How to Outsource R&D

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Dig Deeper: Don't Be Too Trigger-Happy with Outsourcing

How to Outsource Research and Development: The Drawbacks of Outsourcing R&D

Most U.S. businesses that outsource R&D do so to other entities in the United States, but that percentage is declining as the expanding economies of India, China, and Eastern Europe promise lower costs and a rising share of skilled workers, according to R&D Magazine. U.S. businesses are becoming increasingly sensitive to customer concerns that U.S. jobs are being shipped overseas and some firms that have outsourced functions are deciding to move them back in house.

There are other drawbacks of outsourcing R&D, as well, according to business leaders surveyed by the magazine. The top concern was over intellectual property issues and the question of whether -- particularly overseas companies -- will afford the same IP protections as you would expect in the U.S. Another top concern was whether in-house personnel actually had superior expertise and whether R&D would provide a good learning process for staff who may go on to even better things.

Other concerns that also weighed into the mix when business leaders were deciding whether to outsource R&D include the following: lack of budget, sufficient internal support, and lack of time to find an outside resource.

Dig Deeper: Is Outsourcing to China Over?

How to Outsource Research and Development: The Types of R&D

There are different ways your business can outsource R&D.

External R&D. This is usually contracted out to specialized nonprofit research institutions or to universities. These institutions often already have experienced personnel in the disciplines to be applied and are well-equipped. The disadvantages are that the company will not benefit from the learning experience and may become overly dependent on the contractor. The transfer of the technology may turn out to be difficult and leaks to competitors may develop. Using university research is sometimes slightly less expensive than engaging institutes because graduate students rather than professionals do some of the work.

Joint R&D. This became popular in the United States after antitrust laws were relaxed and tax incentives were offered to R&D consortia. In a consortium, several companies with congruent interests join together to perform R&D, either in a separate organization or in a university. The advantages are lower costs, since each company does not have to invest in similar equipment; a critical mass of researchers; and interchange of information among the sponsors. The disadvantages are that all the sponsors have access to the same R&D results. However, because of antitrust considerations, the R&D performed must be "precompetitive," legalese meaning that it must be basic and/or preliminary. A company must take joint research beyond the "joint" stage to make money on it; it can use this type of result as the foundation, not as the innovation itself.

Dig Deeper: Partnering with Your Customers on R&D

BIBLIOGRAPHY

Bock, Peter. Getting it Right: R&D Methods for Science and Engineering. Academic Press, 2001.

Dankbaar, Ben. Innovation Management in the Knowledge Economy. Imperial College Press, 2003.

Ison, C.J., and David R, Jarczyk. "Innovation in Small Businesses: Drivers of Change and Value Use." Sponsored by the U.S. Small Business Administration. March 2009. http://www.sba.gov/advo/research/rs342tot.pdf

Khurana, Anil. "Strategies for Global R&D: A study of 31 companies reveals different models and approaches to the conduct of low-cost R&D around the world." Research-Technology Management. March-April 2006.

Le Corre, Armelle, and Gerald Mischke. Innovation Game: A New Approach to Innovation Management and R&D. Springer, 2005.

Miller, William L. "Innovation Rules!" Research-Technology Management. March-April 2006.

Studt, Tim. "R&D Outsourcing Becomes More Strategic." R&D Magazine. June 2007. http://www.rdmag.com/pdf/RD0706_COS.pdf

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