Research and Development in the Multinational Enterprise - Term Paper Example

Research & Development in the multinational enterprise Faculty Executive Summary Globalisation and internalisation have opened avenues for marketers to reach various markets. Consumers have now various options available for their needs and buying decisions. It has opened various new markets and operation centres worldwide. The new areas offer low labour, material and other cost of operations. At the same time the different parts of the world have differences on social, economic, cultural and legal environment. It becomes very challenging for the companies to operate within different frameworks of various countries. Research and development is a strategic concern for enterprises. Through Research and development MNEs keep on meeting demands of customers and other stakeholders by better products. R&D becomes more important for the organisations into technical products like vehicle, engineering products, medicines and others. This paper studies the challenges of MNEs on the Research and Development fronts. List of Contents Executive Summary I. Introduction II. Multinational Enterprise III. Research and Development in Various Industries i. Software ii. Pharmaceutical iii. Automobile IV. Conclusion V. Reference I. Introduction Various strategic decision regarding investment, product development, market to serve and other decisions are important for any organisation to go global for its operations. Different countries offer various supports for the organisations to start their operations in their countries. There are various factors influencing the decisions of research and development in MNEs. The paper covers the Multinational Enterprise in the first section. This section deals with the various incentives and benefits of MNEs to extend their operations globally. This section also deals briefly with the challenges of MNE’s at various levels of operations. The next section deals with the literature review. Here in briefly works of previous academicians and writers are analysed. Selected industries are being discussed in the section “Research and development in various industries. The three sectors largely depending on research and development software, automobile and pharmaceutical is discussed in this section. II. Multinational Operations and Global Heterogeneity Global heterogeneity can be on the cultural, environmental, social, technological, financial, legal and political. Any Multinational enterprise faces heterogeneity at various levels of its operations from customer development to Research and development. Cultural: Every country or region has its own cultural set-up that might differ from the country of origin of the MNE. The cultural set up has influence on the business operations and the strategic decisions directly or indirectly. The attitude and perception of people change with their cultures. This can influence the work culture of organisation. For example the work culture in Japan is different from USA. In Japan a person joining a company in youth is most likely to remain associated with the same company in his old age while in US the employee are most likely to change companies with better opportunities. These things are backed by the cultures of the countries. The companies of US are more likely to have strategic decisions in their operations to keep the employees with the companies with better offers than the competitors. Environmental The overall business environment, availability of suppliers and distributors and various other factors of the environment influence the research and development strategies. The legal aspects of the business environment have impact on the research and development activities. This is more important in the case of pharmaceutical and chemical industries. The pharmaceutical companies operate in a legally compact environment. There are various rules and regulations in different countries for the same. These companies need to follow these rules and regulations religiously. Social The social set up of the country where the MNE is operating is another influencing factor. This at times impacts the overall operations of the MNE. Technological The technological advancement of the country of operations has impact on the research and development facilities. Toyota is a multinational that serves the global market. It has the Research and development facilities at Europe, US and Japan. All the three countries have offer technologically advance set-up of the operations. There is also another reason for the same. Toyota serves the markets of Europe, US and the country of origin in a major way. These markets are very demanding and mature but at the same time these offer technologically advance set-up. This helps the organisation serve the market effectively. Financial The financial factors have impact on the research and development processes. The questions related to new research and development set up is very challenging. The financial incentives, tax rebates, free economic zones, investors and others impact the new set-up decisions. The availability of short term and long term financing is another important aspect of decision-making. Legal The legal environment impacts the research and development process. The legal set up of country impacts the research and development decisions. Political The political environment influences the investment decisions. The stable political environment attracts more investors. The political stability also influences the smooth operations of the business operations. III. Literature Review There have been various studies done by academicians and management gurus for the global strategic decisions of the MNEs. The studies had been done on the areas like finance and investment decisions, innovation and adaptation, issues related to human resource management, response to changing technology and customer demands. In the year 1966 Vernon have studied the pattern of MNE’s responses and strategic decisions. To respond to change in technology and customer demand MNEs need to modify their equipment and processes. Vernon drew attention towards product lifecycle and impact of the global environment of MNE’s operations. The countries can be divided in various different parts on the basis of maturity in technology and cost of labor and investments. Countries like UK, USA, Canada, Japan on one hand offer technologically matured environment on the other hand countries like India, China offer medium to high technological setup at the lower labor and set up cost. On the other hand underdeveloped countries are also doing efforts to attract foreign direct investment to their countries to improve their economical growths. Acording to Pearce 2001 it is important for MNEs to understand the type of host countries with relevant inputs of production like labour, energy, raw material, supportive infrastructure and the cost effectiveness. This is important for the technologically matured countries as well. Sustainable development is the issue of major concerns for the companies today. Kojima (1978) has studies the welfare aspects related to the trade related activities of MNEs.The global competitiveness is increasing. Markets are getting matured. Consumers are more demanding, segmented and have various options. The open markets have opened the competition among various players in the sesame market. The competition is not just for the share of consumers pocket it is also for the resources and manpower. Dunning (1993) studied the aspects of adaptation of the MNEs. Most of the technology when transferred to some other places