Driving Offshore R&D
There are a number of key drivers and potential benefits of R&D offshoring, according to experts. Forrester talks about newly emerging “innovation networks” that will allow U.S. companies to match global demand for innovation with a worldwide supply of talent and ideas, including those available in India and China.
“Innovation Networks will let firms fluidly weave internally and externally available invention and innovation services to optimize the profitability of their products, services and business models,” says a Forrester report released in 2004. These networks “will deconstruct vertically integrated invention-to-innovation cycles in software, finance and [consumer products] industries — and reinvent the formula for success in regional, national and global markets.”
U.S. companies are also facing competitive pressures to introduce new products at an ever faster pace, and that puts more pressure on the R&D team, which might not have the resources to meet the growing demand.
One of the main benefits of offshore R&D outsourcing is the presence of a large pool of lower-cost talent in other countries. Through outsourcing, companies can get access to R&D, engineering and scientific expertise that might not be available at an affordable cost — or at all — in the U.S.A.
“Currently the wages of a science or engineering graduate in China or India [are] about 20% or less of U.S. wages,” says Balachandra. “But these wages are slowly inching upwards.”
JMD Manufacturing Inc., a manufacturer and distributor of production-line machinery such as label dispensers, conveyor line markers, ink cartridges and related supplies, has saved 30%– 40% in labor and material costs by offshoring R&D, according to Sushil Bhatia, President and CEO, JMD Manufacturing Inc.
JMD Manufacturing has been using offshore service providers, mostly in India, for R&D since the mid-1990s, says Bhatia. “For the last 10 years the Indian government has been pushing into new product development, R&D and exports, so this fits into the goals of the Indian government, and meets our goals of not having to spend too much money on developing products,” says Bhatia.” India seemed like a natural place for us to start developing products.”
He declines to identify the service providers JMD is working with, but says the relationships have been successful, and the company has developed 12 to 15 of its new products as a result of R&D efforts in India. One of the areas JMD is focusing on with new development efforts in India is RFID used in combination with nanotechnology, particularly as a technology to prevent the counterfeiting of products.
