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via Harvard Business Review
By: Navi Radjou, Jaideep Prabhu, Prasad Kaipa, Simone Ahuja
We recently visited the brand-new R&D lab of Dr Reddy’s, one of India’s leading pharmaceutical firms. This lab isn’t located in Bangalore or Hyderabad (where Dr Reddy’s is headquartered) but in … Cambridge, U.K.
In 2008, Dr Reddy’s acquired Chirotech, Dow Chemical’s R&D unit, for $32 million, and in April 2011 relocated it to a new 33,000 sq. ft. facility in Cambridge Science Park. Chirotech specializes in biocatalysis and chemocatalysis, two important subspecialties of biotechnology and chemistry that help develop key biological and chemical intermediates needed for the efficient production of medicines. Dr Reddy’s plan is to leverage Chirotech’s scientific capabilities to optimize drug development processes, thus lowering manufacturing costs and speeding time-to-market. In doing so, Dr Reddy’s strengthens its core generic drugs business and boosts the custom manufacturing services it provides to Big Pharma and nimble biotech startups.
In prior blog posts, we have described how Western multinationals such as Xerox and GE are embracing polycentric innovation by sourcing more R&D capabilities from emerging markets such as India and China and integrating them into a synergistic global innovation network. In recent years, Indian firms such as Dr Reddy’s have also started globalizing their R&D footprint by moving into Western markets. They have been tapping into the sophisticated technical and scientific talent available in Western economies as part of their strategy to access international markets and build global brands.
Besides Dr Reddy’s, several leading Indian firms are pioneering polycentric innovation:
Tata Motors. While the $2000 Nano car was mostly developed in India, Tata Motor’s Indica Vista Electric Vehicle and the Pixel city car were primarily designed and built by the Tata Motors European Technical Centre (TMETC) in Coventry, U.K., in close partnership with the University of Warwick. TMETC, which was established in 2005, got a big talent boost when Tata Motors acquired Jaguar and Land Rover in 2008.
Suzlon. The world’s eighth-largest wind turbine manufacturer may be headquartered in Pune, India, but its main R&D centers are located in the Netherlands, Germany, and Denmark, nations that actively promote wind energy and boast a huge talent pool. Suzlon recently completed its acquisition of Germany-based REpower Systems, gaining access to cutting-edge expertise in aerodynamics and electronics.
Reliance MediaWorks. This media powerhouse offers creative and production services as well as cutting-edge post-production services to such films as Avatar and The Curious Case of Benjamin Button. To best leverage worldwide creative talent, Reliance MediaWorks operates a global network of creative centers located in Burbank, San Francisco, London, Tokyo, and across India.
TCS. Asia’s largest IT service provider has built what it calls a global Co-Innovation Network (COIN), which includes technology partnerships with startups and VC firms in Silicon Valley as well as academic tie-ups with leading American universities such as MIT, Georgia Tech, and Stanford.
Having extensively interacted with the leaders of these organizations, we find that Indian firms have developed several best practices around how to implement polycentric innovation effectively:
Cultivate a polycentric mindset to make global innovation work. Polycentric innovation won’t work in organizations that promote groupthink. The Indian firms we studied promote diversity in their R&D management by hiring external talent to build and oversee their global innovation network. Tata Motors appointed Tim Leverthon, who previously led R&D at BMW, as head of its global R&D. Suzlon’s head of technology is John O’Halloran, a former Cummins Engine executive who now leads Suzlon’s 500-strong global R&D team out of Hamburg.
Decentralize and empower global R&D units. You can’t run your global R&D operations from headquarters in Mumbai. The Indian firms we worked with strive to empower their regional R&D units. TMETC has full operational autonomy even though it collaborates closely with Tata Motors’ Indian R&D unit. Reliance MediaWorks’ global creative network is highly decentralized, allowing each design studio head in the U.S. and the U.K. to make independent decisions that best serve local customer needs.
Communicate constantly to break down cultural barriers. Cultural differences can severely hamper cooperation between Western and Eastern engineers. Constant communication across geographically dispersed teams is vital to keep creative synergies flowing in a global R&D network. The senior leaders of the Indian firms we examined regularly meet with their global R&D units to ensure they feel part of a ‘global family,’ as Ravi Kant, Vice Chairman of Tata Motors, puts it.
Integrate with local innovation ecosystems. Building a global innovation network doesn’t just mean opening R&D labs all over the world. It also means integrating yourself into local innovation ecosystems. That’s why Tata Motors collaborates extensively with the University of Warwick in the U.K. while Suzlon has forged partnerships with Delft University in the Netherlands and the Fraunhofer Gesellschaft and the University of Kiel in Germany.
Leverage global talent to move up the value chain while defending core business for now. It is commonly believed that emerging market companies tap Western R&D talent in order to ‘move up the value chain.’ That is certainly true in the case of Tata Motors, which is using TMETC to develop its electric car, and Reliance MediaWorks, which is leveraging its studios in California and London for high-end work. At the same time, these companies are using foreign expertise to bolster their core business as well. Some TCS academic alliances in the U.S. are aimed at finding ways to lower the cost of its core activities like software testing. And Dr Reddy’s is using Chirotech’s talent to make its generic drug business more cost-competitive rather than develop new branded drugs.
In an increasingly polycentric world, the battle between incumbent Western multinationals and up-and-coming Eastern multinationals will be fought around who is best at integrating and driving synergies across globally-distributed R&D networks. Moreover, Western and Eastern firms come to this battle with different assets and backgrounds. Western firms are masters of structured approaches to innovation that deliver scale and efficiency. Eastern firms excel at more frugal and flexible forms of innovation. In a global market that includes both affluent and mass market consumers, and in a world of polycentric innovation, firms will need to master and integrate both structured and flexible approaches to innovation. It will be interesting to see which firms turn out to be best at seamlessly integrating both approaches into a new paradigm for a polycentric world.
Is your company globalizing R&D? How are you preparing for the world of polycentric innovation? Do you have examples of companies that are innovating wisely across geographies? Please share with us your stories, challenges and best practices.