goes through the process of adaptation according to the other location based on the locally available inputs. The extent of the adaptation is based on the requirement for it. IV. Research and Development in Selected Industries From the strategic point of view the decisions related to the research and development is very important. The research and developments decisions have influence on finance and investment decisions. This also gets influenced by the country policies related to Export and import. The availability of relevant resources and human resource is another factor. Supply chain management, relationship with suppliers and distributors impacts on the production and distribution process. Response to changing technology and to customer demands also influences the strategic decisions regarding research and development. i. Software Software industry is one of the sectors based on research and development in a major way. In the software sector things gets outdated in every second month. Windows 98 of Microsoft will seem to be an old version of operating system. There are various different companies involve in different software developments. The outsourcing and other practices are common in the research and development of the software projects. Many countries like India and China have attracted more software companies in last few years. This was due to the infrastructure, government support with lower tax and other benefits, availability of cheap workforce and low set up cost have attracted the software giants to these countries. Apart from these attractions these countries are also a potential market. “In 1991, Microsoft® Corp. became the first software company to create its own computer-science research organization. Microsoft Research has developed into a unique entity among corporate research labs, balancing an open academic model with an effective process for transferring its research to product-development teams. Microsoft recognizes that to create the foundation for future technology breakthroughs, it is necessary to maintain independence from product groups, which enables Microsoft Research to focus on long-term (10-15 years out) computer-science research and vision that is not bound by product cycles.” The outsourcing options for the smaller modules, partial or full project is also very common in the practice of the multinational organisations in software industries. ii. Pharmaceutical This is another sector that is based on research and development. The investment requirement in the R and D of pharmaceutical companies are comparatively high. The risk factor is more. This is due to the uncertainties attached with the research of biological products. The legal set up is usually strong for pharmaceutical companies. The patent copyright, Intellectual properties rights are some of the factors impacting the strategic decisions. The policies related to export and import of pharmaceutical products are another different issues. This varies from countries to country. In the developed countries rules and legal procedures related to this can be strong and strict where in the developing countries these may be least strict. The other factor influencing Research and development decisions are the availability of talent. This particular sector requires highly skilled and trained workforce. The availability of skilled employees, training cost and other issues are another important aspect impacting the research and development strategic decisions. The supply chain management decisions are crucial. Availability of suppliers of the raw materials is also one issue of concerns. iii. Automobile Increasing competition and demands of the customers is the recent trends in the automobile sector. The emergent of the potential markets in the developing countries and the price sensitive product requirement in these countries are another issues. The automobile sector needs to invest wisely in its research and development sectors. These are done with the customer requirement studies, competitor analysis, demand of the products and services in various markets. The local market behaviour and the availability of the suppliers impact the automobile sector. The entry barriers are high in this sector but the competition among the existing players itself is high. The cost of research and development is high. The decisions pertaining to new research and development set-up is influenced by various different factors. The cost of transportation will be high in the case of automobile products. There are different government policies and regulations in various countries for the export import of the automobile, second hand vehicles, parts and other related issues. This also influences the strategic decision making in this sector. One product that is successful in one market may not be very successful in other. For example Toyota Camry is very successful in US market and but could not do well in UK markets. This was due to the cultural and lifestyle difference in these two parts of the world. The other models of Toyota were doing well in UK. Later Toyota has to change the product according the customer requirement and re-launched Toyota Camry. Knowledge management is an important tool in the automobile sector. This sector is technologically intensive sector. The competition is high and the customer preferences are changing rapidly. Globalisation and liberalization has opened several new markets for the automobile companies. The recent studies reveals that China and India are potential market for the automobile companies. These countries not only offer high growth potential but also vary in product offerings within the country due to the demographic, economic and social differences among the customer within the country. It becomes very important for the automobile companies serving these markets to have right product for right market at right time. This will happen when the information regarding customer needs and choices has been analysed properly. This information is properly transformed into technical specification and the knowledge and previous experience in the same segment (if any) is shared among the product management team. The information and knowledge can be transferred within the workplace in various ways. V. Conclusion Challenges faced by the organisations in the research and the various factors of the environment influence development of their operations. The heterogeneity is present in the culture, political legal set up, social set up, availability of investors and funding parties for that particular area, work force, management attitude and perception about the host country. These all factors influence most of the industries and organisations in the strategic decision making process. VI. Reference: Pearce, Multinationals, Export Processing Zones and Development: the Case of Mauritius. Retrieved from on 20 April 2006 http://www.aueb.gr/deos/EIBA2002.files/PAPERS/C234.pdf Vernon, R. International investment and international trade in the product cycle, Quarterly Journal of Economics, vol. 80, 1966, pp. 190-207. Piercy, Nigel F, Market Led Strategic Change, Butterworth Heinemann, 3 e, Charted Institute of Marketing Kotler, Philip, Marketing Management, Prentice-Hall Inc. New Jersy, 10th Edition, 2000 Alavi, M. and D. Leidner (2001) “Knowledge Management and Knowledge Management Systems: Conceptual Foundations and Research Issues.” Management Information Systems Quarterly 25(1): 107-136. http://www.toyota.co.jp/en/about_toyota/rd/ accessed on 19 April 2006 http://research.microsoft.com/aboutmsr/overview/default.aspx accessed on 19 April 2006 Read More