows statistical significance at p < 0.05. The variable of meta, hub and
integrated R&D network (‘methubin’) show no statistical significance. The F value of
our model exceeds the critical F value at p < 0.01
These findings are a first step towards suggesting that for the R&D organizations in
the other industries, it is more favorable to be organized in the ethnocentric form. The
types of metantional, hub and integrated R&D network do not contribute to the R&D
performance in terms of the number of new product developments.
Thus, our observation that it is important to be organized as either the metanational,
hub or the integrated R&D network for the electronics industry can be confirmed.
These results refer to the number of new product developments. These performance
implications constitute exploratory performance implications. Further studies are
needed to confirm these findings, in particular studies with a larger sample.
Given the barriers described for a metanational R&D organization, it is not surprising
that only few R&D organizations reach the state of a metanational R&D organization.
The findings therefore suggest that few firms utilize and leverage knowledge residing
in the periphery, especially with regard to R&D.
The periphery can raise its importance through increasing its level of technological
sophistication. How such an evolution in the form of technological capability
upgrading can take place is analyzed in the second part of this chapter. This will give a
more precise indication of the leveraging of the technological hierarchy from the
perspective of the periphery. The following exhibit shows the framework of a
metanational R&D organization and how the subsequent findings of this chapter
contribute to this framework.
79
Exhibit 19: Framework for a Metanational R&D Organization: Implications for the
Periphery
Metanational R&D
Organization
R&D Sub.
R&D
Organization
Level
R&D Sub.
R&D HQ
Internal R&D
network linkage
Technological
capability upgrading of
the R&D subsidiary
R&D Sub.
R&D
Subsidiary
Level
External R&D network
linkage
Source: Author
While the first part of the empirical findings analyzed different international R&D
organizations and proposed a framework for a metantional R&D organization, the
second part examines technological capability upgrading at the R&D subsidiary level.
This logic of structure follows because only through technological capability
upgrading are R&D subsidiaries in the periphery capable of playing an important role
in the overall corporate R&D organization. Therefore, the process of this technological
capability upgrading is analyzed in more detail. Such an investigation is important in
80
order to understand why non-traditional R&D locations are still at the periphery,
which means they are not yet part of the group of more advanced R&D locations, and
how they can progress further in their technological capability upgrading. In this
process, the impact of both variables of internal and external R&D network linkage is
examined (see exhibit 19).
5.2 Quantitative Empirical Findings: R&D Internationalization
Process
5.2.1 Conceptual Framework
5.2.1.1 Technological Capability
This section attempts to provide a definition for the key terms of this second part of the
quantitative empirical findings, namely technological capability and technological
capability upgrading. There is no standard definition of these terms and they are not
used only in an R&D domain (see for instance Lall, 1992 and Coriat and Dosi, 2002).
Lall (1992) has developed an illustrative matrix of technological capabilities. He
distinguishes between routine, adaptive and innovative technological capabilities (Lall,
1992: 167). Dahlman and Westphal (1982) use the term “technological mastery”.
Technological capability is also defined as “skill, knowledge, and experience required
for a firm to achieve technological change at different levels” (Costa and de Queiroz,
2002: 1433). It is thereby assumed that technological capabilities are accumulated over
time as the firm seeks to undertake technological tasks. Following the definition of
Costa and De Queiroz (2002), two types of technological capabilities are
distinguished: functional and meta-technological capabilities. Within functional
technological capabilities, these authors further distinguish between operational,
improvement, and generation capabilities. While operational capabilities refer to an
efficient functioning of productive activities, improvement capabilities refer to the
improvement of technologies from external sources. Finally, generation capabilities
allow the firm to achieve original results (Costa and de Queiroz, 2002: 1434-1435).
81
Based on Amsden and Tschang’s (2003) R&D classification, it is argued here that the
different stages of an R&D site incorporate these different types of capabilities. Since
an R&D unit with manufacturing support has to ensure an efficient production process
as its main function, the R&D site’s operational technological capability is strong. A
similar logic applies to an advanced development unit and an exploratory development
unit, where the focus is on improvement capabilities. Extant technology is further
developed and improved. Finally, generation capabilities apply to an R&D site with a
strong research focus (applied research, basic research or pure science). Generation of
new technologies is important.
It has become obvious that most R&D sites under investigation in this study attempt to
obtain generation capabilities in tandem with meta-technological capabilities, that is,
the capability to manage this technological capability upgrading process (Costa and de
Queiroz, 2002: 1434-1435). It is assumed that a metanational R&D organization is
capable of applying these capabilities to the different stages of the technological
hierarchy in tandem with the meta-technological capabilities.
5.2.1.2 Technological Capability Upgrading
Closely linked to the definition of technological capabilities is the definition of
technological capability upgrading. Again, there is no standard definition of this term
and different authors have a different understanding of the concept. Capability
upgrading in general can be seen as entry into progressively more complex new
activities. Technological capability upgrading can be regarded as increasing
competence in more complex technologies (Costa and de Queiroz, 2002: 1433;
Intarakumnerd, Chairatana and Tangchitpiboon, 2002: 1445). It can also be viewed as
technical learning, as the “creation of a technical know how base, the accumulation of
technical knowledge” (De Meyer, 1993: 112).
This dissertation combines the views of Medcof (1997), Costa and de Queiroz (2002)
and Amsden and Tschang (2003). Technological capability upgrading is defined as
moving along the technological ladder indicated in exhibit 20. A higher level of
technological capability is defined when a company has achieved the ability to
perform a technological activity that it had not been able to perform before
82
(Figueiredo, 2002: 78), for instance when an R&D unit moves from simply supporting
manufacturing to conducting development activities. While supporting manufacturing
involves mostly operation capabilities, improvement capabilities are required for
development functions.
The framework of Amsden and Tschang (2003) has been chosen because they based
their research on fieldwork in a late industrializing country, namely Singapore.
Therefore, their R&D classification seems to be suitable to fit the late industrializing
context.
The work of Amsden and Tschang (2003) is complemented by that of Medcof (1997).
While the former focuses on the differences within R&D, it does not consider the
impact of R&D activities in a geographical perspective. So, in order to provide a more
comprehensive framework of technological capability upgrading, it is important to
include the work of Medcof (1997), who provides a systematic classification of R&D
sites not only according to their technological level, but also according to their
geographical output.
Hence, exhibit 20 is derived from these two works of Medcof (1997) and Amsden and
Tschang (2003).
83
Exhibit 20: Framework for Technological Capability Upgrading at R&D Subsidiary
Level5
Technology Ladder
(local, regional and global scope)
Pure Science (S)
Basic Research Unit (R2)
Applied Research Unit (R1)
Generation Capabilities
Exploratory Development (D2)
Advanced Development (D1)
Improvement Capabilities
Manufacturing Support (M2)
Market Support (M1)
Meta-Learning
Capabilities
Operation Capabilities
Source: Author expanding Medcof (1997); Costa and De Queiroz (2002) and
Amsden and Tschang (2003).
The first two levels in the technology ladder apply to market and manufacturing
support. According to Medcof (1997), market support is defined as customer support
and/or the adaptation of already established product technology to particular customer
requirements. This function (market support) is carried out by the R&D unit in
collaboration with the marketing unit, without significant collaboration from
manufacturing.
In contrast to market support, manufacturing support refers to the adaptation of an
already established process technology to some particular condition, usually to
improve the manufacturing process. Manufacturing support is carried out in tandem by
the R&D unit and manufacturing, but without significant cooperation from marketing
(Medcof, 1997: 306). In late industrializing economies these two functions are crucial
if the R&D site is to acquire more technologically complex capabilities (Amsden and
5
This chapter examines technological capability upgrading only. However, the author is aware of the fact that
technological capability downgrading occurs as well. The objective of a late industrializing country, however, is
to upgrade rather than downgrade the technological capabilities in order to increase its economic
competitiveness. This is why technological capability upgrading is discussed in this dissertation.
84
Tschang, 2003: 566-569). These basic technological capabilities allow R&D
subsidiaries to achieve higher levels of technological development (Figueiredo, 2002:
74-79).
The next two levels in the technological ladder point to development and can be
defined as the creation of new products and processes with commercial value by
means of applying current scientific knowledge (Medcof, 1997: 306). Development is
carried out by R&D units in collaboration with marketing and manufacturing units
(Medcof, 1997: 306-308). Within development, two categories are distinguished
(Amsden and Tschang, 2003: 555; Medcof, 1997: 306). Product development or
advanced development refers to the development of manufacturable and commercially
viable new products (Medcof, 1997: 306; Amsden and Tschang, 2003: 555). An
advanced development unit aims to deliver immediate market results and is related to
production. Techniques used include engineering design tools including simulation
and testing. The R&D personnel has an engineer level (bachelor’s and/or master’s
degree).
A higher level of development is termed as process development or exploratory
development, whereby the R&D unit aims to find a detailed product design or
prototype in a system. Thus, the search is not focused on a new product, but on a new
and commercially viable process. The research objective is to implement this process
as engineered system. An exploratory development delivers short-term market results
and requires R&D personnel on an engineer level (bachelor’s and/or master’s degree).
Techniques employed comprise engineering design tools including simulation, but not
testing.
Given
these
characteristics,
exploratory
development
is
therefore
technologically more advanced than an advanced development unit (Amsden and
Tschang, 2003: 555, 560).
The next more sophisticated stage in the technological ladder is applied and basic
research, carried out by R&D units without significant consultation with marketing or
manufacturing. Applied research refers to the application of scientific techniques in
order to find a differentiated product for a specific market. The objective is to
transform and reapply a known concept for a new application. The output is a
85
differentiated product for a specific market with intellectual property, which is created
in the medium and short-term. The R&D personnel is well trained, experienced and
has a bachelor’s, master’s degree or a PhD and applies scientific techniques (Amsden
and Tschang, 2003: 555).
Basic research refers to the discovery of new knowledge for new marketable products.
In contrast to applied research, it seeks applications that are unknown or diffuse. R&D
units conducting basic research adopt a long-term horizon. The output is product-based
research for transfer to applied research or exploratory development. Scientific
techniques are applied by highly qualified R&D personnel.
Finally, pure science refers to the search for intrinsic knowledge in order to uncover
new scientific principles (Medcof, 1997: 306-307; Amsden and Tschang, 2003: 555).
This type of R&D is, however, performed by universities or other public sector
institutions, and is usually not performed by the private corporate sector.
The different levels of technological sophistication are presented below:
Exhibit 21: Level of Technological Stages
Technological Stage
Market Support
Manufacturing Support
Advanced Development
Exploratory Development
Applied Research
Basic Research
Pure Science
Level
1
2
3
4
5
6
7
Source: Derived from Amsden and Tschang (2003: 555), Medcof (1997: 306)
Besides this technological ladder, which shows the technological complexity an R&D
site faces, it is also important to know the geographical area which the R&D site
targets through its research activities in order to evaluate its significance from this
86
perspective as well. Thus, it is attempted to provide a more comprehensive
understanding of technological capability upgrading.
In addition to the different technological functions, their geographical scope, namely
local, regional, and global scope, is distinguished. Local scope refers to R&D output,
which is targeted specifically for Singapore. Regional scope refers to R&D output for
the Asia-Pacific region. Logically, a global scope implies an R&D output applicable to
the global market. Since the Singapore market is very small, the local scope is
obviously not of much significance. An example for regional innovations (regional
R&D scope) refers to medicines against diseases pertinent to the Asia-Pacific region
only. An example for a global output would be a product development used globally,
for instance the hardware for cell phones. This scope dimension is included in the
framework in exhibit 20.
Even though the suggested framework presents different technological capabilities
according to different levels or stages, it does not presume that all firms will
necessarily build up capabilities in a linearly sequenced process, or start and end at the
same stages. Most often, R&D subsidiaries are at different technological stages at the
same time, and some of them being closely interconnected. Different R&D sites with
different technologies would adopt different sequences, depending on various factors
such as industry participation. Obviously, the suggested framework is not without
drawbacks; it does, however, attempt to provide a first step in analyzing technological
capability upgrading of the R&D function6.
The next section presents empirical evidence on the levels of technological capabilities
of the R&D subsidiaries under investigation.
6
Previous studies focused mainly on technological capability upgrading in general, but not specifically on the
R&D function.
87
5.2.2 Levels of Technological Capabilities of R&D Subsidiaries
The following exhibit shows the number of R&D subsidiaries at different
technological stages according to the conceptual framework. It also presents the
average year of establishment of the specific technological stage. Since the different
R&D subsidiaries experience or are going through different technological stages
during their evolution, the number of R&D subsidiaries naturally does not add up to
the overall number of R&D subsidiaries, namely 61. For instance, one R&D subsidiary
experiences the technological stages of manufacturing support and advanced
development. Therefore, the number of technological stages is two for one R&D
subsidiary. Consequently, the number of technological stages does not correspond to
the number of R&D subsidiaries because each R&D subsidiary usually goes through
more than one technological stage (also see section C in the survey in the appendix).
The following exhibit shows the industry breakdown of the different technological
stages of the R&D subsidiaries and the average year of establishment of the
technological stage.
88
Biomedical Sciences
-
-
0 (0%)
Pure Science
1997
1994
1993
0 (0%)
4 (11%)
4 (11%)
12 (33%)
1988
Basic Research
Research
Applied
Development
Exploratory
Development
Advanced
Support
Manufacturing
11 (31%)
1991
5 (14%)
Market
Support
Year
of total)
Stages
8
7
0 (0%)
0 (0%)
1 (5%)
2 (10%)
9 (45%)
2 (10%)
6 (30%)
of total)
-
-
1999
2000
1997
1997
1994
Year
0
-
2002
2000
1998
1998
1991
1995
(% of total)
Source: Author
1 (3%)
4 (14%)
5 (18%)
10 (36%)
3 (11%)
5 (18%)
of total)
0 (0%)
1 (5%)
2 (13%)
2 (13%)
5 (31%)
2 (13%)
4 (25%)
of total)
Number (%
Other Industries
-
1998
1998
1997
1999
1996
1995
year
0 (0%)
0 (0%)
1 (5%)
2 (10%)
7 (33%)
8 (38%)
3 (14%)
of total)
-
-
1990
1991
1996
1996
1998
year
Average Number (% Average
Chemical Industry
0 (0%)
2 (2%)
12 (10%)
15 (12%)
43 (36%)
26 (21%)
23 (19%)
of total)
Number (%
-
2000
1997
1996
1997
1994
1995
year
Average
MNEs overall
89
Number refers to the number of technological stages; % of total refers to the percentage of technological stages at a particular stage of the total number of technological
stages.
8
Average year refers to the average year of establishment of a particular technological stage.
7
IT Industry
Technological Number (% Average Number (% Average Number (% Average year
Electronics Industry
Exhibit 22: Industry Breakdown of Different Technological Stages Followed by R&D Subsidiaries of MNEs (1995-2002)
As can be seen from exhibit 22, the biomedical sciences, chemical and electronics
industry have a relatively high share in applied research (14%, 13% and 11%
respectively). About one third of the R&D subsidiaries are at the stage of advanced
development (36%). Overall, 76% of them are at the technological stages of advanced
development, manufacturing support and market support.
The findings suggest that the first type of technological stage entered into is
manufacturing support. This type usually resulted from the manufacturing base the
MNE had in Singapore. The average year of establishment of this technological stage is
1994. The other technological stages were established slightly later: 1995 for market
support, 1997 for advanced development.
Only a few R&D subsidiaries conduct applied and most notably basic research.
Therefore, the ‘R’ of R&D is not conducted by a large number of R&D subsidiaries of
MNEs. It seems, however, that the research function is gaining in importance. For
example, two technological stages indicated by the R&D subsidiaries in the sample
refer to basic research with the average year of establishment in 2000 and 12
technological stages are at the level of applied research with the average year of
establishment in 1997.
The breakdown by nationality of the MNEs shows that R&D subsidiaries of European
MNEs have a higher level of technological sophistication compared to other MNEs as
of the year 2002. 40% of R&D subsidiaries of European MNEs are at the technological
stages of applied and basic research, whereas 22% of Japanese R&D subsidiaries and
12% of American R&D subsidiaries conduct applied research. Correspondingly, 76% of
US R&D subsidiaries and 66% of Japanese R&D subsidiaries conduct advanced
development compared to 45% of European R&D subsidiaries in 2002. The breakdown
by local versus expatriate management shows that it is usually expatriate management
which is entrusted with technologically more advanced activities. Under such expatriate
management 30% of these R&D subsidiaries conduct applied or basic research. This
figure compares to 22% for local management. 74% of R&D subsidiaries under local
management conduct advanced development as opposed to 46% doing so in R&D
subsidiaries under expatriate management.
90
While this analysis shows different factors impacting the level of technological
capabilities in R&D subsidiaries of MNEs, it is also interesting to compare these R&D
subsidiaries with local R&D subsidiaries. The next exhibit compares the level of
technological capabilities of R&D subsidiaries of MNEs with local R&D sites.
Exhibit 23: Comparison of Technological Levels of R&D Subsidiaries of MNEs versus
Local R&D Subsidiaries (1995-2002)
MNEs Overall
Local R&D Subsidiaries
Technological
Number of
Average year of
Number of
Average year of
Stages
technological stages
establishment of
establishment of
(% of total)
technological stage
(% of total)
technological stage
23 (19%)
1995
7 (23%)
1997
26 (21%)
1994
8 (27%)
1993
43 (36%)
1997
11 (37%)
1997
15 (12%)
1996
3 (10%)
1998
12 (10%)
1997
1 (3%)
1996
Basic Research
2 (2%)
2000
0 (0%)
-
Pure Science
0 (0%)
-
0 (0%)
-
Market
Support
Manufacturing
Support
Advanced
Development
Exploratory
Development
Applied
Research
Source: Author
The findings summarized in this exhibit show that the local R&D sites have slightly
weaker technical capabilities than the R&D subsidiaries of MNEs. Their technological
stages are usually situated at advanced development, manufacturing and market support
(overall 87%). None of them conducts basic research and a very small number do
applied research (3%). With regard to the average year of establishment of the
technological stage, there is not much difference between R&D subsidiaries of MNEs
and local R&D sites.
After illustrating different levels of technological capabilities of the R&D sites under
investigation, the next section focuses on the technological paths these R&D
91
subsidiaries have followed. While the technological levels give a comprehensive, but
rather static, picture of technological capabilities in the R&D subsidiaries under
investigation, technological paths show the technological evolution these R&D
subsidiaries have made and thus provide a more dynamic picture.
