I am writing this blog on the sidelines of the Academy of International Business Annual Meeting at Washington DC. Many of the leading scholars of IB including Lou Wells, Alan Rugman, Yves Doz, and John Cantwell are attending this conference, as are 1,000+ delegates from all over the world.
A panel that Charles Dhanaraj and I put together titled “Emerging Trends in Multinational R&D in Emerging Markets” gave me the opportunity to step back and look at what’s happening in multinational R&D in India.
How Significant is MNE R&D in Emerging Markets?
But, first how important or how significant is the R&D that multinational enterprises (MNEs) do in emerging markets? That seems to depend on the country of origin of the MNE. In a presentation at the AIB conference, Heather Berry of George Washington University mentioned that the range is wide – Japanese MNEs spend only about 4% of their R&D budget in emerging market countries, while at the other extreme for Sweden it is in excess of 40%. For American MNEs, that number is about 11%. MNC R&D in emerging markets has been on the radar of researchers since the 2005 World Investment Report of UNCTAD recognized the growing importance of such R&D.
MNE R&D in India
MNE R&D in India is not new though its nature and scope has changed considerably over the years. One of the first major MNE R&D centres was set up by Hindustan Lever Ltd (an affiliate of Unilever) in the early 1960s, and this was, for many years, the showcase of MNE R&D in India. HLL’s India R&D was tightly linked to the company’s business in India, and supported the business in an era when there were several constraints placed on imports of technology.
But, the major boom in MNE R&D in India happened only after the first Information and Communication Technology R&D facility of Texas Instruments was set up in 1984-85. Other US MNCs like HP and Motorola followed soon thereafter.
Some broad trends in MNE R&D in India:
As I have been documenting in my posts on this blog, the nature of MNE R&D in India has been changing in the last few years.
IBM India Research is a good example of this trend. While the Research Center continues to do work on software and analytics R&D that will help the company globally, with the growth of the company’s service business in India the Center also works on projects to support the services business (e.g. automation of parts of the recruitment process through text analytics), and achieve excellence in service delivery. A third prong is to work on innovative solutions to national problems in India such as bridging the digital divide through a spoken web that mimics the internet.
Thus, we see four different types of MNE R&D emerging:
Type 1: Using local talent and skills to solve problems/enhance products for global market
Type 2: Using local talent and skills to enhance efficiency of local operations
Type 3: Using local talent and skills to develop new products/services/components to achieve excellence in local business and build new markets for local business. The results of this are likely to be transferable to other countries as well, even back to developed markets (so-called “reverse innovation”).
Type 4: Using local talent and skills to address national problems. Quasi-CSR, but may have broader business impact.
Note that types 2 and 3 will be difficult to pursue if India is not a major market for the company or if an India-centric business has not evolved over time. That’s what we see in a company like Intuit where the business is primarily US-focused. Intuit’s India Development Centre is largely focused on types 1 and 4 as I documented in my earlier post on Intuit.
It will be interesting to see how the relative proportion of these different types of R&D evolves over time.
- While the exact number of MNE R&D centers in India is not known, recent estimates indicate that the number is somewhere in the 800-900 range. Zinnov, a consulting firm focusing on the R&D globalization space, estimates that 851 MNEs have R&D Centers in India. Nasscom estimates that 750 MNE R&D centres employ about 400,000 scientists and engineers in India.
- MNE R&D is predominantly in ICT. As Rakesh Basant and Sunil Mani point out in their recent paper, of the top 59 foreign company awardees of US patents from India in 2006-10, as many as 52 are from ICT.
- MNE R&D in India was motivated by considerations of cost and access to talent (“resource-seeking” as it’s called in the academic literature), and at least to start with was intended to supplement work being done in the HQ and other developed country R&D sites. Some of this is changing now, but more about this later.
- MNEs are becoming more prominent in the Indian R&D landscape. According to Basant and Mani, their share of industrial R&D (based on spending data) may be as much as 20%. But, their contribution to recognizable outputs of R&D is more substantial – as I showed in From Jugaad to Systematic Innovation, MNEs accounted for more than 50% of the US patents awarded to inventors from India between 1994 and 2008.
- Indian R&D Centers are slowly becoming more important the R&D networks of the MNEs themselves. Though among the top 49 companies, the median proportion of patents coming from India is ~2%, for a small set of companies the number is much higher. For IT security solution provider Symantec, this proportion is close to 50% [Basant & Mani, 2012].
- It’s broadly known that MNE R&D Centres have limited Links with the local innovation ecosystem but strong ties within their own MNE R&D network. This has been confirmed by recent work by Mrinalini, Pradosh Nath & Sandhya at NISTADS [Mrinalini, N., Nath, P., & G.D. Sandhya (2012) “R&D Strategies of MNCs in India: Isolation or Integration?,” Economic & Political Weekly, Vol. 47, No. 13, March 13, 73-78.]