Managing Globalization of R&D : Organizing for Offshoring Innovation

This article analyzes the challenges brought about by the globalization of innovative activity to the science and practice of management. The task of matching organization structure and management practices to the needs of R&D offshoring is analyzed through a set of dichotomous pairs of concepts: a) Drastic vs. Gradual and Systemic vs. Autonomous Innovation, 2) High vs. Low Skill Specificity, 3) Input Markets vs. Output Markets, 4) Intra-Firm vs. Arms Length Offshoring. In the trade-off between markets and hierarchies, the firms often come down on the side of the latter when it comes to the setting up of R&D facilities abroad. Organizational directives and internalization, i.e. intra-firm offshoring can trump market incentives and foreign outsourcing, when it comes to the uncertain returns from innovative activity, particularly in the case of drastic innovations and high skill specificity. Globalization has led to dispersed markets and firms have responded with dispersed locations of core assets, creating competence clusters all over the world, and the innovative firm of the future will restructure each individual cell, the basic building block of the firm consisting of an occupation devoted to a product, and redeploy and relocate them globally, where it is most advantageous