5.2.3 Typology of Technological Paths of R&D Subsidiaries
5.2.3.1 Derivation of Technological Paths
Based on the in-depth interviews with the R&D mangers in this study and based also on
the conceptual framework, different technological paths have been identified in order to
understand R&D subsidiary evolution. The following exhibit shows the technological
paths identified:
Exhibit 24: Typology of Technological Paths of R&D Subsidiaries
Characteristics
Technological Path I
Technological Path II
Technological Path III
(TP 1)
(TP2)
(TP3)
Geographical
Scope at path
beginning
Global
Local or regional
Local
Geographical
Scope at further
stages
Global
Global
Regional
Pace
Sequential or
exponential
Sequential or exponential
Sequential or
exponential
Possible
Technological
Sequences
M2
M2, D1
M2, D1, D2
M2, D1, D2, R1
M2, D1, D2, R1, R2
or any subsequence
within these
M1, M2
M1, M2, D1
M1, M2, D1, D2
M1, M2, D1, D2, R1
M1, M2, D1, D2, R1, R2
or any subsequence within
these technological stages
M1, M2
M1, M2, D1
M1, M2, D1, D2
M1, M2, D1, D2, R1
M1, M2, D1, D2, R1,R2
or any subsequence
within these
Source: Author
As can be seen from the exhibit, three different technological paths have been
identified. They are described in more detail in the following:
92
5.2.3.1.1 Technological Path I
Technological path I denotes a technological path where the R&D subsidiary’s output is
targeted for the global market from the beginning of the R&D subsidiary’s evolution
and in subsequent technological stages of the R&D subsidiary. This means that the
R&D subsidiary is not responsible for local or regional functions, but delivers to the
global market during its entire evolution.
The time sequence refers to the time differentials between the different stages in the
technology ladder, which are directed towards the global market. While a sequential
global path is characterized by equal time differentials between the different
technological stages, an exponential path refers to progressively shorter time intervals in
relation to the degree of technological sophistication reached.
This technological path can entail several different technological stages: M2, D1, D2,
R1, R2. M1, market support, is not a technological stage for this type of technological
path. This is the case because market support is defined as customer support and/or the
adaptation of already established product technology to particular customer
requirements. These specific customer demands usually refer to a specific market on a
local or regional level. Such a market function performed by R&D subsidiaries was a
major market determinant in the earlier R&D internationalization (see chapter 2). Since
this technological path has a global scope, the technological stage M1 does not apply.
In general, the different technological functions could have been followed in complete
sequence (M2, D1, D2, R1 and R2) or in partial sequence (subsequence), for instance
D1, D2. This also implies that some technological functions can be left out. For
example, a sequence of D1 and R1 is possible as well. Such a sequence can be the case
when the R&D site did not evolve from a manufacturing base, but was established as a
greenfield R&D site from its beginning. How technological path II differs from
technological path I is explained below:
93
5.2.3.1.2 Technological Path II and Technological Path III
In contrast to the technological path I, this type of R&D subsidiary is mostly concerned
with supporting manufacturing and adapting products and processes to a local or
regional market (technological stages of M1 and M2) in the beginning of its evolution.
Therefore, this technological path starts with M1 or M2. The R&D activities result
either from market support or a manufacturing base or both. With an increase in the
technological level (technological stages of D1, D2, R1, R2), the output of the R&D
subsidiary reaches beyond the local or regional scope for a global market.
Within the different technological stages (M1, M2, D1, D2, R1, R2), any subsequence
can be followed. It is also possible that not all technological stages are undergone by the
R&D subsidiary. For instance, the R&D subsidiary can follow D1, D2, R1.
The time differentials between the different stages can be sequential or exponential as in
technological path I.
Technological path III is equal to technological path II, but with a difference in the
geographical scope of the R&D output. While the R&D subsidiary’s output is mostly
local at the beginning, it becomes regional in the evolution of the R&D subsidiary.
However, this R&D subsidiary does not reach the global level. The other characteristics
apply as for technological path II.
The conceptual framework has been defined and the different technological paths have
been derived. The next section develops propositions. Singapore’s science and
technology policy was discussed in chapter 4 and serves as a basis for understanding the
late industrializing context in which the technological capability upgrading at the R&D
subsidiary level under discussion takes place.
94
5.2.3.2 Performance Implications of Technological Paths
While the section on the conceptual framework has derived different technological
paths, it is not clear what performance implications these technological paths entail.
Misaligning technological capability upgrading with the global R&D organization in
terms of time sequence and output level may reduce the profitability to be gained from
these technological competencies abroad and may increase operational instability (Luo,
2000: 365). For instance, upgraded technological capabilities of foreign subsidiaries
need to be in accordance with well-developed management systems. Only if upgraded
technological capabilities can be integrated in the internal R&D organization are they of
real value to the internal R&D organization. Such a technological capability upgrading
cannot be an isolated process at R&D subsidiary level if it is to be effective.
For an R&D subsidiary manager it is crucial to know how to impact positively the
evolution of his/her R&D subsidiary. Questions that arise in this context are: Is it better
to start on different technological stages at the same time or is it more advantageous to
develop different technological stages sequentially? What geographical scope is optimal
for the R&D subsidiary?
It is also important to note that different technological stages imply different
performance measures. While manufacturing support is targeted at the efficiency of the
production process (in terms of cost reduction, quality of the product), the development
function focuses on the number of new product developments. The higher end research
activities, namely applied and basic research, focus on the number of patent applications
and the number of publications.
Given these qualifications, it seems very difficult to measure R&D performance.
Besides the general disadvantages of the different R&D performance measures, R&D
performance itself is also contingent on the technological level. If, for example, the
number of patent applications is taken as a yardstick, but the R&D subsidiary’s main
focus is the number of new product developments, the number of patent applications
does not adequately reflect the R&D subsidiary’s performance.
95
Given the analysis of the technological capabilities in section 5.2.2, it is important to
realize that the two R&D performance measures of the number of new product
developments and the number of patent applications probably differ for the R&D
subsidiaries under investigation. Since more R&D subsidiaries are at the technological
stages of development than at research (see exhibit 22), one may suggest that the
number of new product developments is higher than the number of patent applications
for the R&D subsidiaries. The technological stages of research would rather emphasize
the number of patent applications as an R&D output measurement.
The following section attempts to develop propositions for the different technological
paths and their performance implications.
5.2.3.2.1 Technological Path I
If this technological path is followed, it implies that from the start of the R&D
subsidiary one or usually more technological stages are entered into simultaneously or
sequentially with the objective to serve the global market. These technological stages
can be followed in sequence or subsequence as described above.
According to the ‘organizational learning’ perspective in late industrializing countries,
latecomer R&D organizations need to build up their learning system first (Figueiredo,
2002: 74). If the R&D site aims at a global scope from the beginning of its
technological path, organizational learning requires both external as well as internal
knowledge acquisition (Figueiredo, 2002: 73-74; Luo, 2000: 369). External knowledge
acquisition would imply that the R&D subsidiary acquires knowledge about the global
market in terms of R&D. Internal knowledge acquisition would involve continuous
integration and sharing of knowledge within the R&D organization.
Obvious advantages of this technological path for the R&D subsidiary are that the R&D
subsidiary can establish a high strategic importance within the R&D organization from
the beginning of its existence since it is not only considered as an R&D site with local
scope, but as an R&D site with global relevance. The first stage, market support, is not
96
entered into because of the global scope of this R&D site. From the start, higher
technologically functions are performed by this type of R&D site.
This technological path, on the other hand, is very demanding for the respective R&D
subsidiary. It requires strong R&D management skills and systems since the R&D
output is measured according to global standards (see Tallmann, 1992). The site cannot
evolve from performing local or regional functions to performing global functions. It is
therefore assumed that the R&D site will need a period of adjustment to its global
scope.
Given this situation, it is to be expected that the R&D subsidiary will show low R&D
performance initially. Performance will be stronger once it has overcome the initial
hurdles of global adjustment at the beginning of its technological path. As noted
previously, the number of new product developments is likely to be higher than the
number of patent applications because more R&D subsidiaries in our sample are at the
technological stages of development than research.
Proposition 1 follows from this reasoning:
Proposition 1: The relationship between technological path I and subsidiary R&D
performance is of an increasing linear nature, R&D performance
being higher for the number of new product developments than for
the number of patent applications.
5.2.3.2.2 Technological Path II and Technological Path III
This type of R&D subsidiary faces fewer challenges in the beginning of its
technological path than those R&D subsidiaries, which follow technological path I,
since at the beginning it serves a local or regional market. This technological path
usually starts with market support tasks, adjusting existing technologies to specific
customer requirements. Therefore, the R&D subsidiary is excluded from the main
international sources of R&D at the beginning of its path (Hobday, 1995: 1172). In its
subsequent evolution, however, this type of R&D subsidiary targets its R&D activities
at a global scope. In order to reach this stage, both internal as well as external
97
knowledge needs to be acquired. Externally, knowledge about the mainstream
international market the R&D subsidiary wishes to supply is critical. Internally, the
increase in importance of the R&D subsidiary needs to be managed (also see De Meyer,
1993).
Overall, these R&D subsidiaries adjust more sequentially to a global standard of their
R&D output than in technological path I. At the beginning of their technological path,
they perform M1 and M2 for a local or regional market and then follow a global
technological path (with the functions of D1, D2, R1, R2 in sequence or subsequence).
During this transition period, it may be difficult for the R&D subsidiary to show a
strong performance. This is especially the case because the R&D subsidiary has to
upgrade its technological capabilities from operation to improvement and/or generation
capabilities. While operation capabilities focus on an efficient functioning of
technological stages M1 and M2, improvement capabilities require development
capacities in the R&D subsidiary. And generation capabilities require an even higher
technological sophistication focusing on achieving original results (Costa and De
Queiroz, 2002: 1434). Management issues during this transition period include
achieving better quality standards and acquiring knowledge of more complex
technologies. It is therefore assumed that during this transition period performance will
decrease or stagnate before it increases again.
The performance implications of technological path III are similar to those of
technological path II. Again, the R&D subsidiary has to undergo a transition period to
provide results mostly for a local market and then for a regional market. The same logic
applies, with the difference that this transition is less difficult than the one following
technological path II. This is the case because technological path III involves a
transition from a local to a regional scope and not to a global scope. Proposition 2
follows:
Proposition 2: The relationship between technological path II or technological path
III and R&D performance is of a step-wise increasing nature, R&D
performance being higher for the number of new products
developments than for the number of patent applications.
98
5.2.3.2.3 Temporal Sequence of Technological Stages
While different technological paths result in different performance implications, the
technological paths also occur at a different pace. It is assumed that once the R&D
subsidiary has gained experience in technological capability upgrading, the time
differentials between the different evolutionary stages will be shorter (Grandstrand,
1999: 278; for the argument of experience also see Johanson and Vahlne, 1977: 25).
More specifically, it is argued that the time differentials within the stages pertaining to
one type of technological capabilities, be it operation, improvement or generation
capabilities, are shorter than the time differentials between these stages. This reasoning
is based on the argument that to achieve different types of technological capabilities is
more difficult than to stay within one type of technological capabilities (Costa and de
Queiroz, 2002: 1434, Lall, 1992: 167). The same type of technological capabilities
requires similar competences. For instance, both the technological stages of advanced
and exploratory development require development skills, at a product or process level.
These development skills involve knowledge associated with creative development of
technologies adopted (Costa and de Queiroz, 2002: 1434). The next technological stage,
applied research, however, requires the application of scientific techniques in order to
find a differentiated product for a specific market. Accordingly, an R&D subsidiary, for
example, needs more time to move from exploratory development to applied research
than from advanced development to exploratory development. Proposition 3 follows
from this:
Proposition 3: R&D subsidiaries which follow technological paths I, II or III are
characterized by shorter time differentials within the same type of
technological capabilities than between different types of
technological capabilities.
5.2.3.2.4 Discussion of Results
The analysis of different measures of R&D output in the first part of this chapter
showed that no R&D performance measure is without drawbacks. Therefore, the
performance implications of the different technological paths followed by 51 R&D
subsidiaries should be measured according to several R&D performance indicators, in
order to be able to draw more accurate performance implications. These measures
99
include the number of new product or service developments and the R&D subsidiaries’
patenting behavior. The propositions have all been tested against each of these
performance measures, which means that for each technology path each performance
measure was analyzed. The underlying assumption is that different performance
measures apply to different technological stages in the evolution of an R&D subsidiary.
The 51 R&D subsidiaries were classified according to technological path I, II and III.
Based on this classification, the performance behavior of each technological path was
examined along the dimensions of the average number of new product developments
per firm and per year, the average number of patent applications per firm and per year
for the years 1995-2002. This time frame was chosen since most R&D subsidiaries in
Singapore have recently been established. The average year of establishment of the
R&D subsidiary under investigation is 1994. Therefore, the time frame of 1995-2002
represents a comprehensive time frame. Exhibit 25 shows the performance behavior of
technological paths I, II and III along the performance measures of the number of new
product developments and patent applications.
100
Exhibit 25: R&D Performance Behavior of Technological Paths I, II and III
24
22
20
18
R&D Performance
16
14
12
Number of new product
developments of TP II
developments of TP I
10
8
6
Number of patent
applications of TP I
4
developments of TP III
Number of patent applications
of TP II
2
0
1995
Number of patent applications of TP III
1996
1997
1998
1999
2000
2001
2002
Years
Source: Author
As can be seen in exhibit 25, the performance behavior of technological path I follows a
more or less linear structure. The average number of new product developments per
firm increases in general with a slight decline in the years 1997 and 1998 and increases
in the years afterwards. The same is true for the performance measure of the average
101
number of patent applications per firm with a decline in 1997. As predicted, the number
of new product developments is higher than the number of patent applications for
technological path I.
The decline in the performance measures in the years 1997-1999 may be explained by
the Asian financial crisis (for a strategy framework during turbulence see Chakravarthy,
1997). During this period of instability, the R&D subsidiaries might have been less
capable of continuing their linear performance due to number of possible reasons: First,
their R&D budget might have been reduced or delayed due to the Asian financial crisis,
which in turn restricted certain R&D activities and as such limited R&D output in terms
of performance behavior. A second reason could be that due to the Asian financial crisis
the technology strategy was revised and readjusted. This readjustment might have partly
reduced the focus on performance and increased the focus on adjustment to the new
environment. This period of instability may also have led to a stagnation of
technological capability upgrading or technological downgrading may have occurred as
well.
The findings suggest that the linear performance continued with a period of stagnation
and slight decline in R&D performance during the Asian crisis. Therefore, the empirical
findings are consistent with proposition 1, stating that the R&D performance of
technological path I is of a linear nature, while the number of new product
developments is higher than the number of patent applications.
The performance behavior of technological path II is characterized by a step-wise
structure, especially regarding the number of new product developments; the years
1997-1999 reflect a certain stagnation in the performance behavior of the R&D
subsidiaries before their performance increases again. Again, this stagnation may be
explained by the Asian financial crisis. Several reasons could explain this stagnation.
Like any crisis, the Asian crisis allowed readjusting and revising of the existing
technology structure. This allows the R&D subsidiaries to adjust to new and competing
technologies and to integrate new ideas in their processes. Since technological path II
involves a transition from local/regional to global scope, the Asian crisis could have
enabled some R&D subsidiaries to achieve a global scope from previously mainly
102
serving the local/regional market. After the Asian crisis and a possible readjustment to a
global market, the performance behavior increases again. Therefore, proposition two
can be confirmed.
The findings further suggest that the performance behavior of technological path III is
also characterized by a step-wise structure, whereby the years 1997-1998 seem to be a
phase of stagnation. This period can again be explained by the Asian crisis. It is
suggested that since this technological path includes an evolution from local to regional
scope, these R&D subsidiaries are more affected by the Asian crisis than the R&D
subsidiaries, which follow technological paths I or II. The absolute numbers of new
product developments and patent applications are the lowest compared to technological
path I and II. On a more positive note, however, one may put forward the notion that the
Asian financial crisis enabled the R&D subsidiaries to reach beyond the local market to
the regional market. This reassignment of the technology strategy to a regional market
allows the R&D subsidiaries of technological path III to reach a stronger performance
again. Therefore, proposition three can be confirmed.
An important observation which can also be drawn from exhibit 25 is that the R&D
subsidiaries in the sample were all able to increase their number of patent applications
and their number of new product developments in the years 1995-2002. This is
particularly so from the year 1999 onwards. This development may indicate that R&D
activities intensified in Singapore and are moving in the direction of R&D activities as
they are conducted in the triad nations.
In terms of the number of new product developments, technological path II seems to be
the best evolution for an R&D subsidiary. The number of new product developments for
technological path I and III is lower than that of technological path II and similar in
nature. Overall, R&D performance is lowest for technological path III. Technological
path I is strongest in the number of patent applications. The findings suggest that a
sequential R&D evolution (technological path II) is optimal with regard to R&D
performance in terms of the number of new product developments.
103
Regarding proposition three, the time differences between the technological stages have
been measured (for the different technological stages see exhibit 20). The respondents
were asked in what year they moved from one technological stage to the next and
consequently how long they stayed at each technological stage. In our sample, the 51
R&D subsidiaries needed on average around six months to move from market support
to manufacturing support. It took them longer to reach the next level in the
technological ladder, namely advanced development from previously being
manufacturing support (3½ years). Within this next phase of development capabilities,
the move from advanced development to exploratory development was shorter than two
years (1 2/3 years). Again the next step to generation capabilities was 2 years, while the
move from applied to basic research took only 1½ years (only two R&D subsidiaries
indicated that they conducted basic research and none indicated that they carried out
pure science research). These results are consistent with our proposition four. The move
within the same type of capabilities seems to be easier than the move from one type of
capabilities to the next. The move from operation capabilities to improvement
capabilities seems especially difficult. Once the R&D subsidiary has gained
improvement capabilities, it seems to be easier to achieve generation capabilities also.
In addition to the analysis of the time differentials, the performance implications have
been examined. Two groups of R&D subsidiaries were considered: those which need on
average more time to move within and between the different technological capabilities
and stages and those which need on average less time to move within and between the
different technological capabilities and stages. The results are shown in exhibit 26
below:
104
Exhibit 26: Performance Behavior of R&D Subsidiaries (Fast and Slow Path Sequence)
30
28
26
24
22
Average number of new product
R&D performance
20
developments per firm (Slow Path Sequence)
18
16
Average number of new
14
product developments per
12
Average number of patent applications
10
firm (Fast Path Sequence)
per firm (Slow Path Sequence)
8
6
4
2
Average number of patent applications per firm (Fast Path Sequence)
0
1995
1996
1997
1998
1999
2000
2001
2002
Years
Source: Author
As can be seen from exhibit 26, the performance behavior of those R&D subsidiaries
which follow a slower technological path than the average is stronger than those whose
technological path follows a relatively fast path sequence, most notably in the number
of new product developments. While a firm achieves about 30 new product
developments a year in 2002 in the slower than average technological path, this number
amounts to only 8 for the faster than average technological path in 2002. This finding is
consistent with our finding that technological path II is most favorable in terms of the
number of new product developments since the R&D subsidiaries which follow a
slower technological path than average follow mostly technological path II. As a result,
a sequential development of technological capabilities seems most favorable in terms of
R&D subsidiary performance and in particular in terms of the number of new product
developments.
105
After this analysis of the level of technological capabilities and proposing a typology of
different technological paths and discussing its performance implications, the next
section investigates key influencing factors on technological capability upgrading.
