R&D: Aligning the Interface with Production

The optimal site for a company’s R&D is not guided by the same parameters that determine its production location. Though factor costs and market proximity also play a role, access to top-caliber engineers and the nurturing vitality of a deep-rooted knowledge cluster are often the key drivers. As a result, the R&D of companies based in developed countries is currently not as globalized as production. The widening geographic gap between production and R&D means management of their interface is becoming ever more important. To what extent should companies collocate these two functions, with R&D following production abroad? The decision is always case specific. When products involve little R&D and simple manufacturing processes, collocation of production and R&D is not necessary. But with more complex products, detailed analysis is required to determine which aspects of the R&D process should remain centralized and which would benefit from collocation. Depending on local product design requirements and location-specific production technologies, various constellations are possible - from mere support of production ramp-up to wholesale transfer of product R&D. In the latter scenario, it is advisable to expand gradually from a pure production site to a center of competence with full product accountability. Future trends suggest that high-cost countries will continue to have high appeal as the locus of R&D. This is mostly due to the established knowledge clusters for specific industries, with their high density of private and public research activities, together with suppliers, customers, competitors, and venture capitalists. This mix creates a rich network that stimulates constant knowhow exchange and innovation. Inevitably, however, the landscape will change as emerging markets grow and their education standards rise. In some industries, high-cost countries will continue to dominate product development, but others will see the shift of entire clusters.