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Moving your R&D offshore

How much of a threat does the outsourcing of R&D pose to the highly talented and educated (yet expensive) science and engineering ...

By Simon Longbottom . 01 September 2006

How much of a threat does the outsourcing of R&D pose to the highly talented and educated (yet expensive) science and engineering workforce of the West? Simon Longbottom thinks developed countries still have the advantage.
Moving your RD offshoreIn the first wave of business outsourcing, companies outsourced business processes such as manufacturing, data entry or customer service to low cost countries (LCCs), in particular China and India. However, as outsourcing has grown in popularity, the types of activities that are being outsourced have gradually moved higher up the value chain.

In recent years the pressure to outsource R&D activities has arisen from a number of drivers. First and foremost, many low cost countries are producing highly skilled engineers and scientists faster than the West.

Second, engineers and scientists are paid less in low cost countries. As R&D is a labour-intensive activity, companies stand to gain significantly from these potential cost savings. Consequently, utilising improved communication technologies, companies are finding they have access to a highly skilled workforce at a fraction of the cost of that in their own countries.

The benefits are not just financial, however; there are considerable synergies to be obtained by placing R&D next to manufacturing facilities. Companies have experienced 30 - 40 per cent improvements in their time to market, and the capacity for completing multiple projects in parallel has also grown.

So far, the types of roles that have been outsourced have tended toward activities that involve defined processes or left brain activities, such as 3-D modelling and computer aided design. But labour activists in the West have become increasingly concerned about the risk to the local workforce if low cost countries become adept at combining these skills with the right brain activities of creativity and innovation.

The developed countries of the West hold an advantage when it comes to the high value-added activities in R&D and that in the near term (the next generation) the majority of these jobs are not at risk. Why? For starters: Low-cost countries are not yet well-placed for creativity and innovation.

Studies have indicated that there are two principle drivers that inhibit the level of creativity and innovation in low cost countries, economic development and freedom of expression.

In line with Maslow’s hierarchy of needs, it is natural for LCCs to concentrate on economic activities, which satisfy more fundamental needs. Thus, it is only in a developed state, where an individual’s health, education and personal safety are taken as given, that humans can feel comfortable enough to explore higher level activities such as creativity and innovation. What is more, the ability to outsource lower level activities to LCCs creates a significant opportunity for a developed country to focus attention on higher level activities. This creates a source of competitive advantage for the developed country.

It is not just its economic development that affects a country’s ability to innovate. At the heart of creativity and innovation is the art of thinking differently, the ability to think beyond the norm. Innovation requires not only the ability to think creatively, but also the ability of the individual to express that creativity, in whatever form it might manifest itself. Freedom of expression varies considerably from country to country, and there are several common ways in which it is inhibited.

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