AMS IB 2024 - Session 06 Innovation & Technology PDF

International Innovation and Technology Management International Business Prof. dr. Sascha Albers [email protected] 1 Antwerp Management School | International Business | MGM 2023/24 | Albers  Objectives of this session...

International Innovation and Technology Management International Business Prof. dr. Sascha Albers [email protected] 1 Antwerp Management School | International Business | MGM 2023/24 | Albers  Objectives of this session 1. Get to know different options to design global value chains and their advantages and disadvantages 2. Get to know key issues in international technology management: configuration and coordination of the firm’s (global) R&D network 3. Understand the paradigm shift from national to transnational technology management 4. Discuss different trajectories of global innovation 2 Antwerp Management School | International Business | MGM 2023/24 | Albers  The Relevance of Global Value Chains Global value chain: “the full range of activities that firms and workers perform to bring a product from its conception to end use and beyond, that are carried out on a global scale and that can be undertaken by one or more firms” Hernandez & Pedersen (2017): 138 3 Antwerp Management School | International Business | MGM 2023/24 | Albers  Firms’ Key Decision Fields in Global Value Chain Design 1. Where to locate their activities (international location decisions) 2. How to organize their global activities (In-house, market, mixed modes)? 3. How to coordinate them globally (governance)? (Frequently review answers to (1) - (3) due to internal and external changes ) 4 Antwerp Management School | International Business | MGM 2023/24 | Albers  Location Decisions: MNE International Strategy and Value Chain Configuration 1. Transnational strategy: Globally 2 1 U.S. Belgium CH. Germany integrated value network Mexico Mexico 2. Global strategy: Globally centralized Malaysia US value chain (“centralized hub”) 3. International strategy: Home country 3 4 Belgium Denmark Belgium USA centric value chain (“coordinated Mexico Mexico federation”) Malaysia Malaysia 4. Multinational strategy: Set of isolated national chains (“decentralized federation”) 5 Antwerp Management School | International Business | MGM 2023/24 | Albers  Organization Decisions: Should a Firm Outsource Production? Question: Should a firm make or buy the component parts to go into its final product? Make-or-buy decisions are important to firms' manufacturing strategies – service firms also face make-or-buy decisions – decisions involving international markets are more complex than those involving domestic markets 6 Antwerp Management School | International Business | MGM 2023/24 | Albers  Why Make? Vertical integration - making component parts in-house 1. Lowers costs – if a firm is more efficient at that production activity than any other enterprise, manufacturing in-house makes sense 2. Facilitates investments in highly specialized assets – internal production makes sense when substantial investments in specialized assets are required 3. Protects proprietary technology – in-house production makes sense when component parts contain proprietary technology 4. Facilitates the scheduling of adjacent processes – planning, coordination, and scheduling of adjacent processes can be easier with in- house production 7 Antwerp Management School | International Business | MGM 2023/24 | Albers  Why Buy? Buying component parts from independent suppliers 1. Gives the firm greater flexibility – important when changes in exchange rates and trade barriers alter the attractiveness of various supply sources over time 2. Helps drive down the firm's cost structure – avoids challenges of coordination and control of additional subunits – avoids the lack of incentive associated with internal suppliers – avoids the difficulties with setting appropriate transfer prices 3. Helps the firm capture orders from international customers – can help firms gain orders from suppliers’ countries 8 Antwerp Management School | International Business | MGM 2023/24 | Albers  Outsourcing: A Spiral of Decline? Source: Bettis, R. A., Bradley, S. P., & Hamel, G. (1992). Outsourcing and Industrial Decline. Academy of Management Executive, 6(1), 7-22. 9 Antwerp Management School | International Business | MGM 2023/24 | Albers  An international outsourcing based explanation of industrial decline Source: Bettis, R. A., Bradley, S. P., & Hamel, G. (1992). Outsourcing and Industrial Decline. Academy of Management Executive, 6(1), 7-22. 10 Antwerp Management School | International Business | MGM 2023/24 | Albers  How to avoid the creation of competitors: The idea of the “Smile Curve” Value added Marketing, advertising, and Basic and applied brad management, special R&D, design, logistics, after-sales commercialization services Manufacturing, standardized services R&D Marketing knowledge knowledge Inputs Markets Value Chain Disaggregation Source: adapted from Mudambi, R. 2008. Location, control and innovation in knowledge-intensive industries Journal of Economic Geography, 8(5): 699-725. 