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Offshoring of R&D Activities: A Study of Swedish Companies’ R&D Activities in China with Focus on Drivers, Barriers, Practices and Performanc

Hafström, Linna LU and Max, Anna (2009) MTT920 20082
Packaging Logistics
Abstract
An emerging trend among manufacturing companies in Sweden is “offshoring of research and development (R&D)”, which means knowledge sourcing from low-cost countries. There is a substantial and growing pool of high-skilled people in low-cost countries, resulting in companies increasingly going to where the talent is. However, management and implications of R&D offshoring are not sufficiently covered by literature. The aim of this thesis is to contribute to this field by investigating offshoring of R&D activities to China by companies in Sweden, with a particular emphasis on drivers, barriers, practices, and performance.

A thorough literature review was made to gather information about offshoring of R&D in general and about offshoring of... (More)
An emerging trend among manufacturing companies in Sweden is “offshoring of research and development (R&D)”, which means knowledge sourcing from low-cost countries. There is a substantial and growing pool of high-skilled people in low-cost countries, resulting in companies increasingly going to where the talent is. However, management and implications of R&D offshoring are not sufficiently covered by literature. The aim of this thesis is to contribute to this field by investigating offshoring of R&D activities to China by companies in Sweden, with a particular emphasis on drivers, barriers, practices, and performance.

A thorough literature review was made to gather information about offshoring of R&D in general and about offshoring of R&D to China specifically. This was followed by a survey intended to identify to what extent firms in Sweden offshore R&D to China and their drivers and barriers for doing so. To gain a more in-depth understanding of drivers and barriers for firms in Sweden to offshore R&D to China, how they manage their R&D units in China, and to assess the performance of these units, five case studies were carried out.

Of the respondents in the survey, consisting of large manufacturing firms in Sweden, 9% offshore R&D to China. The data collected in the survey shows two major drivers for offshoring R&D to China: reduced cost and access to new markets. When comparing the five case study companies, two incentives for offshoring R&D to China were mentioned by all companies: cost reduction and closeness to suppliers. The other drivers revealed during the case studies divided the companies into two different groups with similar incentives for establishing R&D units in China. Group one was “market and talent driven” companies, which have broad experience in global R&D, and their initial drive was to get close to the important Chinese market. These companies are also driven by the abundance of high skilled engineers in China. The reduced cost in China was not as important to these companies as it was to the other identified group, the “low-cost and supply driven” companies. These firms consider reduced cost and closeness to suppliers to be the predominant drivers for offshoring R&D. They are not present at the Chinese market and they regard their R&D units as nodes in their Chinese supply networks. The cost cutting focus causes the second group of companies to develop their lower end products in China. The authors see a tendency that these firms experience greater barriers with the Chinese engineers’ lacking product and market knowledge compared to group one. Albeit the “market and talent driven” firms experience coordination to be a problem, the “low-cost and supply driven” firms seem to have larger problems regarding coordination and knowledge transfer between units.

The “market and talent driven” companies have extensive experience in managing international units and perform better than the “low-cost and supply driven” companies who practice more of a “trial-and-error” management strategy. Both types of firms are of the opinion that Chinese engineers have excellent technical competence but are short on product, market, and quality knowledge. The R&D units in China are time efficient and have very low development costs. These results correspond well with what firms included in the survey analysis perceived. Surprisingly, the employee turnover rate at all case study firms is around 5%, which is low compared to typical levels mentioned in literature.

Finally, managerial implications of the findings are discussed together with inconsistencies discovered between the results of the study and theory in the areas of employee turnover rates and problems with intellectual property rights. (Less)
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author
Hafström, Linna LU and Max, Anna
supervisor
organization
course
MTT920 20082
year
type
H2 - Master's Degree (Two Years)
subject
language
English
id
1467048
date added to LUP
2009-08-27 07:53:35
date last changed
2009-08-27 07:53:35
@misc{1467048,
  abstract     = {An emerging trend among manufacturing companies in Sweden is “offshoring of research and development (R&D)”, which means knowledge sourcing from low-cost countries. There is a substantial and growing pool of high-skilled people in low-cost countries, resulting in companies increasingly going to where the talent is. However, management and implications of R&D offshoring are not sufficiently covered by literature. The aim of this thesis is to contribute to this field by investigating offshoring of R&D activities to China by companies in Sweden, with a particular emphasis on drivers, barriers, practices, and performance.

A thorough literature review was made to gather information about offshoring of R&D in general and about offshoring of R&D to China specifically. This was followed by a survey intended to identify to what extent firms in Sweden offshore R&D to China and their drivers and barriers for doing so. To gain a more in-depth understanding of drivers and barriers for firms in Sweden to offshore R&D to China, how they manage their R&D units in China, and to assess the performance of these units, five case studies were carried out. 

Of the respondents in the survey, consisting of large manufacturing firms in Sweden, 9% offshore R&D to China. The data collected in the survey shows two major drivers for offshoring R&D to China: reduced cost and access to new markets. When comparing the five case study companies, two incentives for offshoring R&D to China were mentioned by all companies: cost reduction and closeness to suppliers. The other drivers revealed during the case studies divided the companies into two different groups with similar incentives for establishing R&D units in China. Group one was “market and talent driven” companies, which have broad experience in global R&D, and their initial drive was to get close to the important Chinese market. These companies are also driven by the abundance of high skilled engineers in China. The reduced cost in China was not as important to these companies as it was to the other identified group, the “low-cost and supply driven” companies. These firms consider reduced cost and closeness to suppliers to be the predominant drivers for offshoring R&D. They are not present at the Chinese market and they regard their R&D units as nodes in their Chinese supply networks. The cost cutting focus causes the second group of companies to develop their lower end products in China. The authors see a tendency that these firms experience greater barriers with the Chinese engineers’ lacking product and market knowledge compared to group one. Albeit the “market and talent driven” firms experience coordination to be a problem, the “low-cost and supply driven” firms seem to have larger problems regarding coordination and knowledge transfer between units. 

The “market and talent driven” companies have extensive experience in managing international units and perform better than the “low-cost and supply driven” companies who practice more of a “trial-and-error” management strategy. Both types of firms are of the opinion that Chinese engineers have excellent technical competence but are short on product, market, and quality knowledge. The R&D units in China are time efficient and have very low development costs. These results correspond well with what firms included in the survey analysis perceived. Surprisingly, the employee turnover rate at all case study firms is around 5%, which is low compared to typical levels mentioned in literature.

Finally, managerial implications of the findings are discussed together with inconsistencies discovered between the results of the study and theory in the areas of employee turnover rates and problems with intellectual property rights.},
  author       = {Hafström, Linna and Max, Anna},
  language     = {eng},
  note         = {Student Paper},
  title        = {Offshoring of R&D Activities: A Study of Swedish Companies’ R&D Activities in China with Focus on Drivers, Barriers, Practices and Performanc},
  year         = {2009},
}