While the level of technological capabilities gave an overview of the technological
sophistication of the R&D subsidiaries in the sample, the typology of technological
paths showed their evolution. It has been pointed out that internal and external
knowledge acquisition is important for technological capability upgrading. These issues
are analyzed more closely in the next section. Overall, an attempt is made to provide a
comprehensive analysis of technological capability upgrading at subsidiary level in a
late industrializing context.
5.2.3.3 Impact of Key Factors on Technological Capability Upgrading
In order to tap into knowledge on a subsidiary level in the periphery and then to
integrate this knowledge in the overall R&D organization, the R&D subsidiary needs to
be both integrated in the internal R&D organization as well as in the external research
environment. Both the internal R&D organization and the external research
environment are important for an R&D subsidiary to upgrade its technological
capabilities. In the following both the terms internal R&D network linkage and external
R&D network linkage refer to the ties of the R&D subsidiary with the internal R&D
organization and the external R&D environment. This dissertation does not intend to
provide a general network definition. The terms used are specifically for an R&D
context.
5.2.3.3.1 Role of Internal R&D Network Linkage
Through the internal network linkage, the R&D subsidiary can gain critical knowledge
for upgrading its technological sophistication. Internal R&D network linkage refer to
the R&D site’s relationships with other internal R&D sites as well as headquarters. In
the internal R&D network three types of relationships (tie modality) are distinguished
(Vereecke, van Dierdonck and De Meyer, 2002: 9-12): critical human resources
development, innovation configuration and degree of freedom (also see first part of this
chapter). They reflect the degree to which the R&D subsidiary is embedded in the
internal R&D organization. Or in other words, they reflect how far technological
106
leveraging takes place in the internal R&D organization. This internal network linkage
and its level are discussed in more detail below:
Exhibit 27: Internal R&D Network Linkage Level
Internal R&D Network Linkage
Linkage Level
No impact by the R&D subsidiary on human resources development, innovation
1
and no autonomy
Limited role of the R&D subsidiary in human resources development, innovation
2
and autonomy; Linkage with HQ only
Basic role of the R&D subsidiary in human resources development, innovation
3
and autonomy; Linkage with HQ and other R&D subsidiaries
Intermediate role of the R&D subsidiary in human resources development,
4
innovation and autonomy; Linkage with HQ only
Active role of the R&D subsidiary in human resources development, innovation
5
and autonomy; Linkage with HQ and other R&D subsidiaries
Advanced active role of the R&D subsidiary in human resources development,
6
innovation and autonomy; HQ only
Highly advanced role of the R&D subsidiary in human resources development,
7
innovation and autonomy; Linkage with HQ and other R&D subsidiaries
Source: Author extending Ariffin and Figueiredo (2001; 2003)
This classification attempts to reflect the internal network linkage of the R&D
subsidiary, but is certainly not without drawbacks. Three dimensions such as human
resources development, innovation locus and autonomy cannot fully characterize a
multidimensional construct such as an internal R&D network linkage. Each of these
dimensions is multifaceted. Therefore, this dissertation attempts to focus in particular
on human resources development at subsidiary level, innovation locus at subsidiary
level and degree of autonomy by the R&D subsidiary.
If tie modalities occur with headquarters and other R&D subsidiaries, it is assumed that
the R&D subsidiary is better integrated in the internal R&D organization than if tie
modalities are limited to an exchange with headquarters. If the internal R&D network
linkage is limited to headquarters, the R&D subsidiary is obviously only partially
107
integrated in the overall internal R&D organization. The linkage is limited to one
internal party only.
5.2.3.3.2 Role of External R&D Network Linkage
External R&D networks refer to the R&D site’s relationships with external parties in
the local context, namely research institutions, other firms (local and multinational), and
the government (for more definitions of networks see Blankenburg Holm, Eriksson and
Johanson, 1999; Gulati, 1998; Gulati, Nohria and Zaheer, 2000; Hage and
Hollingsworth, 2000; Manor and Tasi, 2001; Powell, Koput and Smith-Doerr, 1996;
Stuart, 1998). Other firms, local or multinational firms, can refer to customers, suppliers
and competitors. Through these external network linkages, R&D subsidiaries can gain
new and complementary knowledge outside the boundaries of the R&D subsidiary
(McEvily and Zaheer, 1999: 1134). Thus, these external parties are important resources
which can help to increase the technological sophistication of the R&D subsidiary.
Within the external R&D network, both the tie modality along the dimensions of human
resources, innovation and information as well as the membership structure are
examined. This is in accordance with the literature, which distinguishes between
relational and structural external network linkage (Andersson, Forsgren and Holm,
2002: 982-988). While these concepts have been used in a general context, they have
not been applied to R&D subsidiaries. By examining both the tie modality as well as the
membership structure of the external network, an attempt to adequately reflect the
external network linkage for R&D subsidiaries is made.
108
Exhibit 28: External R&D Network Linkage Level
External Network Linkage
Linkage Level
No links
1
One to two external parties on a short-term basis
2
Two to three external parties on a short-term basis
3
One to two external parties on medium-term basis
4
Two to three external parties on a medium-term basis
5
One to two external parties on a long-term basis
6
Two to three external parties on a long-term basis
7
Source: Author
This operationalization attempts to classify the external linkage level. In the in-depth
interviews, the R&D managers indicated with which external parties they had R&D
collaborations (local firm, local research institution, MNE). The R&D managers were
explicitly asked about R&D collaborations, not about collaborations with other aims.
R&D collaborations refer to collaborations when the R&D subsidiary and an external
party or parties conduct common R&D projects.
Furthermore, the respondents indicated the duration of these R&D collaborations.
During the exploratory phase of the research, the R&D mangers were asked to indicate
what a meaningful definition of short-, medium- and long-term duration would be in an
R&D context. Short duration refers to a duration on a short-term basis, i.e. R&D
collaborations are only based on short-term projects (less than six months). In contrast,
long-term R&D collaborations denote R&D collaborations which are based on longterm interests (more than two years). Medium-term R&D collaborations are
collaborations which are based on several projects, but which have are not entered into
on a long-term basis (between six months and two years).
Furthermore, the R&D managers were asked to what extent external parties contribute
to the competitiveness of the R&D subsidiary, how these external parties are managed
and why they are entered into.
109
Obviously, these measures are not without drawbacks. The number of external parties
and their duration may not translate one for one into the external R&D network linkage
level. Some R&D collaborations might be of medium duration, but are not highly
important for the R&D subsidiary, i.e. the duration of R&D collaborations may not
indicate their significance. Moreover, the number of external parties may not translate
into a high external R&D network linkage since tie modalities with these external
parties might only be superficial. On the other hand, it can be assumed that the number
of external parties and the duration of R&D collaborations can give a certain, albeit
imperfect proxy of the external R&D network linkage. These measures attempt to
reflect in how far the R&D subsidiary is a critical external player in the late
industrializing context.
Based on the measures illustrated, a regression was run with technological
sophistication as dependent variable (see exhibits 29, 30 and 31) and external as well as
internal network linkage as independent variables. Results are presented and discussed
in the next section.
5.2.3.3.3 Discussion of Results
Exhibits 29, 30 and 31 present the empirical evidence. The first regression includes the
entire sample, while exhibit 30 presents regression results for the electronics industry
and exhibit 31 for the biomedical sciences industry. 13 R&D subsidiaries belong to the
electronics industry and 14 R&D subsidiaries to the biomedical sciences industry, the
largest groups in our sample. Therefore, two separate regressions were run for these
industries. The following exhibit shows the regression for the entire sample:
110
Network Linkage (All Industries)
Variables
Variables
Model Entered
Removed
1
EXTERLIK,
.
INTERLIK(a)
b Dependent Variable: TECHSOPH
Method
Enter
Model Summary
Adjusted R
Model
R
R Square
Square
1
.376(a)
.142
.104
a Predictors: (Constant), EXTERLIK, INTERLIK
Std. Error of the
Estimate
.95996
ANOVA(b)
Model
1
Sum of Squares
df
Regression
6.844
2
Residual
41.468
45
Total
48.313
47
Mean
Square
3.422
.922
F
3.713
Sig.
.032(a)
Coefficients(a)
Model
1
(Constant)
INTERLIK
EXTERLIK
Unstandardized
Standardized
Coefficients
Coefficients
Std.
B
Error
Beta
2.499
.458
.194
.114
.252
.114
.084
.202
a Dependent Variable: TECHSOPH
t
Sig.
5.456
1.702
1.366
.000
.096
.179
Source: Author
As can be seen from the regression results, R square is 0.142, that is 14.2% of the
dependent variable, namely technological sophistication, is explained by the two
independent variables, namely internal and external R&D network linkage. External
R&D network linkage, however, is not statistically significant. Internal R&D network
linkage is statistically significant at p < 0.1.
111
Network Linkage (Electronics Industry only)
Variables
Removed
Model Variables Entered
1
NATIONAL,
EXTERLIK,
INTERLIK,
YEAR(a)
Method
.
Enter
Model Summary
Adjusted Std. Error of
Model
R
R Square R Square the Estimate
1
.923(a)
.851
.766
.42926
a Predictors: (Constant), NATIONAL, EXTERLIK, INTERLIK, YEAR
ANOVA(b)
Sum of
Squares
df
Mean Square
F
Regression
7.377
4
1.844
10.009
Residual
1.290
7
.184
Total
8.667
11
a Predictors: (Constant), NATIONAL, EXTERLIK, INTERLIK, YEAR
Model
1
Sig.
.005(a)
Coefficients(a)
Model
Unstandardized
Coefficients
B
Std. Error
1
(Constant)
1.612
.467
INTERLIK
.262
.093
EXTERLIK
.212
.070
YEAR
-.039
.022
NATIONAL 1.223
.353
Standardized
Coefficients
t
Sig.
3.450
2.829
3.017
-1.787
3.459
.011
.025
.019
.117
.011
Beta
.452
.472
-.354
.678
Source: Author
R square is 0.851, that is, 85.1% of the dependent variable, namely technological
sophistication, is explained by the two independent variables, namely internal and
external R&D network linkage (nationality and year of establishment of R&D
subsidiaries were taken into account). Both internal and external R&D network linkages
are significant at p < 0.05. The following regression shows the results for the
biomedical sciences industry.
112
Network Linkage (Biomedical Sciences Industry only)
Variables
Variables
Model
Entered
Removed
1
EXTERLIK,
.
INTERLIK(a)
Method
Enter
Model Summary
Adjusted Std. Error of
Model
R
R Square R Square the Estimate
1
.743(a)
.553
.453
.77234
ANOVA(b)
Model
1
Sum of
Squares
df
Mean Square
Regressi
6.631
2
on
Residual
5.369
9
Total
12.000
11
3.316
F
Sig.
5.558
.027(a)
t
Sig.
3.866
3.293
-1.191
.004
.009
.264
.597
Coefficients(a)
Model
Unstandardized
Coefficients
B
Std. Error
(Constant)
3.019
.781
INTERLIK
.642
.195
EXTERLIK -.214
.179
Standardized
Coefficients
Beta
1
.847
-.306
Source: Author
R square is 0.553, that is, 55.3% of the dependent variable, namely technological
sophistication, is explained by the two independent variables, namely internal and
external R&D network linkage. Internal R&D network linkage is significant at p < 0.01,
whereas external R&D network linkage is not significant.
Overall, the regression results suggest that internal R&D network linkage is positively
related to technological sophistication, i.e. an R&D organization’s ability to integrate
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and diffuse knowledge to its R&D subsidiaries has a positive impact on the
technological sophistication at R&D subsidiary level. For the electronics industry, both
the internal and external R&D network linkage seem to be important for the level of
technological sophistication at subsidiary level. For the biomedical sciences industry,
internal R&D network linkage is positively related to the level of technological
sophistication. The results are more robust for the electronics industry and the
biomedical sciences industry than for the entire sample (R square is 14.2% for the entire
sample, while it is 85.1% for the electronics industry and 55.3% for the biomedical
sciences industry). This finding may suggest that internal and external R&D network
linkage, and in particular internal R&D network linkage, are more important for the
level of technological sophistication in the electronics and biomedical sciences industry
than in other industries.
Overall, internal R&D network linkage seems to be more important than external R&D
network linkage for the level of technological sophistication at R&D subsidiary level.
This finding is in contrast to Frost, Birkinshaw and Ensign (2002). They state that
external parties such as customer, suppliers and competitors are more important as
sources of competence development than internal actors (Frost, Birkinshaw and Ensign,
2002: 1012). Their findings are based on a Canadian sample. Possible reasons for the
difference in results may be various. Apart from differences in the definition of external
and internal parties, the R&D subsidiaries in our sample are based in a late
industrializing country (in contrast to a highly advanced economy such as Canada) and
are based more at the technological stages of development than research. This may
suggest that they are not fully integrated in the internal R&D organization, which in
turn may indicate that more interaction with the internal R&D organization may help
the R&D subsidiary in the late industrializing context to improve its technological
capabilities. Our findings also suggest that Singapore’s science and technology policy
may be effective in connecting R&D subsidiaries with important external parties.
Because of that, external R&D network linkage may have less influence on the
technological sophistication of R&D subsidiaries. This discussion shows that certainly
more studies, in particular with a large sample and possibly comparing R&D
subsidiaries in advanced and late industrializing countries, are needed in order to
114
validate the findings of this dissertation and to further enhance insights into this
important topic.
This previous section has analyzed the impact of internal and external network linkage
on the technological sophistication. The following section attempts to analyze
managerial implications of the interaction of internal and external network linkage. The
analysis is based on the in-depth interviews conducted for this research.
5.2.4 Managerial Implications
5.2.4.1 Internal and External R&D Management Needs in a Late Industrializing
Context
While internal and external R&D network linkages are important for the R&D
subsidiary, its interaction is critical as well. Based on the internal and external R&D
network linkage, the R&D subsidiaries under investigation are classified according to
four different types of R&D subsidiaries (see exhibit 33), namely as loosely linked
R&D subsidiary, semi-linked-externally oriented R&D subsidiary, semi-linkedinternally oriented R&D subsidiary and fully linked R&D subsidiary.
The internal R&D network is important for the R&D subsidiary in three ways. It
enables the R&D subsidiary to gain and develop critical human resources, to actively
participate in the R&D program and to be internally connected information-wise. Being
a critical external partner in the local R&D network allows the R&D subsidiary to gain
new and/or complementary knowledge and to enhance and/or maintain its
competitiveness.
In general, it has been posited that there is a link between internal and external R&D
network linkage (Asakawa, 2001: 1-14). Examples of such a simultaneous interaction
include that adequate support by the internal R&D network will lead to important
external R&D network linkage. On the other hand, well-managed external R&D
network linkages will provide key R&D sources for the internal R&D network. The
main caveat in this interaction is to maintain an optimal balance between the two
network linkages in order to avoid dispersion and information leakage in the external
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network linkage and a too strong control by headquarters and/or other R&D sites in the
internal network linkage. This problem was also pointed out by De Meyer (1993), who
states that the information and knowledge learned locally has to be diffused in the
company, which means that a self-organizing local external R&D network can only be
effective if it is linked to a strong internal R&D network.
The core management problem resulting from this interaction of internal and external
network linkage is “how to find the right balance between a central control of the
activities to avoid inefficiencies and unintentional duplication and a level of autonomy
which is high enough to allow for an optimal deployment of local entrepreneurship and
technical competence” (De Meyer, Mizushima, 1989: 139).
This part of the dissertation attempts to provide a more systematic approach to this
interaction between internal and external R&D network linkages. Four scenarios in this
interaction have been depicted in exhibit 32 and are illustrated in more detail.
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Exhibit 32: Classification of R&D subsidiaries according to their Internal and External
R&D Network Linkages
high
Semi-linked R&D
subsidiary
Fully linked R&D
subsidiary
Loosely linked
R&D subsidiary
Semi-linked R&D
subsidiary
External R&D
network linkage
low
low
Internal R&D
high
network linkage
Source: Author
Scenario 1: Loosely linked R&D subsidiary
This type of R&D subsidiary is dislocated from the main R&D sources both in the
internal R&D organization and in the external R&D network. As Hobday (1995)
correctly states, this isolation makes it difficult for the R&D subsidiary to reach a higher
technological level. The number of internal relationships the R&D subsidiary is
engaged in is low. This refers to all types of tie modalities, namely human resources,
innovation and information. No critical human resources development takes place. With
regard to innovation, the R&D subsidiary is the recipient of core technology, shows no
R&D initiatives of its own and cannot participate in the global R&D program. Within
the information flow, rules and regulations are to be followed according to
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headquarters. Externally, the nature of tie modalities is similar. No critical human
resources development and acquisition from external resources takes place. There are
no external innovation impulses and no information exchange with external parties.
Overall, the R&D subsidiary is of low strategic importance. It neither contributes to the
internal R&D organization in a significant way nor is it seen as a critical partner in the
external R&D network. Therefore, the loose simultaneous interaction of the two
linkages negatively affects the competitiveness of the R&D subsidiary. It is particularly
difficult for this type of R&D subsidiary to leave this stage and to reach a level of
higher strategic importance.
Management needs for this type of R&D subsidiary include identifying critical partners
both internally and externally. Communication is a key element within the internal
R&D network to report progress on ongoing R&D projects in order to increase trust.
This in turn allows the internal R&D organization to assign more technologically
complex R&D projects to this type of R&D subsidiary and it thus contributes to the
development of human resources in this R&D subsidiary. In the context of late
industrializing economies, it is crucial to develop external relationships, especially with
government bodies, since they can provide both information on the external R&D
network as well as R&D grants.
Scenario 2: Semi-linked-externally oriented R&D subsidiary
This type of R&D subsidiary is regarded as a critical partner in the external R&D
network. However, is considered of low importance by the internal R&D organization.
Overall, the R&D subsidiary is of medium strategic importance. The critical human
resource acquisition and development takes place from the external network only. With
regard to innovation, the R&D subsidiary is isolated from core technologies from the
corporate R&D organization, but receives innovation impulses from the external
network. Information-wise, it is loosely connected with the internal R&D organization.
The information flow with the internal R&D organization is infrequent and at a low
level in contrast to the external information flow which is frequent and mutual.
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It is of paramount importance to communicate to the internal R&D organization that the
R&D subsidiary has managed to be a critical partner in the external network and that
the knowledge of the external R&D network is important and should be effectively used
and transmitted in the internal R&D organization.
Scenario 3: Semi-linked-internally oriented R&D subsidiary
This type of R&D subsidiary is the opposite of R&D subsidiaries belonging to group 2,
but is also of medium strategic importance. It has none to few relationships externally,
but is highly interlinked in the internal R&D organization. Critical human resource
acquisition and development takes place internally only. Furthermore, the R&D
subsidiary participates actively in the internal global R&D program, but receives no
external innovation impulses. The information exchange takes place mostly internally.
