Title: Outsourcing of R&D and its Effects on Local Comapnies and Institutions in Developing Countries.

Aim: The aim of the project is to study the TNC-rationale for the outsourcing of R&D-activities and the upgrading effects on local cmpanies and institutions from performing the R&D-function.

Countries: Studies will be carried out in China, India and Malaysia.

Project Brief: Conventionally, R&D has been an activity located closely to the TNC-headquarters and conducted in closely concealed laboratories. Nevertheless, two tendencies can now be observed, the first being to (re)locate R&D globally and the second, to outsource and collaborate with outsiders on R&D-projects.

Historically, and using a value chain perspective, sales and marketing was the first function to be internationalised both in terms of location abroad and outsourced to agents, importers etc. Next, we have observed production activities to go through the same process followed by various support functions (services such as IT, call centres, accounts, translation, etc.).

R&D-Outsourcing is a recent phenomenon and the TNC-strategies are only emerging. The working hypotheses are, firstly, that the phenomenon is driven by several factors, including globalisation (liberalisation), new technologies, and the tendency towards alliance or network forms of organising economic activities. Secondly, proactive state policies targeting R&D outsourcing, which are highly prioritised among developing countries with bargaining power such as China, may also have an impact. Thirdly, although R&D-outsourcing is predominantly a develop market phenomenon, it is increasingly appearing in developing countries, e.g. IT in India and biotechnology in China. Nevertheless, it is largely standardised R&D activities that are outsourced.

Focus in this study is on R&D-outsourcing to developing countries. We have plans to investigate the TNC-rationale for outsourcing to these countries, but the main focus will be on the capabilities in the developing countries that make them attractive for R&D-outsourcing ventures. Although the local company will be our analytical unit, our analysis will include general institutional arrangements around R&D in the countries.

The theoretical foundation for the study is composed of several streams of research, including a global value chain framework, a learning-knowledge building framework, transaction cost theory and institutional theory.

To the extent possible and feasible, a survey in each of the three countries is planned together with a number of cases, where the starting point will be in the R&D-outsourcing by the Danish TNC.

Participantsin Denmark: Olav Jull Sørensen ( ojs@business.aau.dk) and Peter Wad, CBS ( pw.ikl@cbs.dk).