The Pros and Cons of In-House Versus Outsourced R&D Activity for Technology Firms - Essay Example

The Pros and Cons of In-House Versus Outsourced R&D Activity for Technology Firms One of the most important sectors of atechnology firm is the R & D department which can be referred to as the basis of a company’s ideas. Without it, a company is likely to go stale and lose its market to other firms with newer and better ideas, technology is a business that keeps on progressing through out the years as new advancements are made and therefore a company cannot afford rely on the same products for a long period otherwise they are bound to outmaneuvered by their rivals. R & D refers to Research and Development, and it can be described as the process of discovering new information and knowledge about a topic with the aim of creating a new product or improving the current one on the market (Parry & Roehrich, 2009). R & D is the basis behind the creation of new inventions in technology firms, and it is an ongoing process that does not stop as companies are always looking to better the products they have on the market so as to avoid being overtaken by the competition. When dealing with R & D, there are two ways that a company can go about matters; one is through doing these activities in-house while the other is outsourcing these activities to other companies. In-house refers to doing these R & D activities internally (that is, within the company) through company employees while outsourcing refers to contracting out the activities to another company who then sell back their progress and discoveries to the company in the form of services rendered. Though outsourcing has become quite popular among companies over the years there are still some organizations that prefer to keep all their activities in-house, and both (that is, outsourcing and in-house) have pros and cons that a company needs to look at before determining which is one would best suit their company (Krugman, 2006). In terms of outsourcing, there are a couple of Pros that should be taken into consideration, the first being the avoidance of various regulations that may prove to be burdensome to the company and are present in the country but not in others. These can regulations can refer to issues involving the workers where having the R & D performed in-house would mean that the organization has to concede to extra costs that are demanded by the various labor unions, for example, which may prove to be costly on the overall expenditure or may working conditions that may take a while to set up thus eating into much valued time in the process (Gordon etal 2009)The process of outsourcing allows a company to circumvent all these issues as they are no longer responsible for the workers performing the R & D activities and therefore do not have to deal with such regulations. Another Pro is the cost saving implications that outsourcing provides as in most cases it is much cheaper to outsource activities to another firm than to perform these activities in-house (Koulopoulos, 2006) This can be due to a number of reasons including the tax differences between the countries whereby the taxes in the countries where the outsourced companies are based are not as high as those found locally and therefore, they are able to charge less than it would cost to set up the activities here. These savings on money can be used in other sectors of the company that may need it meaning that the company does not have to struggle for means of acquiring this finances thus churning out a win-win situation for all. In terms of Cons with regard to outsourcing, the major one would be the weakened ability of the company to protect its information from its rivals as a result of outsourcing these activities to a foreign based firm. Ensuring that any essential discoveries made remains strictly within the company’s database and is not leaked out to any of its competitors may be difficult as the company will not have a choice but to trust the company that they have outsourced their R & D activities to and hope that they are not susceptible to leakage as the issue of the safety of information will be put of their hands. If such information is to get to a rival company by any chance, then its values will most likely decrease as a result which may lead to the company incurring losses in the process (Parry & Roehrich, 2009). Another disadvantage involves the distance between the two companies as this may lead to a number of complications in terms of co ordination such as the management methodologies that will have to be implemented as a result since the R & D department will no longer simply be one call away. This means that when dealing with issues such as communication and feedback, new structures will have to be set up global communication satellite systems and the interaction between the two sides will not be as frequent or as simple as it would have been had the R & D department been set up internally. The issue of language may also prove to be a complication as one or both sides may need to seek the help of interpreters in order to communicate clearly with one another since the outsourced company will be in a foreign based country most likely meaning the use of a different language (Koulopoulos, 2006). All these complications will result in slowing down the pace and frequency with which communication takes place between the two sides and thus slowing down the whole process as a result. Performing these R & D activities in-house also has its pros and cons as well and depending on the situation, a company may decide to go this route instead of outsourcing the work to foreign based countries. In terms of Pros, the most obvious one is the positive effect that maintaining company activities in-house will have on the economy of the country. Ensuring that R & D is performed in-house will mean that there is a creation of job vacancies in the country that would have otherwise been taken by companies outside the country meaning that the country would not benefit in terms of taxes with regard to the government or improved economic stability and growth with regard to the society (Gordon etal 2009). In-house activities mean that citizens of the country are able to get jobs leading to a reduction on the unemployment rate and improving the economy in the process. Another advantage of keeping R & D activities in-house is the maintaining control of the information and knowledge that is discovered thus ensuring that it is not leaked to rival companies. Keeping these activities in-house will reduce the risk of any essential information getting into the wrong hands as these activities will be carried out by company employees who are bound to secrecy in their contracts as well by their loyalty to the organization and thus the company’s privacy will be protected as a result (Johansson, 2008). Competition between firms has gotten to a point where companies are capable of stealing important information from one another, and thus it is important that a company does everything in its power to protect itself from any form of infiltration it may be susceptible to. Keeping R & D activities in-house is a good way of doing this. The main disadvantage involving keeping the R & D activities in-house is the cost as it would be take more money to maintain these activities internally than it would to outsource them (Jackson, 2008). This is due to factors such as the company may have to set up things like equipment and other provisions that will be needed to carry out the Research and Development as well as take into account the salary and wages that will be needed to pay the employees working in that department. References Gordon, M., Musso, C., Rebentisch, E and Gupta, N., 2009. The Path to Developing Successful New Products. New York: MIT Sloan Management Review Press. Jackson, J. K. 2008. Outsourcing and Insourcing Jobs in the U.S. Economy: Evidence Based On Foreign Investment Data. Washington, DC: Congressional Research Service. Johansson; L., 2008, The Impact of Firm’s R&D Strategy on Profit and Productivity. [online] Available at http://cesis.abe.kth.se/documents. Koulopoulos, T M. 2006. Driving Innovation and Growth through Outsourcing. Avon, MA: Platinum/Adams Media. Krugman, P., 2006. Feeling No Pain. New York Times Parry, G. and Roehrich, J.K., 2009, Strategic Outsourcing of Core Competencies In The Automotive Industry: Threat or opportunity? International Journal of Automotive Technology and Management 9(1) Read More