Obviously, the interaction between internal and external network linkages allows an
efficient internal connectivity, but not sufficient local autonomy for the R&D
subsidiary. The R&D subsidiary is not engaged in crucial external research
collaborations.
The R&D subsidiary should hence start and/or increase external collaborations to be
perceived as a critical external party and to be able to tap into external knowledge and
to receive new external innovation impulses. This will allow the R&D subsidiary to
increase its external strategic importance in the late industrializing economy.
Scenario 4: Fully linked R&D subsidiary
The last cluster is so to speak the ideal case. The R&D subsidiary is perceived as critical
partner both internally as well as externally. This allows the R&D subsidiary to have the
“best of both worlds”: strong internal as well as external tie modalities. Internally, it is
connected through critical human resources, core technologies and mutual information
exchange. Externally, the R&D subsidiary can access critical human resources,
complementary and new knowledge and is able to receive grants from the local
government since it is considered critical for the economic development in the late
industrializing country.
119
To reach this stage has been considered by various respondents as “walking a fine line.”
The management of this type of R&D subsidiary requires a constant balance between
internal and external R&D management needs. If this balance can be maintained, this
type of R&D subsidiary may reach the same status as R&D subsidiaries in the triad
nations.
5.2.4.2 Discussion of Results
The 51 R&D subsidiaries examined have been classified according to the four groups,
which were discussed in the previous section. The result of this classification is depicted
in exhibit 33.
120
Exhibit 33: Classification of R&D Subsidiaries in our Sample
Group four (mostly R&D
subsidiaries from the
electronics sector)
Group two
high
External R&D
network linkage
low
Group one
low
Close to group three
high
Internal R&D
network linkage
Electronics Industry
Chemical Industry
IT/Communications Industry
Aviation Industry
Engineering Industry
Food Industry
Biomedical Sciences Industry
Source: Author
As one can see from exhibit 33, few R&D subsidiaries belong to groups one or three,
that is, their external network linkage is low, their internal network linkage low to
medium. Most R&D subsidiaries seem to be semi-linked-externally oriented R&D
subsidiaries, i.e. they manage to be a critical partner externally, but fail to be perceived
as a critical R&D subsidiary internally. Hence, it is of paramount importance to
communicate to the internal R&D organization that the knowledge of this external
network is important and should be used effectively and transmitted in the internal
R&D organization. This in turn would contribute to a stronger internal network linkage
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and improve the interaction between internal and external R&D network linkage in
order to ideally reach group four.
Some R&D subsidiaries have indeed reached or are close to reaching the ideal stage of
group four. Some of the respondents of these R&D subsidiaries indicated that the
interaction of internal and external R&D network linkage is important for the
competitiveness of their R&D organization. For instance, this interaction helps to
identify important research fields and to reconfigure and refine the R&D organization.
It also helps the R&D subsidiaries to be efficiently internally connected and to have
sufficient local autonomy. The firms of group four belong mostly to the electronics
sector. This result is not too surprising since Singapore’s economic policy has been
effective in building up expertise in that sector. The question then arises if this
development is replicable for the biomedical sciences sector, which is relatively new to
Singapore’s economy. So far, most R&D subsidiaries of MNEs belonging to the
biomedical sciences sector are part of group two, that is they are critical external
partners, but are not perceived as such in the internal R&D organization. It remains to
be seen whether they will reach group four.
Related to these linkages is the question with whom these linkages arise (network
membership). An interesting result of analysis is that the internal network linkage is
dominated by relationships between R&D subsidiaries and headquarters. The
interaction with other R&D subsidiaries is usually limited. Out of the 51 respondents,
only about half, 24, R&D subsidiary managers indicated that they have linkages with
other intra-firm R&D units besides headquarters.
This part of quantitative empirical findings is substantiated by qualitative findings. The
following section presents three case studies. The first discusses Novartis’ R&D
organization as an example of a metanational R&D organization. The second analyzes
technological capability upgrading at Leica Instruments Singapore. And the third shows
how internal and external R&D network linkage is important in building up
technological sophistication in an R&D unit of Lilly Systems Biology.
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5.3 Qualitative Findings
5.3.1 A Metanational R&D Organization in the Making: Novartis Institute for
Tropical Diseases (NITD) in Novartis’ Research Organization9
5.3.1.1 Introduction
As example of a metanational R&D organization this case study illustrates the research
organization of Novartis and more particularly the Novartis Institute for Tropical
Diseases (NITD), established in Singapore in 2002. This research institute focuses its
research efforts on infectious diseases, more specifically on tuberculosis (TB) and
dengue fever (DF). These diseases account for about 10% of the global disease
burden10. Despite the prevalence of these diseases, however, the pharmaceutical
industry has not focused its research efforts on them due to the low return on investment
in research and the high costs of drug discovery and development. As for TB, basic
science is mostly done by the public sector and usually fails to enter the phases of
predevelopment and development. As for DF, there are no drug discovery activities. As
a result, there are no adequate remedies for these diseases. Given this situation, Novartis
created the NITD in order to further the discovery of preventive and effective
treatments for these neglected diseases.
5.3.1.2 The NITD in Novartis’ Research Organization
The NITD is part of Novartis’ worldwide research organization, consisting of 9 research
institutions (3 in the US, 4 in Europe and 2 in Asia, including the NITD in Singapore)
with in all around 3,000 researchers. These 9 research institutions are divided into two
major R&D focus groups.
9
The information of this case study is based on in all five interviews with Prof. Dr. Paul Herrling, Dr. Thomas
Keller and Dr. Richard Harrison (see list of interview partners in appendix) and on the attendance of the NITD
Inaugural Symposium in January 2003.
10
Nearly 1% of the world's population is newly infected with TB each year. One third of the world's population is
currently infected with the TB bacillus and two million people die from this disease each year (NITD Inaugural
Symposium, 2003).
123
The Novartis Institutes for Biomedical Research, headed by Mark Fishman, comprise
the research institutes in Basel (Switzerland), Horsham/London (United Kingdom),
Vienna (Austria), Tsukuba (Japan), Cambridge/Boston and East Hanover (US).
The Novartis Corporate Research Institutes, headed by Paul Herrling, consist of the
Friedrich Miescher Institute (FMI) in Basel (Switzerland), the Genomics Institute of the
Novartis Research Foundation (GNF) in La Jolla (US), and the NITD in Singapore.
The NITD’s main roles are to conduct basic research, target finding, assay
development, screening and medical chemistry on the diseases of TB and DF. The same
technologies that are used by Novartis Institutes for Biomedical Research are applied by
the NITD in the research areas of TB and DF.
The establishment of the NITD enables Novartis to develop new research capabilities in
the area of tropical diseases. Furthermore, it is planned to leverage expertise from the
other corporate research institutions and from the Novartis Institutes for Biomedical
Research for the NITD (for instance through sabbaticals or post doctoral studies at the
NITD and through regular scientific symposia). Overall, the NITD therefore acts as
both a discovery institute and a training institute (in particular as an external training
institute).
Novartis’ long-term goal is to help reduce the global burden of infectious diseases and
thus to improve the prosperity of developing countries by researching those diseases
which are prevalent in the developing world. The mission of the NITD is stated in the
following: “The NITD aims to discover novel treatments and prevention methods in
respect of major tropical diseases. In those developing countries where these diseases
are endemic, Novartis AG intends to make treatments readily available and without
profit. The discovery technology is state-of-the-art and the scope of the activities range
from target discovery through to screen development and compound optimization”
(http://www.nitd.novartis.com/mission/index_mission.shtml as of August 30, 2003).
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5.3.1.3 Novartis’ R&D Organization as Metanational R&D Organization
As described in this chapter, a metanational R&D organization is able to take advantage
of a large number of knowledge bases and talent, including non-traditional R&D
locations, and is able to leverage the international technological hierarchy to the fullest
for the R&D organization. In order to do this, R&D organizations need to sense,
mobilize and integrate complex and dispersed knowledge. This metanational advantage
is analyzed with the example of Novartis’ R&D organization.
5.3.1.4 Leveraging of the Technological Hierarchy
5.3.1.4.1 Sensing of the Knowledge Base in the Periphery
In mid 2000, Philip Yeo, Chairman of A*Star and Co-Chairman of the EDB, introduced
the RISC (Research Initiative Scheme) to Novartis in Basel. In January 2001, a
delegation of Novartis visited Singapore at EDB’s invitation in order to examine the
local research context and conditions.
In a next step, in June 2001, the Novartis Executive Committee approved the TB and
DF initiative. In other words, it decided to conduct research on these diseases. In
August 2001, the negotiation of key terms took place. On November 8, 2001, Daniel
Vasella, Chairman and CEO of Novartis AG, officially announced the planned
establishment of the NITD. On May 13, 2002 the first employee began to work for the
NITD. On Oct 15, 2002 temporary facilities at Capricorn, Singapore Science Park II,
were occupied until the NITD can move to a newly established science park (called
Biopolis@one-north) in 2004. The NITD plans to hire 73 scientists and technicians (in
about equal proportion) working on TB and DF. By the end of 2003, 36 scientists will
have been hired and by the end of 2004 another 37 scientists will have joined the NITD.
Besides the 73 scientists, 27 scientists, either on a post-doc basis or as part of their
doctorate, will work on a temporary basis for the NITD per year.
Besides sensing this knowledge base in the research area of tropical diseases, it is also
critical to mobilize this knowledge.
125
5.3.1.4.2 Mobilizing the Knowledge Base in the Periphery
The following section shows how the knowledge base in the periphery is mobilized
along the dimensions of human resources acquisition and development, innovation
configuration and information exchange (for the dimensions also see section 5.1.2.1).
This will give an indication of how leverage of the technological hierarchy is used in
Novartis’ R&D organization.
Referring to human resources, a team of about five to six scientists from Novartis’ R&D
organization is responsible for the establishment of the NITD in its initial phase. Human
resource acquisition and development takes place by means of global hiring of research
scientists through various measures (recruitment advertisements in major scientific
journals, organization of recruitment events and scientific symposia). In addition,
research scientists are also trained by the NITD, if they, for instance, lack capabilities
for research in a commercial setting in contrast to an academic setting. Scientific
assistants are hired locally. The scientists recruited so far are highly motivated to work
for the NITD because TB and DF may be diseases endemic in their home countries, so
by working on these diseases, they feel that they can contribute and improve their home
country’s situation. Furthermore, it is planned to have frequent human resources
exchanges between the NITD and other Novartis’ research institutes.
With regard to innovation, the research program is determined by research experts; in
this respect, they examine how the NITD can best achieve its mission, namely to
discover novel treatments and prevention methods in the research area of tropical
diseases. Proposals for the research program are presented to the Scientific Advisory
Board, which is comprised of Sydney Brenner, Duane Gubler, Barbara Imperiali, Stefan
Kaufmann and Rolf Zinkernagel. The proposals will then be prioritized and, based on
this prioritization, will be implemented into specific experiments.
Both scientific information and information in terms of experience are readily
exchanged in Novartis’ R&D organization. With regard to scientific information, all
internal publications by Novartis are globally accessible through Novartis’ intranet and
through internal workshops. In addition, a main research conference takes place once a
year and various scientific symposia take place regularly. Furthermore, the researchers
126
at the NITD are creating a web page on TB and DF as an open information forum for
researchers, scientists, patients and medical doctors. In the research areas of TB and DF,
the number of researchers is limited, which makes the information exchange relatively
straightforward.
Information in terms of experience in building up research institutes is transmitted in
the following way: Paul Herrling built up the Sandoz research institute in Bern,
Novartis’ research institute in Japan, the GNF in La Jolla and did major pre-work for
the research institute in Cambridge. Therefore, this experience could be transmitted for
the establishment of the NITD. Furthermore, the Novartis respiratory center was built in
Horsham (UK) in 1997 where Thomas Keller (currently interim director at the NITD)
worked for five years. Hence, Thomas Keller can transfer his experience of building up
this research site in the UK to the NITD, for instance in terms of laboratory design,
laboratory changes and efficiency in the process of building up the new institute in
Singapore. As an expert in medical chemistry, Thomas Keller can also transfer his
scientific knowledge to the NITD. A screening expert, David Beer (from Novartis’
research institute in Horsham) contributes his knowledge in this area to the NITD.
Sabine Daugelat (from the Max Planck Institute in Berlin) built up the Biosafety Level
3 facility there. She is now responsible for the same task at the NITD. Alex Matter who
spearheaded the discovery of the breakthrough cancer medicine Glivec has now been
named as the Inaugural Director of the NITD. Being a highly important drug discovery
scientist, he can transfer his drug discovery experience to the NITD.
5.3.1.4.3 Integrating the Knowledge Base into the R&D Organization
In the following it is analyzed to what extent the different research institutions
complement each other and how their different knowledge bases are used for the R&D
organization. This analysis shows how the NITD is integrated in the overall R&D
organization of Novartis.
As mentioned above, the Novartis Corporate Research Institutes, headed by Paul
Herrling, consist of the Friedrich Miescher Institute (FMI) in Basel (Switzerland), the
127
Genomics Institute of the Novartis Research Foundation (GNF) in La Jolla (US), and
the NITD in Singapore.
The FMI conducts basic biomedical research. Its research results in the field of gene
sequencing could possibly also be used for research on DF at the NITD. The GNF in La
Jolla (US) conducts research in the fields of genomics and proteomics. Their R&D
activities on technology screening and identification of targets could also involve
research on infectious diseases. Therefore, research projects conducted at the GNF and
at the NITD could complement each other. Consequently, research synergies are formed
with the other corporate research institutes, namely the FMI in Switzerland and the
GNF in the US.
Besides the corporate research institutes, there may also be research synergies with the
institutes for biomedical research. The Novartis Institutes for Biomedical Research,
headed by Mark Fishman, comprise the research institutes in Basel (Switzerland),
Horsham/London (United Kingdom), Tsukuba (Japan), Cambridge and East Hanover
(US). These institutes work on infectious diseases in a commercial way.
One example will illustrate potential research synergies between the NITD and
Novartis’ institutes for biomedical research. The NITD conducts research on DF and the
biomedical research institutes on Hepatitis C and potentially the West Nile Virus.
Research synergies may result, since the Hepatitis C virus and the DF virus are similar
in nature. That is why research techniques and knowledge resulting from research
conducted on Hepatitis C can possibly be used in researching the DF virus. A
preliminary scientific understanding is that these two viruses (Hepatitis C und DF virus)
may distinguish themselves in their surface. A further synergy may result from the
sharing of clinical research knowledge. The NITD will gain clinical expertise in the
most affected countries of tropical diseases. This expertise may be useful to Novartis’
institutes for biomedical research. Another example of a research synergy between the
NITD and Novartis’ institutes for biomedical research is compound synergy. A
compound from therapeutic areas of Novartis’ institutes for biomedical research, for
instance, may be useful for the research conducted at the NITD, which in turn means
128
this compound would go through a new channel, possibly creating new research
knowledge.
On the technology side, the NITD is working closely with lead finding (at headquarters
in Basel) since such a test system for drug target finding is expensive and hence cannot
be built up at each Novartis’ research site. After the lead finding, lead optimization
takes place at the NITD to identify suitable new potential drugs. After the lead
optimization, the toxicology will either be conducted at headquarters in Basel or will be
carried out by clinical research organizations (CROs). Pre-clinical studies will take
place at the NITD.
On the policy side, the NITD will collaborate with Novartis generics (antibiotics) in
Kundl (Austria) since this site is experienced in working with international
organizations such as the World Health Organization (WHO) or the TB Alliance. In this
cooperation it is discussed how the NITD can optimize its collaborations with these
international organizations. Issues to be addressed are the collaboration in clinical
research studies and the determination of a suitable drug distribution. In order to
conduct clinical research in those countries where tropical diseases are endemic,
collaboration with international organizations is important, because these organizations
can serve as important negotiation partners with the respective governments in these
countries. For the determination of a suitable drug distribution, the cooperation of these
international organizations is sought due to their knowledge of country-specific
economic and political conditions. Overall, these international organizations are
essential to overcome public policy failures in countries where DF and TB are endemic.
In these countries, the infrastructure is often insufficient or fails to deliver drugs to
patients in need. Reasons for such an insufficient infrastructure can vary, for instance,
ineffective government or inappropriate transportation and handling of medical
supplies.
The illustration of sensing, mobilizing and integration of the knowledge base of a nontraditional R&D location has shown the leveraging of the technological hierarchy
beyond the triad nations. The next section is devoted to the knowledge base in the
129
periphery and shows that not only the traditional knowledge bases, but also knowledge
bases in the periphery, can be an important source of competitive advantage.
5.3.1.5 Knowledge Base in the Periphery
In the following, discussion focuses on the extent to which the knowledge base in the
periphery is important for Novartis’ research organization. Due to Novartis’ strategic
location in Singapore’s biomedical sciences hub, the knowledge base in the periphery
offers several advantages. Novartis’ R&D organization is close to major regions, where
TB and DF are endemic. Access to a good hospital network (an efficient infrastructure)
is a further advantage. Furthermore, the Singapore government is supportive of the
NITD and provides both substantial financial as well as network support (for example
contacts to relevant research institutions). Novartis’ R&D organization, in particular the
NITD, can enter into collaborations with academic institutions and local firms, which
also focus their research efforts on biomedical sciences.
The collaboration with important academic institutions, for instance, allows the NITD
to gain new and complementary knowledge and to access the local infrastructure. The
NITD plans to work with all relevant universities, for instance the National University
of Singapore (NUS), and with all relevant government research institutions such as the
Institute for Molecular Biology, the Institute for Bioinformatics and the Institute for
Genomics. These collaborations will also involve joint appointments between
universities and the NITD, postdoctoral fellowships at the NITD (for the development
of local expertise in the biomedical sciences), sabbaticals or teaching requirements by
conjunct professors at the NITD and at universities and possibly providing a Master’s
Program in Tropical Diseases.
With regard to local firms, the NITD plans to collaborate with local biotechnology
firms. Such collaborations will apply to the drug discovery process. Furthermore, there
will be collaborations with clinical researchers in the region. One external relations
manager at the NITD is responsible for managing all these collaborations in order to
avoid dilution.
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5.3.1.6 Conclusion
This case study shows that Novartis’ research organization incorporates the elements of
a metanational R&D organization. Knowledge bases worldwide have been sensed,
mobilized and integrated as can be seen from the example of the establishment of the
NITD, namely, knowledge bases reach beyond the triad nations to a non-traditional
R&D location such as Singapore.
Important management capabilities in building up the NITD as a knowledge base in the
periphery are considered the following: the acquisition and development of key
researchers for the NITD, building of trustworthy relationships with critical partners and
strong persistence in the establishment of the NITD. Key researchers with expertise in
the diseases of TB and DF are critical for ensuring high quality research. Trustworthy
relationships both with critical internal and external partners are important for internal
integration into the R&D organization and for playing an important role in the external
research environment. And finally, discipline and persistence help to ensure an efficient
process of building up the NITD.
