Sunday, May 28, 2006

Outsourcing Innovation

A new study by Booz Allen Hamilton and INSEAD suggests that companies are increasingly outsourcing research and innovation to foreign markets.

Although the R&D activities of companies based in Western Europe are the most dispersed, North American companies have been increasing their outsourcing activity. Not surprisingly, most of the R&D activity from the U.S. seems to be heading to China and India.

The report finds that industries where knowledge is codified (i.e. expressed in a way that can easily be passed on to others; as opposed to tacit knowledge) are those that are most likely to be outsourced.

I was curious about the implications of innovation in a market where the intellectual property rights regime is weak. Since qualified workers are one of the reasons companies cite for outsourcing, I am also intrigued by possibilities of transferring tacit knowledge between workers. Would on-site training be sufficient? How do technological/manufacturing/scientific approaches that differ across countries influence R&D?

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