11 Antwerp Management School | International Business | MGM 2023/24 | Albers  The Idea of the Global Factory: Control without Ownership 12 Antwerp Management School | International Business | MGM 2023/24 | Albers  A Global Supply Chain Needs Global Monitoring Source: https://www.youtube.com/watch?v=wl2CoRiosPw 13 Antwerp Management School | International Business | MGM 2023/24 | Albers  R&D, Invention, and Innovation Def.: Research and Development: “creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man[kind], culture, and society, and the use of this stock of knowledge to devise new applications” (OECD, as cited in Buckley et al. 2018: 454) R&D Invention Innovation 14 Antwerp Management School | International Business | MGM 2023/24 | Albers  The pharmaceutical industry is projected to spend $200bn in 2024 on R&D Source: EvaluatePharma (2018): EvaluatePharma World Preview 2018, Outlook to 2024, 11th Edition. London. 15 Antwerp Management School | International Business | MGM 2023/24 | Albers  The Role of R&D for MNE performance R&D Product Process Indirect Innovation Innovation Effects Higher sales Lower costs, Higher and market higher profits absorptive share and sales capacity Firm performance Source: Buckley et al. (2018): 459. 16 Antwerp Management School | International Business | MGM 2023/24 | Albers  Contingencies of value capture from R&D Technological and commercial success of the project Knowledge IPR and Economic leakage and appropriability benefits of R&D diffusion regimes Innovations of rivals Source: Buckley et al. (2018): 461. 17 Antwerp Management School | International Business | MGM 2023/24 | Albers  Benefits of R&D globalization (1) (2) Appropriability of Innovation Capability Innovation Exploit multiple New resources markets Increased Charge premium organizational learning prices Benefits from the Generate economies diversity of scientists of scale Source: Buckley et al. (2018): 463. 18 Antwerp Management School | International Business | MGM 2023/24 | Albers  International R&D and the MNE Key Questions 1. Configuration of R&D locations – To decide where to locate different R&D sites for what reasons – To position the firm to best take advantage of technological progress 2. Coordination (Organization) of R&D activities – To decide who will participate in technology development – To decide on the governance structure 3. Distribution of global R&D and innovation trajectories 19 Antwerp Management School | International Business | MGM 2023/24 | Albers  International R&D Key Questions 1. Configuration of R&D locations – To decide where to locate different R&D sites for what reasons – To position the firm to best take advantage of technological progress 2. Coordination (Organization) of R&D activities – To decide who will participate in technology development – To decide on the governance structure 3. Distribution of global R&D and innovation trajectories 20 Antwerp Management School | International Business | MGM 2023/24 | Albers  Example of a global R&D network: MSD Animal Health Source: https://www.merck-animal-health.com/company/our_operations.aspx 21 Antwerp Management School | International Business | MGM 2023/24 | Albers  Motives for locating R&D units Market-driven motives – Acquiring impulses for innovation through presence in lead markets – Moving technology development closer to the ‚point of sale‘ – Exploiting regulatory niches for first mover advantages – Integrating high-quality production and simultaneous engineering Science-driven motives – Access to unique resources and leading research results – Access to local research talents 22 Antwerp Management School | International Business | MGM 2023/24 | Albers  Home-base augmenting vs. home-base exploiting R&D sites How Information flows between Home-Base and Foreign R&D Sites Foreign Manufacturing Home-base- Home- Foreign R&D augmenting Home-base base environment R&D site R&D site exploiting abroad R&D site abroad Foreign Marketing Source: Kuemmerle, Walter (2001) Building Effective R&D Capabilities Abroad In Burgelman, Robert A.; Maidique, Modesto A.; Wheelwhright, Steven C.; Strategic Management of of Technology and Innovation: 3rd ed.; New York; 2001, p. 644. 23 Antwerp Management School | International Business | MGM 2023/24 | Albers  Establishing new international R&D sites Types of R&D Sites Phase 1 Phase 2 Phase 3 Location Decision Ramp-up Period Maximizing Lab Impact Home-Base-Augmenting - Select a location for its -Choose as first laboratory -Ensure the Laboratory Site scientific excellence leader a renowned local laboratory‘s active Objective of establishment: scientists with participation in the -Promote cooperation between absorbing knowledge from international experience – local scientific the company‘s senior the local scientific one who understands the community scientists and managers community, creating new dynamics of R&D at the -Exchange researchers knowledge, and new location with local university transferring it to the -Ensure enough critical laboratories an with the company‘s R&D site mass home-base lab Home-Base-Exploiting Laboratory Site Objective of establishment: - Select a location for its -Choose as first laboratory -Emphasize smooth commercializing knowledge proximity to the company’s leader an