Despite the NITD’s successful establishment, management challenges remain. It is
essential to formulate and implement a successful drug discovery strategy for the NITD
(including portfolio management) because such a drug discovery strategy will
determine the research results for the coming years. To find highly qualified and
suitable scientists with a drug discovery mindset and to manage these scientists from
diverse backgrounds is critical to assure an efficient research process.
It will be most interesting to see the results of the NITD in the years to come.
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5.3.2 Case Study: R&D Activities at Leica Instruments Singapore11
Leica was formed by the joint venture of Wild-Leitz and Cambridge Instruments in
1990. There are two major business divisions: Leica Surveying Group and Leica
Microscopy Group (Goh et al., 2000: 524). Leica Instruments Singapore (LIS) was
established as manufacturing subsidiary of Leica in Singapore in 1971.
Technological capability upgrading started in April 1993 with the initiation of R&D
activities at LIS, with one R&D Manager and one R&D engineer. Over the last 10
years, the staff strength has increased to 22 in 2003 (out of whom 20 are engineers and
2 are technicians) headed by a senior R&D manager, Ms. Germaine Tan. From 1993
onwards, the R&D activities at LIS increased in scope and complexity from mainly
supporting manufacturing to performing exploratory development in 2003. This
increase in scope and complexity is also reflected in an increase in the diversity of the
R&D personnel, who come from pure mechanical to electronics, optics and surveying
application fields. The R&D department in Singapore now acts as an extended branch
of Stereomicroscopy R&D at headquarters in Switzerland (Goh et al., 2000: 537).
This upgrading of R&D capabilities has been critical to the development of LIS as it has
enabled LIS to support the Leica R&D organization by being of high strategic
importance in the manufacturing, design and development of stereomicroscopes and
surveying instruments. The case study illustrates this process of technological capability
upgrading.
5.3.2.2 Underlying Rationale for Initiation of R&D Activities
Leica started operations in Singapore in 1971 in the form of a manufacturing site for
basic optical and mechanical components. The main reason for the establishment of the
manufacturing site was the availability of low cost labor. In the course of Singapore’s
economic development, however, labor costs increased sharply. Given this development
11
If not indicated otherwise, the information of this case study is based on in all two interviews with Mr. Goh and
Ms. Tan (see list of interview partners in appendix).
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and the consequent competition from low cost labor countries, Mr. Ah Bee Goh, LIS’
first local managing director, decided to pursue a strategy of focusing on higher value
added activities in order to increase LIS’ strategic importance and thus to ensure its
sustained competitiveness. As a consequence of this strategy, an R&D department
supporting manufacturing was established in 1993.
Before the technological capability upgrading for each business unit is analyzed
(business units of stereomicroscopy and geosystems), LIS’ general technological path is
illustrated.
5.3.2.3 General Technological Path at LIS
The newly created R&D team was initially mainly responsible for product support,
product adaptation and sustained engineering. It was in charge of ensuring the
production of a new generation of stereomicroscopes and accessories in 1993. These
tasks required enhanced process engineering capacities. In order to build local R&D
capabilities, several engineers were recruited and trained in order to reach the level of
competence to adequately communicate with headquarters on the product transfer. The
R&D engineers needed to acquire design and manufacturing knowledge in castings,
plastic injection and metal forming techniques (Goh et al., 2000: 531).
In 1994, the technological level of the R&D department was increased to a level where
it could carry out product design and development activities, the R&D team being
required to redesign existing products to increase cost competitiveness. Furthermore,
basic concepts were delivered from headquarters to LIS for conversion into products
(Goh et al. 2000: 532). As a result of this first step of technological capability
upgrading, LIS was awarded the ISO 9001 certification in the design and development
of optical instruments.
Besides this vertical technological capability upgrading, R&D capabilities were also
enhanced horizontally, that is, the R&D team has increasingly been able to support a
wider range of products (the initial product range of CMO Stereomicroscope and
Automatic Level was for example replaced with a wider range of technologically
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superior products such as the Greenough Stereomicroscope). In 1995, the R&D scope
was enlarged to include surveying projects. This led to capabilities in electronics,
including hardware and software for surveying products (Goh et al., 2000: 532).
Besides the horizontal as well as vertical expansion of the R&D activities, R&D
activities were also enhanced laterally from purely mechanical design to optomechanical design, electronics firmware design support, tooling and product software
programming, optics design support and opto-electronics product support. For instance,
the initial 2D mechanical drafting tool (Medusa) was replaced by 3D modeling tools.
As a result of this continuous technological capability upgrading, the current R&D
activities at LIS have reached the technological stage of exploratory development as of
2003 (common R&D projects are currently undertaken with SIMTech (Singapore
Institute of Manufacturing Technology) and Nanyang Polytechnic).
The exhibit below shows LIS’ general technological path according to the typology of
technological paths identified in this chapter.
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Exhibit 34: LIS’ General Technological Path (Technological Path I)
Characteristics
Technological Path I (TP 1)
LIS’ Technological Path
1993-2003
Global
Global
Global
Global
Pace
Sequential or exponential
Sequential
Technological Sequences
M2
M2 (Product Support and Design in
followed
M2, D1
the mechanical field)
M2, D1, D2
D1 (Advanced Development in the
M2, D1, D2, R1
opto-mechanical area)
M2, D1, D2, R1, R2
D2 (Exploratory Development in the
or any subsequence within
opto-mechanical-electronics field)
Geographical Scope at path
beginning
Geographical Scope at
further stages
these technological stages
Source: Author
Remembering the typology of technological paths elaborated in this chapter, it is clear
that LIS’ general technological path started with manufacturing support (M2),
continued with advanced development (D1) and is currently at the technological stage
of exploratory development (D2). LIS’ general technological path has been classified as
a global linear technological path I since the R&D site’s output has always targeted the
global market. Furthermore, it follows a linear rather than an exponential technological
path because there is no empirical confirmation that its technological capability
upgrading occurred at a faster pace later in the evolution of the R&D site than it did
earlier in the evolution process.
In addition to LIS’ general technological path, the two main divisions, stereo
microscopy and geosystems, follow different technological paths. Before these
technological paths are analyzed, however, major methods of technological capability
upgrading need to be examined for they indicate how an R&D subsidiary is able to
increase its level of technological sophistication. How these methods have been applied
135
by LIS will be analyzed in the discussion of the different technological paths of the two
main divisions.
5.3.2.4 Methods of Technological Capability Upgrading
The R&D subsidiary can choose various methods of technological capability upgrading,
namely (1) production transfer from headquarters to the R&D subsidiary, (2)
development from scratch by the R&D subsidiary, (3) linking R&D subsidiary
personnel to key R&D engineers at headquarters or at other R&D subsidiaries, (4)
collaborating with public research institutions in the local research environment and (5)
initiation of new R&D projects by the R&D subsidiary itself.
These methods will be briefly illustrated in general. First, production transfer from
headquarters to the R&D subsidiary requires product engineering by the R&D
subsidiary in order to sustain the products which are transferred. This, in turn, means
that through intimate product knowledge and corresponding product engineering, the
R&D subsidiary is capable of increasing its technological capabilities. In this process,
technologies and skills are identified that are needed to ensure a smooth production.
Tools, devices, instructions and process plans accompany such a production transfer,
which is complete upon acceptance of pilot-run units (Goh et al., 2000: 528). Such a
product transfer allows to gain competitiveness in manufacturing costs and consistency
in quality. This method of technological capability upgrading is usually applied at the
beginning of an R&D subsidiary’s evolution.
Second, another method of technological capability upgrading usually applied later in
an R&D subsidiary’s evolution is development from scratch, where the R&D subsidiary
fully develops a new product or process on its own or in partial collaboration with
headquarters. Therefore, the R&D subsidiary reaches further capabilities than those
needed for a manufacturing support unit and becomes an R&D unit with development
capabilities.
Third, newly hired R&D engineers are linked to key R&D personnel at headquarters for
training. In turn, corporate R&D engineers visit and work at the respective R&D
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subsidiary for important milestone activities of the respective R&D projects. They are
there to ensure the upgrading of technological capabilities. Such a close intrafirm
collaboration allows exchange and upgrading of technological competences.
Fourth, R&D collaborations with local research institutions are also important to
upgrade the level of technological sophistication since such collaborations allow the
R&D subsidiary to tap into different fields of expertise and into foreign talent working
for these research institutions. These external collaborations allow the R&D subsidiary
to gain new and complementary knowledge and to take advantage of the local
infrastructure (not available within the firm) and to show headquarters that a certain
R&D content is reached.
Finally, new R&D projects can be initiated by the R&D subsidiary during the process of
technological capability upgrading. In other words, it brings in its own ideas, which
materialize into product developments. Thus, headquarters’ expectations can be
exceeded and the strategic importance of the R&D subsidiary will be increased.
How these methods have been applied in the process of technological capability
upgrading at LIS in the division of stereomicroscopy is analyzed below.
5.3.2.5 Leica Microsystems: Process of Technological Capability Upgrading
The process of technological capability upgrading of this unit is outlined through the
major projects the stereomicroscopy business unit (BU-SM) has undertaken based on
the respective interviews and on Goh (2002). Correspondingly, it shows the various
methods of technological capability upgrading.
In the first project (the product transfer of the MZ8 optics carrier project) LIS SM R&D
was responsible for coordinating LIS production, LIS vendors and SM R&D. The
objective was to create an efficient and effective communication between these three
parties regarding all technical issues and the packaging design of all new system articles
within the MZ8 optics carrier project. After this first product transfer, LIS R&D
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continued to be involved in further product transfers (transfer of other new optics
carriers, namely MS5, MZ6, MZ12 and MZAPO).
In 1994, SM-R&D capabilities at LIS were increased through the Photo-Video Tube
project, the first co-design project between headquarters and LIS-SM. In contrast to the
first project of product transfer, LIS R&D was involved in the design and development
of about fifteen system articles in this project.
Given the experience and knowledge gained from the two previous projects, LIS R&D
started its own R&D initiatives, for instance, by reviewing the technological features of
new products, by proposing optimized solutions for existing products and by modifying
the design of existing system articles to respond to customer requirements. This allowed
LIS to reach the technological stage of advanced development (D1).
The next important stage in the technological capability upgrading of R&D activities at
LIS was the CATS Project in 1998, where LIS R&D actively participated in the
conception stage of the new Greenough Stereomicroscope line. In this project, LIS
R&D designed the full range of eyepieces, supplementary lenses, focus drives and bases
(overall 23 system articles), under the conditions of a strict cost target, better
performance features and a short time-to-market schedule. This CATS project resulted
in the successful launch of the new stereo zoom line in 2000, and the filing of a patent
titled “Focus Drive for Optical Instruments” in Europe and the USA, the joint invention
of Mr. Peter Soppelsa at headquarters and Mr. Chris Loh of LIS R&D.
As a result of the continuous technological capability upgrading at BU-SM, the LIS
BU-SM R&D team has reached the technological stage of exploratory development
(D2) and is now fully integrated in the internal corporate R&D organization of Leica.
The main tasks in future technological capability upgrading for BU-SM will involve the
development of more technologically sophisticated products and core modules, for
instance product developments of optics carriers, which require expertise in both the
opto-mechanical as well as the electronics field. In other words, the capability of
integrating software, electronics and optics elements is critical for future technological
138
capability upgrading. The following exhibit visualizes the process of technological
capability upgrading for BU-SM.
Exhibit 35: Process of Technological Capability Upgrading at BU-SM
Manufacturing
Advanced
Exploratory
Support
Development
Development
Mechanical Field
Opto-Mechanical-
Opto-Mechanical Field
Electronics Field
Activities:
Product Support
Product Design (Own R&D initiatives)
Product Development
Products:
MS5, MZ6, MZ8, MZ12, MZAPO
Photo Video Tube
Greenough Stereomicroscope Line
Increase in the Level of Technological Sophistication
Source: Author
As can be seen from the exhibit, BU-SM upgraded its technological capabilities to the
level of exploratory development. While at the beginning of this process product
transfers helped to upgrade the technological level, collaboration with headquarters and
its own R&D initiatives enhanced the level of technological sophistication in the later
stages of the R&D subsidiary’s evolution.
5.3.2.6 Leica Geosystems: Process of Technological Capability Upgrading
The R&D activities in this business unit started later than the R&D activities in the
stereomicroscopy unit. The first project in which Leica Geosystems’ R&D participated
was the NA800 automatic level, which aimed at reducing the bench mark cost of the
N2000 Level through redesign and process optimization. During this cost reduction
project, Leica Geosystems’ R&D served as a communication channel for all technical
139
issues between the corporate R&D engineers, the operational departments in LIS and
the vendors in Singapore. Upon project completion, LIS R&D was responsible for
sustaining the NA800 Automatic Level (Goh, 2002: 73).
The Pipe Laser Project followed the NA 800 project, involving the production transfer
of the Pipe Laser and Interior Laser from COS Laser Technology, a Swiss company
which had been acquired by Leica, to LIS, where Leica Geosystems’ R&D tasks were
similar to those in the NA800 project (Goh, 2002: 73).
The next R&D project in 1996 had the objective of reducing the manufacturing cost of
NA800 automatic levels. As a result, Leica Geosystems’ R&D initiated the Cookie 99
(NA700 Auto-Level) project, which was highly significant for Leica Geosystems’ R&D
since for the first time a complete geodesy instrument was designed and developed in
LIS with close technical collaboration from headquarters. As part of the project, Leica
Geosystems’ R&D was also responsible for designing eleven modules of the automatic
level, starting in 1997. As a result, the new NA700 Level series was launched in 1999
(Goh, 2002, 73). With this initiative the life span of this automatic level was extended
significantly. To date, this product has been more than 15 years in the market. This
shows that this product’s competitiveness could be improved through R&D capabilities.
After the Cookie 99 project, several product transfers of opto-mechanical-electronics
products took place. This enabled Leica Geosystems’ R&D to gain the capability to
manufacture these products and then subsequently to increase its know-how about them.
Hence, the opto-mechanical and electronics know-how could be enhanced during this
time and the corresponding R&D capabilities intensified.
Given the knowledge obtained through these projects, Leica Geosystems’ R&D became
part of the development team of technologically advanced products, such as the
electronic theodolite and the total positioning system, where LIS’ R&D, with close
support from the corporate R&D team, was responsible (1) for optimizing the design of
a standard telescope for use in the T100 theodolite and (2) for developing a shiftable
tribrach. This project enabled Leica Geosystems’ R&D to pursue further collaboration
efforts with the corporate R&D team, which covered, for instance, the optimization of a
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diagonal eyepiece for use with the T100 telescope and re-engineering of the T100
theodolite (Goh, 2002: 74).
The most recent developments of Leica Geosystems’ R&D were initiated in September
2001 at a meeting between Mr. Pius Vorburger, Surveying and Engineering
Development Director, and Ms. Germaine Tan, LIS’ R&D Senior Manager, when
collaboration strategies were discussed and mapped out between LIS R&D and
corporate R&D. As a result of this meeting, the most recent project, on barcode
technology, started in April 2002 in cooperation with five researchers from SIMTech
and with the corporate R&D team at headquarters. This product not only involves optomechanical, but also electronics parts, i.e. the product complexity is high. The following
exhibit visualizes the technological capability upgrading at Leica Geosystems.
Exhibit 36: Process of Technological Capability Upgrading at Leica Geosystems
Manufacturing
Advanced
Support
Development
Opto-Mechanical Electronics Field
Activities:
Manufacturing Cost Reduction and Product Support
Product Design and Development
Products:
NA700 and NA800 Automatic Level, Pipe Laser
Barcode Technology
Increase in the Level of Technological Sophistication
Source: Author
As major methods of technological capability upgrading, product transfers and
collaboration with headquarters enabled Leica Geosystems to reach a higher level of
technological sophistication. In contrast to SM, LIS’ Geosystems has not yet reached
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the technological stage of exploratory development (D2). LIS’ Geosystems went
through the technological stages of manufacturing support and advanced development.
Major management capabilities for this technological capability upgrading process are
discussed in the following section.
5.3.2.7 Management Capabilities During the Process of Technological Capability
Upgrading
During technological capability upgrading, several management capabilities have been
considered critical by the R&D managers at LIS. First, a smooth intrafirm collaboration
is important to assure continuous technological capability upgrading. Such an intrafirm
collaboration requires open communication, mutual understanding, awareness of
sensitive issues (such as potential emotions associated with know-how transfer), the
building of trust and an appreciation of different cultures. It was important, for example,
to explain to headquarters why an R&D site in Singapore would be beneficial not only
for LIS, but also for the overall R&D organization. In the subsequent process of
technological capability upgrading, diplomatic handling of knowledge transfer was
important.
Second, the capability of developing a product in the shortest time possible, at the
lowest cost possible and at the best quality is critical. This, in turn, requires a tight work
schedule, which can be highly demanding for the R&D team, which has to learn and
work simultaneously. In order to achieve this capability, the creation of commitment
and the quick handling of potential conflicts are essential.
Third, human resources management with regard to R&D was important in order to
build a highly qualified and well-functioning R&D team. All R&D engineers, for
instance, joined the team with a three-year working contract in order to avoid short-term
interests so that an R&D team on a long-term basis could be created. It was further
essential that all new R&D engineers had had several years of professional experience
in design and development prior to joining LIS (Goh et al., 2000: 532-533).
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Forth, LIS’ management team has incorporated a set of core values over the years under
the leadership of Mr. Ah Bee Goh. These core values refer to operating principles,
performance, business and reward ethics and agility (Goh, 2003: 1). Of high importance
are the ROFO (Responsibility, Ownership, Focus and On-time corrective action)
principles and the learning philosophy. These core values form a strong corporate
culture and have helped LIS’ employees to pursue their objectives successfully and to
continue technological capability upgrading. This learning philosophy, visible in every
employee, was crucial for the different R&D projects.
5.3.2.8 Impact of Technological Capability Upgrading on LIS’ Performance
The upgrading of R&D activities at LIS has been critical for LIS in order for it to
remain competitive and to increase its strategic importance. Since 1995, 55% of the
products at LIS have a product age of less than two years. In addition, all product
launches by LIS have been on time. Close collaboration of the R&D department with
manufacturing reduced time-to-market. Prior to the R&D efforts, it was difficult for
manufacturing to generate a short time to market. The R&D efforts also enabled Leica
to be close to markets. Competitive products can be created by fulfilling costumer needs
in the growing markets of Asia with design for manufacturing (Goh et al., 2000: 539).
As a result of the R&D activities being upgraded, the number of new product
developments could be increased from 5 in 1993 to 18 in 2002. In addition, one patent
was filed. The number of R&D projects also increased from 2 in 1993 to 7 in 2002. The
contribution of LIS to the overall Leica R&D organization in terms of development
content has become important (for BU-SM from 10% in 1993 to 80% in 2002). At the
beginning of the R&D activities, light performance measurements were applied such as
the number of projects LIS could work on or the reduction in manufacturing costs. In
the course of technological capability upgrading, performance measurements were
tightened, for instance, by considering the number of projects which are joint
developments between headquarters and LIS or by including the number of new
products. Furthermore, the extent to which research is conducted is increased with the
close support of the corporate R&D team, especially in the fields of software and
electronics imaging.
