Outsourcing Research and Development

Essay by trudie0201University, Master'sA, May 2008

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Establishing business operations in far-flung corners of the world has become a routine challenge for many companies. The practice of locating production lines in developing markets where labor is cheap, and fast-growing markets easily accessible, is almost mundane. But manufacturing products globally is one thing: creating them is another. Until recently, much of the brainwork of the organization has been concentrated in the home market. This has been particularly true of research and development, that part of the business that is so integral to the creation of new products and innovative ideas. Now there are signs that companies are redistributing their product innovation, and in some cases even basic and applied research, across global networks.

Research and development, often referred to as R&D, is a phrase that means different things in different applications. In the world of business, research and development is the phase in a product's life that might be considered the product's 'conception'.

That is, basic science must exist to support the product's viability, and if the science is lacking, it must be discovered - this is considered the research phase. If the science exists, then turning it into a useful product is the development phase. Further terminology refinements might call it engineering to refine production so that the product can be made for a cost that appeals to consumers.

Research and development is an investment in a company's future - companies that do not spend sufficiently in R&D are often said to be 'eating the seed corn'; that is, when their current product lines become outdated and overtaken by their competitors, they will not have viable successors in the pipeline. So how much is reasonable to spend on research and development? That is highly dependent both on the technology area and how fast the market is...