experienced relations with the by transferring it from the existing manufacturing and product-development engineer home-base lab company’s home base to marketing locations with a strong company-wide -Encourage the laboratory site abroad reputation, international -Involve middle managers employees to seek and from there to local experience, and knowledge of from other functional areas in interaction with other manufacturing and marketing and manufacturing start-up decisions corporate units beyond marketing the manufacturing and marketing units that originally sponsored the lab Source: Kuemmerle, Walter (2001) Building Effective R&D Capabilities Abroad In Burgelman, Robert A.; Maidique, Modesto A.; Wheelwhright, Steven C.; Strategic Management of of Technology and Innovation: 3rd ed.; New York; 2001, p. 644. 24 Antwerp Management School | International Business | MGM 2023/24 | Albers  From a traditional to a transnational paradigm in innovation management (1) 3. Strategic Management of R&D:  Global learning stressed  Systems of control and communication  Locally linked and globally linked 2. Decentralized R&D:  Importance of home advantages  Market size explanations  Decentralized federation  Local for local 1. Technology Transfer: ?  Centralized R&D in home country  Technology transfer units  Expatriate R&D for local adaptation  Central for global 25 Antwerp Management School | International Business | MGM 2023/24 | Albers  From a traditional to a transnational paradigm in innovation management (2) – Traditional Paradigm: One-way technology transfer Exploitation of knowledge – New transnational paradigm Intense market and technology interaction Multiple centers of knowledge (at several geographical locations) Cross-functional learning A combination of inward and outward learning 26 Antwerp Management School | International Business | MGM 2023/24 | Albers  International R&D Key Questions 1. Configuration of R&D locations – To decide where to locate different R&D sites for what reasons – To position the firm to best take advantage of technological progress 2. Coordination (Organization) of R&D activities – To decide who will participate in technology development – To decide on the governance structure 3. Distribution of global R&D and innovation trajectories 27 Antwerp Management School | International Business | MGM 2023/24 | Albers  Internal tensions in the firm 28 Antwerp Management School | International Business | MGM 2023/24 | Albers  Conflicting Organizational Implications Operating Organization Innovating Organization Structure Bureaucratic, Specialization and Flat organization without hierarchical control. division of labor. Hierarchical control. Task-oriented project teams. Processes Operating units controlled and coordinated Processes directed toward generation, selection by top management which undertakes and development of ideas. Strategic planning strategic planning, capital allocation and flexible, financial and operating controls loose. operational planning. Reward Financial compensation, promotion up the Autonomy, recognition, equity participation in Systems hierarchy, power and status symbols. new ventures. People Recruitment and selection based upon Key need is for idea operators which combine the needs of the organization structure required technical knowledge with creative for specific skills: functional and staff personality traits. Manager must act as sponsors specialists, general managers and and orchestrators. operatives. Source: Grant, Robert: Contemporary Strategy Analysis, 3. Aufl., Malden, Oxford: Blackwell, 1998. 29 Antwerp Management School | International Business | MGM 2023/24 | Albers  R&D Options (1) 30 Antwerp Management School | International Business | MGM 2023/24 | Albers  Degree of organizational control in the R&D process 31 Antwerp Management School | International Business | MGM 2023/24 | Albers  R&D Options (2) Closed system closed network Open network (internal technology development) Complete control Self organization of the partners chaos Xerox PARC Sun Jini IBM Alphaworks Linux Degree of openness to the environment Degree in stability of the system 32 Antwerp Management School | International Business | MGM 2023/24 | Albers  Innovation sources outside the firm “When the knowledge base of an industry is both complex and expanding, the locus of innovation be found in networks of learning, rather than in individual firms.“ (Powell et al, ASQ 1996) 33 Antwerp Management School | International Business | MGM 2023/24 | Albers  Potential External Innovation Sources Other Companies (Competitors) Consultants Customers National Supplier Research laboratories Other companies (not directly Universities Competing) 34 Antwerp Management School | International Business | MGM 2023/24 | Albers  The Idea of ‘Open Innovation’ Source: Henry Chesbrough, Marcel Bogers "Explicating Open Innovation: Clarifying an Emerging Paradigm for Understanding Innovation" in Henry Chesbrough, Wim Vanhaverbeke and Joel West, eds., New Frontiers in Open Innovation, Oxford : Oxford University Press, 2014. 