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The following exhibit shows LIS’ financial ratios in terms of worldwide sales and profit
before tax as a percentage of Leica’s profit before tax overall.
Exhibit 37: LIS’ Financial Ratios 1992-2003
100,000
50%
Start of LIS' R&D Activities
% of
Leica
40%
overall
in Singapore Dollars '000
90,000
80,000
70,000
30%
60,000
50,000
20%
40,000
30,000
10%
20,000
10,000
0%
Sales
FY03
FY02
FY01
FY00
FY99
FY98
FY97
FY96
FY95
FY94
FY93
(10,000)
FY92
0
-10%
Profit Before Tax %
Source: From LIS Management 2003 with permission
As can be seen from exhibit 37, sales have improved roughly threefold since the
beginning of the R&D activities in the year 1993 (fiscal year (FY) 1994). Over the same
period, the workforce decreased from 620 employees to 500 employees. Furthermore,
profit before tax increased steadily reaching around 10% of Leica’s overall profit in the
years 2002 and 2003.
Despite the successful technological capability upgrading at LIS, main challenges
remain for LIS R&D in the years to come, which are discussed below.
144
5.3.2.9 Main Challenges Ahead
First, training programs with corporate R&D should be continued and intensified.
Current programs include, for example, the training attachment program, whereby LIS
R&D personnel spend 1½ years at Leica Geoystems and Microsystems at headquarters,
supported by the EDB. This program is crucial since it allows faster technological
capability upgrading at LIS and critical interaction with headquarters.
Second, it is important to maintain the right balance between technology/innovation and
time to market. Customer needs are critical, especially their price requirements. An
important challenge remains in how to enable technology to serve customers. Therefore,
it is critical to identify the core technologies to be used in products in order to shorten
the product cycle.
The last challenge refers to human resources in R&D. It is critical to employ and retain
highly qualified R&D engineers with the correct expertise. Human resources
management needs to provide high motivation on a long-term basis. It is also important
that the R&D engineers possess the relevant knowledge for new technology waves.
It will be most interesting to see LIS’ further technological capability upgrading in the
years to come.
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5.3.3 Internal and External R&D Network Linkage: The Establishment of Lilly
Systems Biology in Singapore12
Due to various reasons pharmaceutical firms are increasingly under pressure to
effectively use new knowledge. The emergence of several new technologies in the last
five years created a large amount of data. Examples of such new technologies and the
corresponding new data are, for instance, newly obtained information on the mapping of
the human genome, gene expression profile data (DNA chip) or improvements in
screening and bioinformatic capabilities. Given such developments in the scientific
field, it is crucial to integrate this information in order to create new knowledge on, for
example, gene(s) functions and their interactions under different biological conditions
of disease as well as under the effects of existing and new chemical entities. In order to
achieve this integration, it is necessary to combine the fields of biology, chemistry and
pharmacology heavily leveraging on the advances made in the information technology
area.
This development, which leads to the creation of new knowledge, is paralleled by a
decreasing productivity in R&D. R&D expenditure doubled in the last 20 years, but at
the same time research productivity increased by only 10%. Reasons for the decline in
new chemical entities are numerous. One possible explanation is that research is not
conducted in the correct information space (also see Achilladelis and Antonakis, 2001).
Based on the need for accelerating the drug discovery process, research has to be indeed
conducted in the correct information space. Lilly Systems Biology is attempting to
integrate the newly emerged technologies’ fields and hence to conduct R&D in the right
information space. Eli Lilly and Company is the first pharmaceuticals company to
initiate the Systems Biology efforts by establishing the Lilly Systems Biology center in
Singapore. ‘Systems Biology’ refers to the examination of human biology in the context
of pharmaceutical discovery and as such to a broader understanding of biology. In other
12
The information in this case study is based on in all two interviews with Dr. Santosh Mishra, Managing Director
of Lilly Systems Biology.
146
words, systems biology is a creative approach to studying whole biological systems
utilizing contemporary biotechnology strategies, including bioinformatics, in parallel
with conventional biomedical research. Thus, Lilly Systems Biology conducts R&D at
the intersection of biology, chemistry, and pharmacology with the objective of
accelerating the drug discovery process and increasing R&D productivity.
5.3.3.2 Motivation for Establishing Lilly Systems Biology in Singapore
The R&D site, Lilly Systems Biology, Lilly’s first R&D site in Asia, was established in
2002 with planned staffing of 50 scientists. Researchers for the R&D site were hired
regionally and on a multi-disciplinary basis in order to create new research capabilities.
The strong government commitment enforced the decision to establish Lilly Systems
Biology in Singapore. The current science and technology policy with the objective of
building a biomedical sciences hub enables Lilly Systems Biology to find potential
synergies with other pharmaceutical firms, which are in close geographical proximity.
The regulatory framework created by the Singapore government in terms of intellectual
property is an important consideration as well.
5.3.3.3 Internal R&D Network Linkage
With regard to human resources, critical human resources development takes place at
Lilly Systems Biology. As has been stated, multidisciplinary scientists have been hired.
Requirements for the recruitment are that the R&D personnel has an academic and/or
professional background in one or more scientific discipline(s) and knows how to apply
this knowledge to the biological field. For instance, a researcher may have expertise in
statistics and knows how to apply this expertise to the field of biology. If there is a lack
of expertise in one area, the R&D personnel will be trained within the internal R&D
organization of Lilly.
In 2002, the year of Lilly Systems Biology’s establishment, six managers were sent
from Lilly’s headquarters in the US to Singapore to help build up the R&D site. Up to
now there has not been a human resources flow from Lilly Systems Biology to
headquarters or to other R&D sites but such an exchange between R&D sites is planned
147
for the future in the form of internships and post doctoral work at Lilly’s R&D centers
in Europe and the USA.
With regard to the innovation flow, research projects have been worked on
simultaneously by headquarters and Lilly Systems Biology since the establishment of
the subsidiary in 2002. Lilly Systems Biology is also free to conduct its own R&D
projects. Most internal research projects, however, are in collaboration with
headquarters, since the majority of researchers and scientists are located there. In 2003,
Lilly Systems Biology will work on many more research projects, determined in close
cooperation with headquarters, depending on resources and expertise at the different
locations. Overall, the research projects are determined both by market needs as well as
by internal needs (for instance in terms of computational infrastructure and various
technologies), which are driven eventually by market needs, namely to meet unfulfilled
medical needs, for example in the areas of cancer or other disease areas.
With regard to the information flow, a computational database is available for all R&D
personnel. Furthermore, senior managers at each R&D site know the major R&D
projects at all other R&D locations. The information flow between Lilly Systems
Biology, headquarters and other R&D sites takes place on a mutual and constant basis.
As can be seen from the analysis of the internal network linkage, Lilly Systems Biology
is an important R&D site in the internal R&D organization of Lilly.
5.3.3.4 External R&D Network Linkage
Lilly Systems Biology is currently at just the beginning to discuss potential external
research collaborations, of which headquarters is highly supportive, in order to find
synergies and to create win-win situations. Mutual rewards, risk sharing and openness
are the most important criteria for such collaborations. Furthermore, these
collaborations help the company to acquire new and complementary knowledge and to
tap into the local infrastructure. One research alliance management team at headquarters
oversees all Lilly research collaborations in order to avoid potential management
148
problems and dilution. The same general guidelines apply for all R&D sites with regard
to external research collaborations, but specific details apply for each region.
Barriers to external research collaborations are various. The pharmaceutical or scientific
value of the research collaboration needs to be identified, the budget needs to be
determined and the intellectual property rights have to be clarified by all parties.
Since the establishment of Lilly Systems Biology took place only in 2002, it is difficult
to determine what characteristics the external network linkage shows. It can, however,
be assumed from the information given that high external network linkage is important
for Lilly Systems Biology.
5.3.3.5 Interaction between Internal and External R&D Network Linkage
Given the previous analysis, it can be said that the internal network linkage is strong
and the external network linkage is currently being built up. Internal network linkage
helps to access important external network configurations. For instance, the manager
responsible for building up the research clinic in Singapore and various R&D sites in
Europe has also been in charge of building up Lilly Systems Biology in Singapore.
Thus, Lilly Systems Singapore can profit from Lilly’s previous experience.
External research collaborations are mostly determined by Lilly Systems Biology
Singapore within the general guidelines: the internal R&D organization allows Lilly
Systems Biology Singapore to engage freely in external research collaborations and
headquarters might even suggest or make Lilly Systems Biology Singapore aware of
potential external research collaborations.
Lilly Systems Biology Singapore can be seen as an extension of research conducted at
headquarters and thus increases Lilly’s strategic R&D presence with regard to Asia.
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5.3.3.6 Management Capabilities and Challenges Ahead
In order to develop the newly created R&D site further, Lilly Systems Biology applies
various management capabilities. Creating an open, motivating and challenging
environment, where Lilly’s corporate principles of respect for people, integrity and
excellence apply is crucially important. In such a working environment, projects are
given as the major guideline, but the micro management (how and when the R&D
scientists work on the projects) depends on the scientists themselves.
The emergence and conversion of many technologies has created a large amount of data
and a new information space. The challenge is now to understand this information space
and to find out how scientists can work on these technologies simultaneously. This also
means to raise the awareness of the importance of doing multidisciplinary work. And
finally, the challenge is to find well-trained scientific researchers, a challenge because
there is an insufficient number of such people worldwide.
5.4 Summary of Findings
The first part of the quantitative findings of this dissertation examined different
international R&D organizational models and discussed exploratory performance
implications. It has been found that a metanational R&D organization, that is, an R&D
organization, which is both present in the triad nations and the periphery and which is
capable of optimally leveraging the technological hierarchy, is rarely found in corporate
practice. Potential barriers to this type of R&D organization are the dominance of the
home base, the perceived unimportance of R&D subsidiaries in the periphery and the
notion that local adaptations can only be applied locally. However, even though the
metanational R&D organization is reality for only a few R&D organizations today, it
could be the new model of international R&D organizations in the future.
The results also suggest that different international R&D models entail different R&D
performance implications. While international R&D models such as the metanational
R&D organization, integrated R&D network and the R&D hub model, seem to be more
suited to produce an important number of new product developments, the ethnocentric
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R&D organization may be a good organizational form in order to achieve a significant
number of patent applications.
Non-traditional R&D locations can raise their importance by increasing their level of
technological sophistication. Such an investigation is important in order to understand
why non-traditional R&D locations are still at the periphery, which means they are not
yet part of the group of more advanced R&D locations, and how they can progress
further in their technological capability upgrading. In a second part of the quantitative
findings, it has, therefore, been examined how the periphery can raise its strategic
importance through such technological capability upgrading. The current level and
types of technological capabilities of the R&D subsidiaries in the sample were
discussed. We found that the R&D subsidiaries are currently more at the technological
stage of development than of research. A typology of technological paths was also
derived and performance implications analyzed. The findings indicate that a sequential
technological path, first focusing on a local or regional scope and then on a global
scope, seems most favorable in terms of the number of new product developments. In a
next step, key factors, which influence technological capability upgrading, namely
internal and external R&D network linkage, were analyzed. The analysis shows that
internal R&D network linkage is more important for technological capability upgrading
than external R&D network linkage (with the exception of the electronics industry).
This observation is also confirmed by examining the interaction of internal and external
R&D network linkage. Most R&D subsidiaries are semi-linked-externally oriented
R&D subsidiaries, i.e. they are critical external parties, however lacking strategic
importance in the internal R&D organization. Management implications were discussed
accordingly, namely that it is critical to communicate intensely with headquarters on
ongoing R&D projects and to further increase the level of technological sophistication.
In this way, the R&D subsidiaries can also reach a high strategic importance internally.
The qualitative findings attempted to substantiate the quantitative findings. The first
case studied, that of Novartis, analyzed Novartis’ research organization as an example
of a metanational R&D organization in the making. Novartis’ R&D organization is both
present in the triad nations and the periphery. The metanational advantage in terms of
sensing, mobilizing and integrating the knowledge base in the periphery has been
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achieved. Novartis established the Novartis Institute for Tropical Diseases (NITD) in
2002 in Singapore, mobilized knowledge in the research areas of tropical diseases and
integrated this knowledge accordingly in the internal R&D organization. Major
management capabilities include the acquisition and development of key researchers,
building of trustworthy relationships with critical partners and strong persistence.
The second case study, Leica Instruments Singapore (LIS), showed how an R&D
subsidiary can increase and maintain its strategic importance in the overall R&D
organization by increasing its level of technological sophistication. LIS started its R&D
activities in 1993 in form of a manufacturing support unit. In 2003, LIS has reached the
technological stage of exploratory development. The different divisions of LIS have
undergone different developments. As major management capabilities, the management
of emotions associated with technology transfer, achieving a short time to market and a
human resources management on a long-term basis are pointed out.
The third case study, Lilly Systems Biology, showed the importance of internal and
external R&D network linkage for the building up of a new R&D site. Lilly Systems
Biology conducts research at the intersection of biology, chemistry, and pharmacology
with the objective of accelerating the drug discovery process and increasing R&D
productivity. Lilly Systems Biology Singapore is well integrated in the internal R&D
organization and is currently building up a strong external R&D network linkage.
Management capabilities comprise the creation of a challenging working environment
and conducting research in the correct information space.
The next chapter discusses implications for theory, practice and policy.
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6 Implications for Theory, Practice and Policy
6.1 Implications for Theory
This dissertation attempts to take a small step towards a more advanced understanding
of the literature on international R&D. Three research streams were distinguished,
namely R&D internationalization determinants, international R&D management and the
R&D internationalization process.
Regarding the first research stream, this dissertation developed a holistic determinant
for R&D internationalization in contrast to previous studies which emphasize market
and technology driven determinants.
With respect to the second research strand, this dissertation developed a framework for
a new R&D organization, namely the metanational R&D organization, and discussed
the consequent implications for R&D management. In doing this, it provided a
comprehensive illustration of international R&D organizations. Traditional international
R&D organizations emphasize the home versus host country dichotomy, are present
only in the triad nations and have a low to medium degree of specialization.
Furthermore, traditional international R&D organizations develop key R&D personnel
only at headquarters or at key R&D subsidiaries, where the locus of innovation is
situated. Their source of knowledge is mostly internal. By contrast, a metanational
R&D organization adopts a comprehensive approach, is present both in the triad nations
and the periphery and has a high degree of specialization. Critical R&D personnel are
developed also in the periphery, the innovation locus is anywhere in the R&D
organization and the source of knowledge is both internal and external. Furthermore,
exploratory performance implications of different international R&D organizations
were drawn. The case study of Novartis’ R&D organization presents a metanational
R&D organization in the making.
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The analysis in this dissertation shows that the literature on international R&D
organization and management is evolving in nature (also see Doz, 2003). For example,
there is as yet no comprehensive theory of international R&D organizations and
management.
The third research stream, the R&D internationalization process, has examined this
process from a corporate perspective and in advanced economies. Therefore, the
analysis of technological capability upgrading in this dissertation is a modest
contribution to the literature on R&D subsidiaries in late industrializing countries
because the literature has so far largely ignored the process of R&D internationalization
on R&D subsidiaries in the periphery. Instead, it has focused on R&D subsidiaries in
the triad nations, where technological capabilities are substantially available. Our
understanding of R&D subsidiaries in the periphery is still limited. The periphery can
increase its strategic importance through technological capability upgrading, and thus
create a critical knowledge base, a necessary condition for metanational R&D
organizations to tap into the periphery. Therefore, a detailed analysis of technological
capability upgrading was provided. The level of technological capabilities was
examined, a typology of technological paths identified and key factors (internal and
external R&D network linkage) on technological sophistication investigated. The study
underscores the importance of technological capability research. Results showed that
technological capability upgrading is at least partially a function of internal R&D
network linkage at R&D subsidiary level in late industrializing countries. If further
studies support this conclusion, this would provide important theoretical implications
for R&D management in a late industrializing context.
Overall, the dissertation attempts to provide some elements for a more advanced theory
of international R&D management. The literature so far has focused on various issues in
international R&D management, but has not yet developed a systematic and more
concise approach to international R&D management theory. It would be important to
integrate the various elements in international R&D management in order to possibly
develop an international R&D theory. More theoretical development is certainly
needed.
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6.2 Implications for Practice
Most of the research implications of this study are directly applicable to the practice of
overseas R&D management. The interview partners were asked what lessons they had
learnt in building up an R&D subsidiary in the periphery and/or what management
challenges they had been facing, are facing and are likely to face. These important
managerial implications are discussed in the following:
An important managerial implication concerns the gap in perception between
headquarters and R&D subsidiaries. The headquarters-subsidiary relationship is crucial
as subsidiaries are organized through interdependent change (Birkinshaw et al., 2000:
322). Birkinshaw et al. (2000) have found that home-country managers and overseas
site directors are not ’on the same page’ when it comes to the mission or role that
individual subsidiaries are expected to play within the organization (Birkinshaw et. al.,
2000: 326). This finding was confirmed for the R&D context by Grevesen, (2001). In
his study, he showed that chief corporate R&D officers sometimes categorized a
particular R&D subsidiary unequivocally as either a home base augmenting or home
base exploiting unit while the R&D manger in the host country selected the opposite
classification (Grevesen, 2001: 113-114).
This observation was confirmed in many of the in-depth interviews conducted for this
dissertation. While at headquarters the specific R&D subsidiary was classified as a
technical support unit, the view at the R&D subsidiary itself was very different. The
R&D subsidiary would usually see itself at a higher level of technological
sophistication. Analyzing official corporate information led to the same result. While
the R&D subsidiary in the periphery is not mentioned at all in official corporate
sources, the R&D subsidiary is, however, highly important in the local context. In some
cases, respondents at headquarters even indicated that they had no R&D activities in
Singapore; the contrary truth emerged, however, during fieldwork in Singapore.
Consequently, it is frequently found that the R&D subsidiary’s level of technological
sophistication is overestimated by the subsidiary and underestimated by headquarters.
In general, it seems that more R&D is conducted at the subsidiary level than
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headquarters is aware of. In order to overcome this difference in perception, it is
important for an R&D manager at subsidiary level to make headquarters aware of the
R&D subsidiary’s existence and capabilities. The subsidiary R&D manager also needs
to encourage awareness of the local context and thus create more credibility. This, in
turn, requires intense communication with headquarters and constant technological
capability upgrading. It is also critical to be an important external player, which in turn
increases the credibility of the R&D site. If important external R&D collaborations are
entered into, this will help the R&D subsidiary to gain new external R&D knowledge.
It has been reiterated in many interviews that headquarters needs to be convinced that
the R&D subsidiary has the capability and credibility to conduct certain R&D projects.
