Businesses that outsource research and development (R&D) overseas are more likely to innovate than those who outsource at home according to new research.
Research carried out by Professor Michael Mol, of Warwick Business School, and Associate Professor Olivier Bertrand, of SKEMA Business School in France, analysed a large database of 6,015 French businesses over a five-year period and found that the use of home R&D suppliers can have a largely negative effect on product and process innovation.
The research suggested that increased distance between suppliers and end- users tended to bring different skill sets to the table, while suppliers in close proximity tended to have similar knowledge, and as such where less attractive from an innovation perspective.
“Firms that go through the trouble of finding highly qualified foreign suppliers see a bigger pay-off than if they had outsourced at home,” said Professor Mol. “This is a very interesting finding, because typically we only associate outsourcing abroad with efforts to bring down costs, not to increase innovation.
“Home outsourcing occurs when firms lack innovative capabilities and is either trying to save costs or their own internal R&D department is lacking. By contrast, those that choose to outsource abroad do so to tap specialist sources of knowledge that complement and strengthen their own internal R&D.
“An interesting example of this is IBM’s strategy to build research labs in places like Switzerland, Japan, Israel, UK, China and India from which R&D is outsourced to various research institutes.”
"Since R&D outsourcing, especially abroad, is a small yet rapidly growing phenomenon, academics and practitioners should continue to invest in understanding its implications.”
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