35 Antwerp Management School | International Business | MGM 2023/24 | Albers  Generating Opportunities Parent Company Strategic Business Unit A Positioning New Ideas/ New Ideas/ Ventures Ventures Mangement Environment Business Unit B Responsibility NVD Corporate Venture Capital Business Unit C Venture Spin-Off Supporting old business units with ideas Acquisiition Building up new business unit New Venture Nurturing Business Unit Joint Venture / Alliances Internal --- Venture Management ---- External 36 Antwerp Management School | International Business | MGM 2023/24 | Albers  International R&D Key Questions 1. Configuration of R&D locations – To decide where to locate different R&D sites for what reasons – To position the firm to best take advantage of technological progress 2. Coordination (Organization) of R&D activities – To decide who will participate in technology development – To decide on the governance structure 3. Distribution of global R&D and innovation trajectories 37 Antwerp Management School | International Business | MGM 2023/24 | Albers  The global distribution of innovation activities is shifting Reasons: Big state and private investments in higher education Low wages (comparatively) for highly educated workers Return of migration engineers, scientists, managers Co-location (clustering) of local firms and support institutions Increasing significance of lead markets in Asia and Latin America Governments trading market access for technology Local enterprises circumventing intellectual property rights of foreign firms Financial resources which government agencies and enterprises can mobilise to buy technology or research teams Source: Lema, R., Quadros, R. & Schmitz, H. (2015). Reorganising global value chains and building innovation capabilities in Brazil and India. Research Policy, 44, 1376-1386. 38 Antwerp Management School | International Business | MGM 2023/24 | Albers  What do these products have in common? GE’s VScan Nokia 1100 See: https://www.youtube.com/watch?v=LJCLrf_7kYw 39 Antwerp Management School | International Business | MGM 2023/24 | Albers  Reverse Innovation Source: Govindarajan, V. & Ramamurti, R. (2011). Reverse innovation, emerging markets, and global strategy. Global Strategy Journal, 1, 191-205. 40 Antwerp Management School | International Business | MGM 2023/24 | Albers  Frugal Innovation “Do more – and better – with less” Rethinking entire production processes and business models. Companies need to squeeze costs and complexity so they can reach more customers, and accept thin profit margins to gain volume. Three ways of cost cutters for frugal innovations: – Contracting out ever more work – Using existing technology in imaginative new ways – Applying mass-production techniques in new and unexpected areas 41 Antwerp Management School | International Business | MGM 2023/24 | Albers  Traditional Trajectory of Global Innovation Advanced Economies Emerging Economies Inspired by Developed in Commercialized in Source: adapted from Prabhu, JC, Globalization of Innovation – The Challenges and Opportunities posed by emerging economies, DCGB 2014 42 Antwerp Management School | International Business | MGM 2023/24 | Albers  The 1990s: A new trajectory by Indian IT Outsourcers Advanced Economies Emerging Economies Inspired by Developed in Commercialized in Source: adapted from Prabhu, JC, Globalization of Innovation – The Challenges and Opportunities posed by emerging economies, DCGB 2014 43 Antwerp Management School | International Business | MGM 2023/24 | Albers  Reverse Innovation (as led by Western MNC) Advanced Economies Emerging Economies Inspired by Developed in Commercialized in Source: adapted from Prabhu, JC, Globalization of Innovation – The Challenges and Opportunities posed by emerging economies, DCGB 2014 44 Antwerp Management School | International Business | MGM 2023/24 | Albers  Reverse Innovation (but also by Eastern MNC building global brands) Advanced Economies Emerging Economies Inspired by Developed in Commercialized in Source: adapted from Prabhu, JC, Globalization of Innovation – The Challenges and Opportunities posed by emerging economies, DCGB 2014 45 Antwerp Management School | International Business | MGM 2023/24 | Albers  Mainstream theories and reverse innovation Source: Govindarajan, V. & Ramamurti, R. (2011). Reverse innovation, emerging markets, and global strategy. Global Strategy Journal, 1, 191-205. 46 Antwerp Management School | International Business | MGM 2023/24 | Albers  Why innovations may trickle up from poor to rich countries Source: Govindarajan, V. & Ramamurti, R. (2011). Reverse innovation, emerging markets, and global strategy. Global Strategy Journal, 1, 191-205. 47 Antwerp Management School | International Business | MGM 2023/24 | Albers  Polycentric Innovation as the next step? Advanced Economies Advanced & Emerging Economies Emerging Economies Inspired by Developed in Commercialized in Source: adapted from Prabhu, JC, Globalization of Innovation – The Challenges and Opportunities posed by emerging economies, DCGB 2014 48 Antwerp Management School | International Business | MGM 2023/24 | Albers  What do you think you should take away from this session? Take 2 minutes to reflect and note for youself 49 Antwerp Management School | International Business | MGM 2023/24 | Albers