Continued communication is necessary to convince headquarters that it is important to
conduct certain R&D projects at a subsidiary level and not at headquarters, or in other
words, to show that the R&D subsidiary in Singapore has the same or similar capability
as headquarters to conduct R&D. Otherwise, the R&D subsidiary will be given only
small and technologically less demanding R&D projects, which will make the
technological progress of the R&D subsidiary slower and more difficult. If the R&D
site’s credibility and self-sustainability is not constantly proven, the R&D subsidiary’s
existence might even be thrown into jeopardy. Once the underestimation of the R&D
subsidiary’s role is overcome, however, it can start or continue to play an important role
in the overall R&D organization.
Another managerial implication which has been pointed out by many of the interview
partners refers to the acquisition of suitable R&D resources. Due to a local shortage of
R&D manpower (see chapter 4), it is important to hire key R&D personnel on a global
basis. Such a pool of key researchers is critical in building up an R&D site. Once this
acquisition of human resources is managed, R&D subsidiary managers need to create a
challenging and highly motivating work environment. The challenge lies in creating
curiosity, passion and spirit of innovation. Equally importantly, human resources
management of R&D personnel should attempt to retain the critical R&D personnel on
a long-term basis in order to ensure that the building up and development of the R&D
subsidiary continues.
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Human resources management needs to be in accordance with project management. It is
important for R&D subsidiary managers to create the correct technological roadmap
and then to follow it consistently. Project management requires foresight to seize
important technological trends, which has been pointed out as an important managerial
challenge. In a pharmaceutical context, for instance, project management in the form of
a drug discovery strategy determines the future pipeline and thus medicines for several
years ahead. If such a technological roadmap or strategy has little foresight, it may be
difficult to achieve good R&D results. In this respect, it is also important to follow the
technological roadmap closely once it is determined in order to avoid dilution or a
slowing down of the R&D process. In the interviews, R&D managers mentioned that it
is critical to communicate this project schedule to R&D personnel because some of the
researchers may have been former academic researchers, who now need to follow a
commercial schedule in industrial based R&D.
R&D managers were also asked what management challenges they consider important
for the future of their R&D subsidiaries. They identified different challenges ahead.
Accelerating knowledge, development towards increasing product complexity,
increasingly fierce competition and maintaining high research productivity were
identified as the major challenges. The challenge of accelerating knowledge refers to
the fact that R&D managers face increasingly more, more complex and fast changing
R&D knowledge. Closely linked to this challenge, product complexity is increasing as
well. In spite of this increasing knowledge and product complexity challenge, high
R&D productivity has to be maintained or increased in order to be able to cope with
intense competition. It will be interesting to see how these challenges will be tackled in
the future.
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6.3 Implications for Policy
Besides theoretical and managerial implications, this dissertation is also concerned with
policy implications. Its analysis of technological capability upgrading of R&D
subsidiaries in Singapore highlighted the divide between development and research.
While most R&D subsidiaries are at the technological stages of advanced or exploratory
development, only a few have reached the technological stages of applied or basic
research. Nonetheless, it is apparent that this divide may be narrowed, a change in
which Singapore’s science and technology policy is playing a critical role. The
government is not only providing financial incentives but also IP protection and an
efficient infrastructure in the form of government R&D laboratories. In Singapore,
general expenditure on R&D as a share of gross domestic product increased from 1% in
1991 to 1.89% in 2000 (Amsden and Tschang, 2003: 565). Systematic government
support is critical in fostering R&D activities (also see Bartholomew, 1997).
In an effort to upgrade the technological activities and thus bridge the divide between
development and research, Singapore faces challenges. These challenges for late
industrializing economies in attracting more and high level R&D activities are
threefold:
First, the Singapore economy needs to develop sufficient local expertise, especially in
the newly created biomedical sciences, as has been elaborated on in chapter 4. The
question arises if the success which was achieved in building up an electronics cluster is
replicable for the biomedical sciences sector. Currently, there is a shortage of high-level
research personnel. For instance, only 8.2% of the 1,930 researchers in government
research institutions are Singaporeans with PhDs, which amounts to only 160 PhD
holders (Yong 2003: 4). Thus, for the development of critical human resources, an
expansion and upgrading of the university system is necessary as well. The Singapore
government has addressed these issues in the shortage of R&D labor by granting
subsidies for personnel training. More than half of all research grants are devoted to
such training (Amsden and Tschang: 565). It has also adopted liberal immigration laws
in order to attract foreign professionals with high talents. In addition, various reforms
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have been initiated in order to expand and upgrade the university system, with the
objective of producing high-end researchers.
Second, closely linked to this development of critical human resources is the challenge
of changing the mindset of researchers from mere execution to more creativity. While
lower-end R&D activities, which are closely linked to manufacturing, require more
execution skills, higher-end research projects require more creativity (also see chapter
4). Several R&D managers pointed out that the local workforce is better suited to
development than to research due to its lack of creativity and its lack of initiative. It is
more difficult for the Singapore government to address these issues. However, with
Singapore’s increasing transition towards more research based activities these issues
may resolve themselves with more time.
Third, the interviews provided some insights into local R&D subsidiaries, whose level
of technological sophistication is slightly lower than that of R&D subsidiaries of MNEs.
The ten Singapore-based companies indicated that it is very difficult to support R&D,
especially as a small and medium sized company, constantly having to strike a balance
between R&D and commercial value. This observation is also confirmed in a study by
Kam et al. (2003: 17), who state that in Singapore much innovation arises from the
application of technologies that were developed and are already in use elsewhere. The
most common innovation activity in the Singapore manufacturing sector, for instance, is
the acquisition of machinery, equipment and software linked to product and process
innovation (80% of innovating manufacturers), followed by R&D (66%) (Kam et al.
2003: 17). Given the preceding context, it is important to foster the R&D activities by
local companies and thus to create indigenous innovation. This, in turn, will reduce
Singapore’s dependence on MNEs for innovation.
In summary, it is apparent that the role of the Singapore government is decisive in
fostering more and higher level R&D activities that otherwise would not have occurred.
In view of this critical role, Singapore’s science and technology policy will remain
important in the country’s transition towards more research activities. Based on the
limited evidence of this dissertation, it seems that systematic policy formulation and
implementation continues to be of vital importance if more research activities as
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opposed to development activities are to be created. Pro-active government policies and
the operation of public research laboratories are critical.
Future science and technology policy would have to consider how to balance the focus
on biomedical sciences with other industries. While the emphasis on biomedical
sciences is important, science and technology policy should not neglect other industries.
A balance would ensure the upscaling of technological sophistication in all industrial
sectors. Some interview partners felt that their R&D efforts are not adequately
recognized because they are not part of the biomedical sciences sector. The building up
of a biomedical sciences cluster, however, seems to be important as it constitutes a
second major cluster besides the electronics industry. This would also provide the
Singapore economy with a broader economic diversity in the case of external shocks to
the economy, as was the case during the Asian financial crisis.
Within the biomedical sciences industry, which encompasses the pharmaceuticals,
medical devices, biotechnology, and healthcare services sectors, it may be necessary to
focus on one or two of these subsectors. Due to its small economy (with a population of
about 4.1 million), it may not be feasible for Singapore to acquire expertise in all of
these subindustries. It may be better to have one strong focus within the biomedical
sciences in order to avoid the danger of dispersion of resources. Thus, important
expertise could be built up in one subsector, instead of having lower expertise in several
areas.
In general, the role of a solid science and technology policy seems to be decisive in
fostering research activities in late industrializing countries. Singapore’s national
innovation system may serve as a role model for other late industrializing countries
which are on the same route, but at a lower stage of development.
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7
Conclusion
Previous research on R&D internationalization has provided valuable insights into the
nature of scientific and technological activity conducted by MNEs outside their home
countries. More specifically, previous literature has helped considerably in explaining
the motivation for conducting overseas R&D, has developed different R&D
organizational models and has analyzed the R&D internationalization process from a
corporate perspective.
Until now, however, little consideration has been given to the implications of R&D
internationalization beyond the triad nations and on an R&D subsidiary level. This
research area, however, is an important one, since non-traditional R&D locations are
emerging as critical knowledge clusters. Little is known about the nature of R&D
subsidiaries in these late industrializing countries.
Therefore, this dissertation intends to provide a first step in this major, but neglected
research area and to further increase interest in this important topic. It analyzed different
R&D organizational models and in particular developed a framework for a metanational
R&D organization, that is, an R&D organization which is also present in the periphery
and leverages the technological hierarchy internationally. In order for the periphery to
increase its strategic importance, technological capability upgrading towards more
research activities is critical. This process of an increase in an R&D subsidiary’s
technological sophistication is examined in detail. The late industrializing context in
this study is Singapore, which is an emerging R&D hub. Singapore’s science and
technology policy plays a decisive role in fostering R&D activities.
Caution should be applied in interpreting the results of any research study, particularly
when the investigation is exploratory in nature. Given the almost complete absence of
prior studies of R&D subsidiaries in a late industrializing context, the results of this
dissertation should be regarded as tentative until subsequent studies based on more
sophisticated models, larger samples and different analytical approaches can either
confirm or refute them.
161
This study has several limitations. First, the modest sample size limited the types of
statistical analyses possible and limited the number of independent and control variables
that could be considered. Therefore, only exploratory performance implications could
be drawn for different international R&D organizations and only tentative conclusions
could be drawn on key factors which influence the level of technological sophistication.
Even though some effects were found insignificant, this may not be so because they
lacked explanatory power but because the sample size did not produce adequate
statistical power to detect them. Second, measurement issues are another limitation of
this dissertation. Even though we attempted to adequately reflect the measures in this
study, none of the measures used (for instance R&D performance) is without
drawbacks. Third, in most cases (with the exception of the case studies and several
other R&D subsidiaries), the R&D manager or managing director of the subsidiary was
a single respondent. It would have been more ideal if for all the R&D subsidiaries under
investigation in this dissertation several respondents could have been interviewed.
However, this was practically not possible because R&D subsidiaries were usually not
willing to provide more than one in-depth interview (with the exceptions as mentioned).
Given these limitations, this study arrives at several tentative conclusions. Preliminary
evidence is provided, showing that the metanational R&D organization is rare in
corporate practice. However, it is a critical organizational form which can tap into
knowledge residing in emerging, but so far non-traditional, R&D locations.
Furthermore, it is important for R&D subsidiaries in these non-traditional R&D
locations to upgrade their technological level and capabilities. Different technological
paths entail different performance implications. Internal and external R&D network
linkage and more specifically its interaction have a critical impact on R&D subsidiaries’
technological sophistication and strategic importance. Internal and external R&D
network linkages are important for effective internal and external knowledge
acquisition.
This dissertation encourages further research to advance the work begun here. Future
studies should investigate the concept of the metanational R&D organization further
and should enhance the theoretical development of this new organizational form. On the
162
empirical side, future studies should be devoted to performance implications of the
implementation of the metanational R&D organization in a larger sample.
It would also be of considerable interest to further examine the technological capability
upgrading of R&D subsidiaries in late industrializing countries. More studies analyzing
this phenomenon are necessary to confirm the findings of this study. There is a need for
clinical studies of R&D subsidiary evolution and more detailed examination of various
aspects of the phenomenon, such as the interplay between R&D headquarters and R&D
subsidiary management and the impact of host country policies on R&D subsidiary
evolution.
Future studies should also include more late industrializing countries in order to
examine if the results of this dissertation also apply to other such countries with
different degrees of economic development and to identify and analyze potential
differences between late industrializing countries. For example, it would be interesting
to examine differences in late industrializing countries of Asia versus South America,
for example, in their approach to foster R&D activities.
An entire research agenda should be devoted to the complex phenomenon of R&D
output measurement. In this respect, a fruitful extension of this study would be an
examination of several measures of R&D output. In order to evaluate the different
patent applications adequately, for instance, one may have to consider the respective
relevance of each patent for not every patent application seems to be equally relevant to
the corporate R&D organization in terms of innovative contribution. One solution to
this problem may lie in assigning different weights to different international patent
applications, based on their probable contribution to corporate R&D output. This,
however, raises the problem of determining such a probable contribution. Furthermore,
future studies should investigate which performance measures, both on a national and
international level, are most appropriate in evaluating a government’s efforts to foster
R&D activities.
There may be important implications for the concepts developed here, both for the role
of R&D subsidiaries of MNEs in late industrializing countries and for the theory of the
163
MNE itself. Although it is too soon to predict how such research extensions will
transpire, the hope is that this dissertation provides a first framework of concepts and
ideas around which subsequent studies can be built. Consequently, the issues raised here
for subsequent research provide ample scope for future studies in the field of
international R&D management.
164
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9 Appendix
9.1 Questionnaire as a Basis for the In-Depth Interviews
Survey: R&D Investment in Asia
University of St. Gallen, Asia Research Center
Email: [email protected]
Yvonne Helble, Research Associate
Handphone: 9729-6769
Name:
Position:
Date:
Company:
Location:
Industry:
Section A: Motivation for R&D activities in Singapore
1.
What are the reasons for your firm to conduct R&D activities in Singapore?
Please indicate the strength of your agreement or disagreement.
Strongly disagree
1. To adapt products and services to local requirements and conditions
Strongly agree
1
2
3
4
5
2. To access cutting-edge science & technology specific to the host country 1
2
3
4
5
3. To access top researchers and scientists
1
2
3
4
5
4. To access a creative workforce
1
2
3
4
5
5. To learn from foreign lead markets or lead customers
1
2
3
4
5
6. To take advantage of technology developed by a foreign firm
1
2
3
4
5
7. To keep abreast of foreign technologies
1
2
3
4
5
8. To comply with local market access regulations or pressures
1
2
3
4
5
1
2
3
4
5
(e.g. to support non-domestic production)
9. To be close to major markets
10. To take advantage of government support
1
2
3
4
5
11. To take advantage of favorable infrastructure and
1
2
3
4
5
12. To compensate for an inappropriate environment at home
1
2
3
4
5
13. To develop new research capabilities
1
2
3
4
5
14. To comply with M&A (R&D site in Singapore is outcome of M&A) 1
2
3
4
5
1
2
3
4
5
regulatory framework (e.g. public R&D programs and institutions)
15. Other: Please specify:
177
Section B: R&D Unit Profile
1. Please indicate in what year your R&D site in Singapore was founded:
2. Please state the year and the location of your firm’s first R&D site established
outside the firm’s home country: Year
Location:
3. Was there any other firm activity in Singapore before R&D activities?
Yes (R&D site is outcome of previous activities in Singapore)
No
Yes (R&D site is independent of previous activities in Singapore)
4. If yes, what were your firm’s first activities in Singapore?
Sales
Manufacturing
Logistics
Other form of activity:
5. Total number of employees at R&D unit in Singapore:
with the
following breakdown:
• Number of technical personnel at technician level:
Number of personnel at research scientist/engineer level:
• Number of non-technical personnel at management level:
Number of non-technical personnel below management level:
6. Ratio of local R&D expenditure (in Singapore) as percentage of global
corporate R&D expenditure:
7. Ratio of international R&D expenditure versus domestic R&D expenditure
(at headquarters):
178
Section C: Evolution of the R&D Unit
Please indicate the different steps taken by your firm in the evolution of the R&D site
and specify the year for each stage of evolution. If a certain stage of evolution does not
apply, please skip. If a certain stage of evolution is not included, please add.
Main Task of R&D site
Level
Form of Evolution
Market Support
Local
Support by the Singaporean government
Regional
Collaboration (with local firms or research institutions)
Global
Independent activities
Other form: Please specify:
Manufacturing Support
Local
Regional
Global
Advanced Development
Local
Regional
Global
Exploratory Development
Local
Regional
Global
Applied Research Unit
Local
Regional
Global
Basic Research Unit
Local
Regional
Global
Other stage of evolution:
Local
Please explain:
Regional
Global
179
Year
Section D: R&D Unit’s Interaction with Internal and External Parties
1. How does your R&D site in Singapore interact with other R&D facilities in
your firm?
a) Human Resources (HR) Flows
Please indicate the number of R&D personnel transfers for 1997 and 2001:
1997___
2001__
Headquarters
Your R&D
1997___
2001
1997__
_2001
Other R&D
subsidiary
site(s)
Strongly disagree
1.
Strongly agree
To what extent does your R&D site have influence on the acquisition of human resources?
1
2
3
2.
To what extent does your R&D site have influence over the development of human resources?
3.
To what extent do you conduct training for your R&D personnel?
4
5
1
2
3
4
5
1
2
3
4
5
b) Innovation Flows
Please indicate the flow of the number of innovative projects and products for 1997
and 2001:
1997___
2001__
Headquarters
Your R&D
1997___
2001
1997__
_2001
Other R&D
subsidiary
site(s)
Strongly disagree
4.
Strongly agree
To what extent does your R&D site participate in the global R&D program of your R&D organization?
1
2
3
4
5
1
2
3
4
5
3
4
5
5.
To what extent can you initiate own R&D projects?
6.
To what extent are you the recipient of core technologies from HQ or other R&D sites?
1
2
7.
To what extent do you conduct R&D activities in a field where HQ or other R&D sites have no expertise?
8.
To what extent is the innovation locus in your R&D organization equally balanced?
1
1
180
2
2
3
4
5
3
4
5
c) Information Flows
Please indicate the respective % for the direction of the information flows for 1997
and 2001.
% of direction 1997___2001
% of direction 1997___ 2001__
Headquarters
% of direction 1997___
2001
Your R&D
Other R&D
subsidiary
site(s)
Strongly disagree
9.
Strongly agree
To what extent does your R&D site have to follow rules and regulations by HQ?
1
2
3
4
5
2
3
4
5
2
3
4
5
10. To what extent can your R&D site engage freely in external research collaborations?
1
11. To what extent can your R&D site interact freely with other R&D sites?
1
2. External to your R&D site with which parties do you collaborate?
Time period of collaboration (in years, e.g. 1997-2002)
Party 1: Local Research Institution:
Party 2: Local Firm:
Party 3: Multinational Firm:
Party 4: Government:
Party 5: Other external party: Please specify:
3. Referring to your R&D unit’s collaboration with external parties, please
indicate the strength of your agreement or disagreement for the following
statements.
Strongly disagree
1. External parties generate new knowledge for our R&D unit.
2
3
4
5
2. External parties provide complementary knowledge for our R&D unit.1
2
3
4
5
3. External parties provide local infrastructure for our R&D unit.
1
2
3
4
5
4. Our R&D unit relies on innovations from these external parties.
1
2
3
4
5
5. These external projects are strictly controlled by our R&D unit.
1
2
3
4
5
6. A mutual information flow between R&D unit and external parties exists. 1 2
3
4
5
7. Internal parties’ interaction is linked to external parties’ interaction. 1
3
4
5
181
1
Strongly agree
2
8. Frequent internal parties’ interaction is conducive to initiating external
parties’ interaction.
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
9. The centrality of the R&D unit within the internal parties is conducive
to initiating external parties’ interaction.
10. Interaction with internal parties significant to the R&D unit inhibits
external parties’ interaction.
