R&D turns polycentric

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The days when R&D was a highly centralized activity that took place at corporate headquarters are disappearing fast.

Today, companies increasingly recognize that innovation needs to take place close to customers, and that no R&D center or geographic region has a monopoly on good ideas.

Consistent approaches to R&D
Among our survey respondents, developed market companies and those based in rapid-growth markets take a remarkably similar approach to R&D. The proportion that conducts up to 20% of their R&D in rapid-growth markets is roughly the same, regardless of where the company is headquartered.

Level of R&D currently taking place in rapid growth markets
What percentage of your R&D currently takes place in rapid growth markets?

R&D turns polycentric
 

The highest divergence from the total is just 6%, when one might have expected developed and rapid-growth markets to take a quite different approach to the location of their R&D facilities.

It is not surprising that developed market companies conduct roughly this proportion of their R&D in rapid-growth markets. The average S&P 500 company earns around 10% of its revenues from rapid-growth markets, although the expectation is that this will rise significantly as those economies grow in importance.

 

New ideas from developed markets
What is perhaps slightly more surprising is that around one-third of rapid-growth market companies conduct such a small proportion of their R&D locally. This suggests that they are sourcing a significant quantity of new ideas from developed markets, on the basis that these remain highly important engineering centers and powerhouses for innovation.

 

 

Innovation, then is becoming polycentric
Companies recognize that they must combine the best that developed and rapid-growth markets have to offer and bring together ideas from around the world to create a new dynamic for innovation.

Proximity to customers is important, but so too is the ability to share capabilities and resources across markets. This means that the management of innovation, and the creation of global networks of R&D centers, is becoming just as important as the ideas themselves. Companies need to consider how they link R&D centers, how they create a culture that encourages the sharing of ideas, and how they rotate employees between centers to allow the dissemination of knowledge around the world.