UNIT: 4 Grlebal Zimovation 3 Knowledge Ml2nagcavce vt Sass Global innovation The ability to create and quickly diffuse new produets and processes is one of the main benefits of global management, as noted in Chapters 1 and 3. This chapter will lok at the ‘evolution of the management of innovation within multinational and global companies. starts with a presentation and criticism of the classic model known as the internation a! product life cycle, then examines the classic trade-off between centralised and distributed R&D using the case of Nestlé as an example. The issues involved in international transfer of technology will then be discussed and the chapter will end by presenting a recent model of knowledge management and transfer of best practices within global firms and ‘examining the problems of intellectual property rights At the end of the chapter one should be able to + Understand the logic and limitations of the international product life eycle + Understand different designs of global R&D networks + Understand the different *+ Understand the issues of international transfer of technology agement Issues In the global management of R&D *+ Understand knowledge management + Understand the recent development towards ‘metanational’ management of global knowledge creation, ‘+ Understand the issues in the internat nal protection of intellectual property. The international product tife cycle model In the early 1960s, Raymond Vernon proposed the theory of the Intemational Product Life Cycle (1966) to explain how product innovation and production could migrate from the country of origin ofthe innovative firms to other country subsidiaries (Figure 10.1). ‘The Intemational product life eycle theory was built on observation of the TV set industry n the 1950s and 1960s. As shown in Figure 10.1, the theory identifies three stages {im the intemational development of products and processes. In stage 1, new proets and processes are designed in the laboratories of firms located in the innovative county. la the 1950s in the TV set industry, the innovative countey was the United States. RCA, Zenith, General Hectric and Motorola were the innovators and, at this stage, the products were designed in the United States for the US market. Some production was exported, mainlyor MANAGING GLOBALLY. {pve Couniry Product ‘Socone-Tir County Product Develosing he Gye Ute Cys Precuet SS oo Lie Oyele Stage One INNOVATION lenavative tks eeate new prods and processes it stage Two FOREIGN PRODUCTION Seoondter county Stage Thvoo TRANSFER Developing country Suosclanos eceie products! subsidanes receive products! Petry gongh an” processes fominmovatore processes rom navator vencad nGustiiced ‘and produce for local {a prose fo ocal masks county mancts fd lobal marks tow cost Figure 10:1 The intationsl produc fe yee 260s), some production was moved to industrialised countries het utulet the form of local subsidiaries of the innovative firms (Matsushita, SONY, Thomson, etc.) nde to the products. Finally, in stage three sak the lead in the production of TV sets, to Europe. In stage two such as Europe and Japan, firms or through technology tars Some adaptations to fit local needs were t emerging developing countries (Korea, China) es and market potentis Criticism of the international product life cycle 1, the theory failed to explain the globalisation of In spite of its simplicity and appeal innovation that took place after the 1960s. Despite the fact that R&D resources ar predominantly concentrated in developed, industrialised countries, tere no longer & tnajor difference between the United States, Japan and Europe (ee Table 10). Table 10.4 RAD capablias (2002, Coutytpe Expendiures on RED Scontsts and, Hightechnology | Patent Crear ENP Enginearsin RED export () (milion) eppicatons {oor miion people) "Residents Lowincome: 073 27 24478 $420 Urper mide 26 ase 3,000 20857 United Stats 265 4.505 94,000 17900 Europe 196 2612 267,600 T1800 Japan zi 5.068 94729 9657204 Won 228 Na 41270000 ‘60/500 va mazar (002) For owivame ours the gre ae or 200, ‘Source Wort Bak ei eve at rs pe of Pa pe . e ed th In of7 Me proaucts! ovate ‘ca markots Fat lon cost 1d countries > innovative Lmson, etc). stage three, of TY palisation of Patent ‘appleations ‘Rosen's! 5.420 20887 +79.800 71,830 365,204 60,500 or 200. Today a large variety of products are developed globally for world markets and launched at almost the same time in the key countries of America, Europe and Asia Pacific. The migration of R&D and production centres does not necessarily follow the sequential evolution predicted by the theory. Many research centres are set up where scientific and marketing resources are available, and global companies use global RED networks to develop world products, asthe following example illustrates. Global R&D networks Ina 2006 survey done jointly by Booz Allen Hamilton and INSEAD! on a sample of 186 ‘major global fis it was found that the number of foreign R&D centres located outside the home country of the parent company raised to 66 per cent in 2004 compared with 45 percent in 1975 with a recent increase of sites located in India and China, The activities ff those centres are predominantly engaged In development in order to either customise products to local markets or to concentrate on specific development while the home- country centres do the core technology research, The main motivation to set up a centre in a panicular country is the proximity to local markets and the availability of skilled personnel. Ie was also found ths research on projects involving the collaboration of multiple sites preferring to allocate specific stand-alone projects to those centres 2 eww number of companies (33 per cent) manage their Examples of giobai aetworks* Nostié Nestlé is the second larg artay of products including leading brands such as Nescafé. A Swiss multinational, Nestle was one of the frst to expand its operations worldside. With R&D expenditure of 16 per cent of sales in 2005, Nestlé invests about CHFI. billion a year, the largest amount in the entite food industry. A total of 2,400 people work in the 18 produet technical centres ‘PTCS) and RED units worldwide; an additional 1,300 belong to the 275 application ups which adapt product ideas to local markets. ‘The keystone of Nestle’ global architecture Is the Nestle Research Centre (NRC) opened in 1987 near Lausanne, which employs 670 people. The NRC creates the scientific kno‘! edge base for Nestlé It accumulates know-how in support of all sectors of activity and is ‘the hub forall Nestlé’s R&D network. Its scientists work in close and constant collabora ‘Hon with teams from 18 PTCs and R&D centres both within dhe Nestlé group and with key universities around the world. The NRC is structurce! in eight scientific research depart ‘ments, organised according to the disciplines needed for research on nutrition, foods science and food safety and quality: BioAnalytical Science, Food Science, Food/Consumer Interaction, Plant Science, Nutrition and Health, Quality and Safery, Pet Basic Research and Scientific and Nutsition Support This system is shown in Figure 10.2, We shall now discuss the benefits and constraints of global R&D, before explaining the different organisational designs for the management of the RED network food company in the word. Its portfolio eacompasses a largeUniverses ‘Teennalnstutas Companies * 7 / Figure 10.2. Nestlé Global R&D Sour Net wa te -Appleations Groups q 1,300 Pepto \ roitecue + Blosraiyical Scionces 1 Food Seances + Food Gonsumer interactions ‘Plant Seances { Nutton and Heath Ousity and Solely {Per ase Ressarch 1 Selenite ane Nuttion| Suppor a + Daiyy Water Scusinany { ohoocate and Confectionary + Cotive + Baby Food {Perfomance Ntition 1 Heats Gare Nuttin nawledge clpersonprtle for STin Hard Disk Drive elctonis \ Se |e ae \, fees (eee [feeesteoen te \\ Cea naM ] sipenbor cesar S SSS an ‘esa staged, rina) fe fl saan oe Era epaning Mayes, Sage ee i 7 | cara on ion Figure 10:3 Leveraging knowledge across borders: ST lMixoslecroics inthe Hard Drive Technology ‘Save Doe Unaisished seston (200), Reproduce in Doz, Santos ar Willson (200), Ss! STM of al soluti seatte Glo listit Bene There Re) U1) Pr yaa for wh thi Const Howev