Additional Comments to Section D:
Section E: R&D Unit Performance
Please provide the following information of your firm’s R&D site in Singapore
for as many years as possible:
Year
Number
Number
Number of
Contributions of R&D site in
Number of
Ratio of
of new
of patent
external
Singapore to the overall corporate
research
output of
product
appli-
publications
R&D organization on a local,
projects of
R&D site in
develop
cations
(if applicable
regional, or global level (please
R&D site in
Singapore as
according to
give an estimate in %)
Singapore for
% of overall
company
the overall
corporate
policy)
corporate
R&D out put
ments
R&D
organization
1995
Local:
Regional:
Global:
1996
Local:
Regional:
Global:
1997
Local:
Regional:
Global:
1998
Local:
Regional:
Global:
1999
Local:
Regional:
Global:
2000
Local:
Regional:
Global:
2001
Local:
Regional:
Global:
2002
Local:
Regional:
Global
Does your company have other R&D facilities in Asia?
If yes, where: India
China
Other locations, please specify:
Please indicate if you would like to have a report of this study’s research
findings: Yes
No
Thank you very much for your participation!
182
9.2 Open-ended questions asked during the in-depth interviews
Section A, B, C:
1. How did you acquire/build up your first resources for the R&D subsidiary?
2. How did you move from one technological stage to the next, for instance from
manufacturing support to advanced development?
3. How important was the role of the Singapore government in helping your R&D
site to upgrade and build its level of technological sophistication?
Concluding Questions:
1. What are your lessons learnt in building up/managing your R&D site?
2. What do you consider major future management challenges?
183
9.3 Definition of Technological Stages provided for Section C of the
Questionnaire
Market support: Customer support and/or the adaptation of already established product
technology to particular customer requirements, carried out by the R&D unit in
collaboration with the marketing unit, without significant collaboration from
manufacturing.
Manufacturing support: Adaptation of an already established process technology to
some particular condition, usually to improve the manufacturing process, carried out in
tandem by the R&D unit and manufacturing, but without significant cooperation from
marketing.
Product development/Advanced development: Development of manufacturable and
commercially viable new products with the objective of immediate market results;
techniques used include engineering design tools including simulation and testing.
Process development/Exploratory development: Development of a new and
commercially viable process with the research objective of implementing this process as
engineered system and to deliver short-term market results; techniques employed
comprise engineering design tools including simulation, but not testing.
Applied research: Application of scientific techniques in order to find a differentiated
product for a specific market with the objective of transforming and reapplying a known
concept for a new application. The output is a differentiated product for a specific
market with intellectual property, which is created in the medium and short-term.
Basic research: Discovery of new knowledge for new marketable products on a longterm horizon; output is product-based research for transfer to applied research or
exploratory development. Scientific techniques are applied by a highly qualified R&D
personnel.
(based on Amsden and Tschang, 2003; Medcof, 1997)
184
9.4 Letter Asking for Interview Participation
Phone Number: 6822-0718
Yvonne Helble, Research Associate
Handphone: 9729-6769
Company Address
Date……..
Dear Ms./Mr. ……..,
the Asia Research Center at the University of St. Gallen, Switzerland, is currently
conducting an academic study on R&D internationalization. The motivation behind this
research stems from the fact that multinational firms have increasingly internationalized
their R&D activities. This R&D internationalization process has been expanding to
countries such as Singapore, China, and India. As a result, corporate R&D organizations
are ever more international, exposing R&D managers to important management
challenges.
The objective of this research is to examine the underlying motivation, process, and
performance implications of such an R&D investment in Singapore. It also attempts to
collect information on how subsidiary R&D sites are embedded both in the overall
corporate R&D organization and in the local context.
On a managerial level, this research project aims to provide useful insights for R&D
managers on how to manage subsidiary R&D facilities most effectively, and how to
integrate them into both the corporate R&D organization and the local research
environment. In investigating these issues, this research project examines R&D
facilities in Singapore.
185
Since your company conducts R&D activities in Singapore, you are in a good position
to contribute to this research project. Therefore, it would be great if you could let us
know if a short meeting of about 30, maximum 45 minutes, were possible in the next
two weeks.
This research project is an academic study. The information you provide will be dealt
with complete confidentiality. No information will be disclosed with a specific link to a
specific firm. Any publication will refer to the whole sample, not to individual firms.
We thank you very much in advance for your kind cooperation. In return for your
efforts, we would be more than happy to provide you with a report of the study’s
research findings free of charge once the study is completed. This report will give you
good insights into the current R&D management practices of major multinational firms.
We look forward to your reply and thank you very much in advance. If you have any
further questions, please do not hesitate to contact us.
Best regards,
Yvonne Helble
186
9.5 Interview Partners
No. Company
1
ABB
2
3
4
Name
Mr. Schmaderer
Title
Date
Location
Vice President R&D 11/22/2002 Switzerland
China and Singapore
(Phone
Interview)
Addvalue
Mr. Kay Wee Kiat Manager Business
10/22/2002 Singapore
Communications Pte Ltd,
Development
former ATT
Agilent Technologies
Mr. Wong Chee
R&D Manager
(Singapore Vision
Keong
Operation) Pte Ltd
ASTI Holdings Limited Mr. Woo Kwek
Chief Financial
1/29/2003 Singapore
Kiong
Officer
5
Aventis Pharma
International S.A.
6
Becton Dickinson
Dr. David Capes
Medical Products Pte Ltd
Borland (Singapore) Pte Dr. George Yuan
Ltd
7
Dr. Peter Hodsman Medical Director
North & South Asia
R&D Director
Asia Pacific Region
Vice President, R&D 11/11/2002 Singapore
8
Cerebos Pacific Ltd
9
Chartered Semiconductor Dr. Lap Chan
Mfg Pte Ltd
Director
University/Research
Institute
10
Chartered Silicon
Mr. Tom Joy
Partners Pte Ltd, Joint
Venture with Agilent
Technologies
Ciba Specialty Chemicals Mr. Kam-ho Tan
(Singapore) Pte Ltd.
Deputy Director
Yield Enhancement
1/30/2003 Singapore
4/17/2002 Singapore
and
8/27/2002
1/27/2003 Singapore
11
Dr. Ono Hiroyuki Vice President R&D 10/29/2002 Singapore
and Dr. Daniel Tsi and Manager
Scientific Research
12
Ciba Specialty Chemicals Dr. Ekkundi
(India) Pte Ltd.
Regional Manager
Asia Pacific
Technical Centre,
Segment Plastic
Additives
Head, Research
Technology
13
Covance (Asia) Pte Ltd
Dr. Philip J.
Masters
Laboratory Director
14
DaimlerChrysler South
East Asia Pte Ltd
Dr. Udo F. Loersch Vice President
External Affairs
187
8/9/2002
India
(Survey)
4/16/2002 Singapore
15
DuPont Singapore Pte
Ltd
16
Technical Manager
Ericsson
Dr. Andreas
Telecommunications Pte Fasbender
Ltd
Ericsson (China) Pte Ltd Dr. Wang
Director
Ericsson Cyberlab
Singapore
Director China
Research Lab
9/26/2003 Singapore
18
ExxonMobil Chemical
Operations Pte Ltd
Mr. Dave Beattie
1/30/2003 Singapore
19
GE Aviation Service
Operation Pte Ltd
Mr. Chen Keng
Nam
20
Gemplus Technologies
Asia Pte Ltd
Mr. Michel
Escalant
Planning and
Technology
Supervisor
Singapore Olefins
Business Leader
Technology and
Engineering
Technical Director
Singapore R&D
21
GES S'pore Pte Ltd
R&D Manager
2/18/2003 Singapore
23
Glaxo Wellcome
Manufacturing Pte Ltd
Dr. Jim E. Plant
Director Flavor
Science and
CAO/Regional
Finance Director
Director of Technical 11/15/2002 Singapore
Development
24
GSL Group Sense
Technology (Singapore
Pte Ltd)
25
IBM Zürich
Research
Laboratory,
Rüschlikon
Mr. Stuart Tan Hua Business
Koon and Mr. Eng Development &
Chong Meng
Technical Support
Manager and
Engineering Director
Dr. Phillippe
Vice President of the 2/11/2002 Switzerland
Janson
IBM Academy of
Technology
26
IBM Singapore Pte Ltd
Mr. Chin Yook
Sing
27
Infineon Technologies
(Asia Pacific) Pte Ltd
Mr. Michael
Tiefenbacher
28
Infineon Technologies
(Asia Pacific) Pte Ltd
Mr. Michael
Tiefenbacher
29
Kenwood Electronics
Mr. K. H. Tan
Technologies (S) Pte Ltd
Leica Instruments
Mr. A. B. Goh
(Singapore) Pte Ltd
Leica Instruments
Ms. Germaine Tan Senior Manager
(Singapore) Pte Ltd
R&D
17
22
30
31
Ms. Hoe Kum
Yoke
Mr. Yeow Kim
Chai
Givaudan Singapore Pte Mr. Willi Grab and
Ltd
Mr. Stefan
Giezendanner
Director IBM
Emerging
Technology Centre
Vice President
Development Center
Singapore
Vice President
Development Center
Singapore
Manager (HR /
Administration)
Managing Director
188
9/30/2002 China
(Survey)
11/5/2002 Singapore
11/1/2002 Singapore
4/18/2002 Singapore
9/26/2002 Singapore
10/5/2001 Singapore
2/11/2003 Singapore
32
Lilly Systems Biology
Pte Ltd
Dr. Santosh K.
Mishra
Managing Director
33
Lilly Systems Biology
Pte Ltd
Dr. Santosh K.
Mishra
Managing Director
2/18/2003 Singapore
34
3M Asia Pacific Pte Ltd
Mr. Howard D.
Tam
Laboratory Manager 11/26/2002 Singapore
3M Innovation
Center
35
Matsushita Refrigeration Mr. Khoo Chew
Industries (S) Pte Ltd
Thong
Senior Manager
R&D Center
36
Micron Semiconductor
Asia Pte Ltd
Mr. Jen Kwong
Hwa
Managing Director
2/20/2003 Singapore
37
Mitsubishi Chemical
Infonics Pte Ltd
Mr. Yoshiyuki
Kisaka
Managing Director
38
Molex Singapore Pte Ltd Mr. Yeo Khee
Teck
39
National Starch and
Mr. Joseph M.
Chemical (Singapore) Pte Light
Ltd
40
Natsteel Ltd
Dr. Josephine Kwa
41
NEC Electronics
Singapore Pte Ltd
Ms. Helen Chua
42
43
Nestlé R&D Centre Pte
Ltd
Nestlé/Nestec Ltd
44
Nestlé/Nestec Ltd
45
Novartis Pharma AG
Dr. Singh and Mr.
Wissgott
Mr. Helio Waszyk
and Mr. Carl
Branscom
Mr. Helio Waszyk
and Mr. Carl
Branscom
Prof. Dr. Paul
Herrling
46
Novartis Pharma AG
Prof. Dr. Paul
Herrling
Manager DIE Design 10/12/2002
& Development &
Product Development
Support
Director Technical
11/20/2002
Services &
Applications, Food
Asia Pacific
Executive Vice
12/9/2002
President Technology
Senior Consulting
2/27/2003
Manager
Strategic Planning
and Marketing
Division
Managing Director 4/15/2002
and Group Manager
Corporate Research 4/30/2002
and Development
Management
Corporate Research 9/11/2002
and Development
Management
10/28/2002
Head of Corporate
Research
Professor for Drug
Discovery Science
University of Basel
Head of Corporate
1/31/2003
Research
Professor for Drug
Discovery Science
University of Basel
189
Singapore
Singapore
Singapore
Singapore
Singapore
Switzerland
Switzerland
(Survey)
Singapore
Singapore
47
Novartis Institute for
Tropical Diseases
(NITD) Pte Ltd
Novartis Institute for
Tropical Diseases
(NITD) Pte Ltd
Novartis Pharma AG
Dr. Thomas Keller Head of Chemistry
2/21/2003 Singapore
Dr. Thomas Keller Head of Chemistry
2/24/2003 Singapore
Dr. Richard
Harrison
2/27/2002 Switzerland
50
Oki Techno Centre
(Singapore) Pte Ltd
Mr. Yutaka
Kumagai
51
Olympus Technologies
Singapore Pte Ltd
48
49
52
Head of Staff of
Novartis Pharma
Research
Managing Director
Mr. Goh Soh Lian Division Manager
(Finance &
Administration)
Pharmacia Singapore Pte Dr. Melvyn Teillol- Regional Senior
Ltd
Foo
Director - Asia
Pacific
11/8/2002 Singapore
2/25/2003 Singapore
53
Philips Electronics
Singapore Pte Ltd
Mr. Ferdinand
Coehoorn
54
Philips Consumer
Electronics
Mr. Piet Coelewij
55
Philips Software Centre
Private Ltd
Dr. Bob Hoekstra
56
Prima Ltd
Mr. Lim Kay Kong Group R&D Manager 1/28/2003 Singapore
57
Quintiles East Asia Pte
Ltd
2/20/2003 Singapore
58
Rhodia Asia Pacific Pte
Ltd
Dr. Brian O'Keeffe President Product
Development Asia
Pacific
Dr. Ji Li
Regional Technical
Director
59
Roche Diagnostics Asia
Pacific Pte Ltd
Mr. Ralph E.
Graichen
Technology Officer
9/17/2002 Singapore
60
Schneider Electric
Industrial Development
Singapore Pte Ltd
SembCorp Engineers and
Constructors Pte Ltd
Serial System Ltd
Mr. Jean-Marie
Periot
Managing Director
Dr. Lim Teck
Yong, Daniel
Mr. Chin Yeow
Hon
Vice President (Civil) 11/5/2002 Singapore
61
62
63
Senior Manager
Personal Appliances
& Personal Care
R&D Garment Care
Senior Vice President 1/20/2003 Singapore
General Manager
BCT MTV
PS& P and
Marketing BCUTV
CEO Philips
Innovation Campus,
India
9/25/2002 Singapore
2/18/2003 Singapore
Serono Singapore Pte Ltd Dr. Theodor Wee
Tit Gin
Regional Medical
4/12/2002 Singapore
Manager Asia Pacific
Region
190
64
Shell Global Solutions
(Singapore) (Pte) Ltd
Mr. Eric Holthusen Managing Director & 11/8/2002 Singapore
Fuels Manager
65
Siemens Pte Ltd
Mr. Thomas
Frischmuth
66
Siemens VDO
Automotive Pte Ltd
Mr. Azmoon
Ahmad
67
Siemens Pte Ltd
68
Siemens Medical
Instruments Pte Ltd
69
Siemens China Pte Ltd,
SSMC/ICM/MO
Dr. Borger
President
70
Singapore Research
Laboratory (Sony)
71
ST Aeorospace
Dr. Kanzo Okada
and Mr. Tong Kok
Leong
Mr Lim Tai Fui
Division Director and 11/11/2002 Singapore
Assistant General
Manager
72
Stratech Systems Pte Ltd Ms. Evelyn Soh
73
Sumitomo Bakelite
Singapore Pte Ltd
SurroMed Pte Ltd now
Institute of
Bioengineering
Teraoka Weigh-System
Pte Ltd
Mr. Tan Tat Hong R&D Manager
Ms. Ting Dor Ngi
76
Thomson Multimedia
Asia Pte Ltd
Mr. Gerard
Dongois
77
United Test & Assembly Mr. C. K. Tan
Centre Singapore Pte Ltd
78
Volume Interactions Pte
Ltd, acquired by Bracco
Group
Xerox Singapore
Software Centre Fuji
Xerox Asia Pacific Pte
Ltd
Y3 Technologies
Vice President,
Science &
Technology
R&D Division
Manager, Techno
Centre
General Manager
TV & Video Product
Development
Vice President
Worldwide Business
Strategy
President & Chief
Technology Officer
Technical Program
Manager
74
75
79
80
Managing Director
7/15/2002 Singapore
Vice President, R&D 11/12/2002 Singapore
Chief Operating
Officer
Dr. Chua Kee
Head of Department 4/12/2002 Singapore
Chaing
ICM Mobile Core
R&D
Dr. Anthony Chay R&D Manager
9/11/2002 Singapore
Mr. Liaw Fong
Chong
Dr. Luis Serra
Mr. Lui Kok
Kwang
10/15/2002 China
(Survey)
(HR and
Administration)
1/30/2003 Singapore
1/21/2002 Singapore
1/29/2003 Singapore
Mr. Eng Chye Yeo Manager Regional IT 2/24/2003 Singapore
and Operation
191
Interviews with Government Institutions
No. Company
81 Agency for Science,
Technology and Research
82 Agency for Science,
Technology and Research
Name
Dr. Lim Khiang
Wee
Dr. Jasbir Singh
83 Singapore Institute of
Dr. Christopher
Manufacturing Technology John Holmes
Title
Director Science and
Engineering Council
Head Computational,
Mathematical &
Physical Sciences
Section
Research Fellow
Date
Location
4/18/2002 Singapore
Several
Singapore
meetings
in 2002
and 2003
10/8/2002 Singapore
84 Institute of Bioengineering Ms. Dor Ngi Ting Vice President,
Science &
Technology
Nanotechnology
Laboratory
85 Economic Development
Dr. Swan Gin Beh 2nd Director
3/1/2003 Singapore
Board
Biomedical Sciences
192
CURRICULUM VITAE
Yvonne Elise Helble, born September 23, 1975 in Balingen, Germany.
EDUCATION
04/2001 – 09/2003: PhD Program in International Management with a Focus on Asia at
the University of St. Gallen, Switzerland, as a PhD Scholar of the
Cusanuswerk e.V.
08/2002 – 07/2003: Visiting
Research
Associate
at
INSEAD,
Singapore
and
Fontainebleau, France and at the Wharton-SMU Research Center,
Singapore, as a PhD Scholar of the Swiss National Fund.
10/1995 – 07/2001: Master's Program of International Business Administration at the
Otto-Friedrich-University of Bamberg, Germany.
08/1998 – 05/2000: MBA/MA in Economics Dual Degree Program at the University of
Delaware, Newark, USA as a Scholar of the Federation of German
and American Clubs.
PROFESSIONAL EXPERIENCE
04/2001 – 05/2002: Research Assistant at the Institute for International Management
(FIM), Asia Research Center, University of St. Gallen,
Switzerland.
05/2000 – 01/2001: ‘Werksstudentin’ in Group Development – Regional Strategies at
Siemens AG Transportation Systems, Erlangen, Germany.
06/1999 – 08/1999: Loan Administrator in the Global Loan Support Service at
Citibank, New Castle, USA.
08/1997 – 10/1997: Internship in the Materials Management Center of the Plastics
Business Unit at BASF AG, Ludwigshafen, Germany.
03/1997 – 04/1997: Marketing Assistant Consultant at KPMG Fidorga, Caen, France.
08/1996 – 10/1996 : Internship in the Human Resources and Production Department at
Salmson/WILO AG, Laval/Paris, France.
193

Corporate Research and Development in a Late Industrializing

Transcrição

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