Mc Kinsey survey reveals the trickiness of R&D in emerging economies

Illustration by Jean-François Martin

Image by Jean-François Martin via McKinsey&Company

 

Given the recency and the scope of industries surveyed, the 3rd annual survey on Research & Development (R&D) gives high-quality insights about corporate innovation strategies. Mc Kinsey’s report shows that companies still prefer to manage R&D centrally, not only because of its high strategic value, but also because on much more pragmatic reasons like knowledge management and communication. Here’s what we found interesting.

One of the key findings is that most of R&D spending is dedicated to in-house investments (59%), much more than collaborative R&D with suppliers or academia. Very few resources (7%) are dedicated to outsourcing the process completely, which seems quite logic. Companies prefer to stay in control, that’s why they invest in R&D in emerging countries, mainly India and China. While some companies do it to achieve economies of scale (44% of companies focusing on building global product platforms indicate cited lower development costs as a reason), others localize R&D in emerging countries because it gives then better access to local consumer insights.

 

mckinsey exhibit

Image via McKinsey&Company

 

This shows different approaches to selling products in economies today. There are still a lot of companies who want to sell the exact same product in developed-economy markets than in their domestic markets. The dominant approach, however, is to adjust product features to local needs and desires (40% of respondents). Surprisingly, only 16% of respondents say their companies develop entirely new products for these markets !

Another interesting point is that companies are « not very pleased » with their R&D staff and managers. Managers of emerging-economy projects are seen as less skilled than their counterparts in developed countries, which is quite surprising. Only in « local influence »  (choosing local partnerships, for instance) do local managers score better. Furthermore, communication tools are old-fashioned: 65% of companies use telephone or video conferences and a stunning 62% still prefer face-to-face meetings (and consequently expensive travels). Only the « high-performing innovators » identified by McKinsey use knowledge management tools like central databases and global communities.

 

front illustration

Peugeot recently presented the first concept car ever designed by the brand's R&D and Style center outside of Europe, the SXC, designed at Peugeot's China Tech Center based in Shanghai (click on the image for a bigger version).

 

What can we conclude from that? Basically that companies seek growth in emerging markets, but they have difficulties to actually conduct R&D there. They seek both local consumer insights and centralized management… A difficult equation that only highly innovative companies seem to embrace !

About Yannig

Yannig was Marketing Manager at eYeka, responsible for PR, communication and research. Interested in marketing, innovation and design-related topics, he also loves to free his head by cycling, running, reading or drawing. Yannig, who holds an MSc from ESSCA School of Management and a PhD from University Paris 1 Panthéon-Sorbonne, tweets under @YannigRoth and blogs at www.yannigroth.com
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