The growth and management of R&D outsourcing: evidence from UK pharmaceuticals

Abstract

Outsourcing of research and development (R&D) activities has become a major management issue for R&D and technical managers within firms. It has also been of growing concern to academics who are trying to chart the implications of the increasingly distributed nature of research and innovative activities in advanced economies. This study is based on a survey of research-based pharmaceutical companies operating in the United Kingdom conducted in [2004][2005][2006]. The aim of this paper is to outline the main reasons for pharmaceutical firms to outsource R&D and the management practices followed by such companies in relation to outsourcing. The research results provide interesting findings in relation to, for example, the reasons behind outsourcing, the decision-making processes behind such practices and barriers to outsourcing arrangements. These issues are evaluated together with the characteristics of the firms and the specific project outsourced. The distinctive nature of R&D outsourcingAlthough there are a number of generic issues and strategies that firms need to be aware of in R&D Management 38, 2,

Corporate decision-making in R&D outsourcing and the impact on internal R&D employment intensity

“…Empirical evidence reveals that R&D outsourcing is driven by the lack of in-house R&D and technical expertise, followed by the reduction of development time and time to market (Howells et al, 2004(Howells et al, , 2008. Reducing development costs ranked only in third place, followed with some distance by the reduction of risk (see also Mehta and Peters, 2007) and uncertainty by sharing R&D with another (set of) partner(s).…”

“…Other firm characteristics included are exports (average share of turnover realised outside the home country); the share of research expenditures in the total R&D budget (see e.g. Howells et al, 2008); the ratio of R&D that is outsourced to total R&D expenditures; and the share of R&D personnel in total employment at the beginning of the period under consideration (i.e. t-1).…”

“…Outsourcing activities spur a heated debate among economists and the public at large (Chesbrough, 2003;Howells et al, 2008). Not that buying goods and services from suppliers is something new, but because surging outsourcing (off shoring) is feared to displace domestic employment.…”

International R&D service outsourcing by technology-intensive firms: Whether and where?

“…Second, firms are increasingly outsourcing innovating activities offshore, not only to providers located in developed countries but also to those in developing ones (Bunyaratavej, Hahn, & Doh, 2007;Doh, 2005;Dossani & Kenney, 2007;Javalgi, Dixit, & Scherer, 2009;Jensen, 2009;Kedia & Mukherjee, 2009;Kotabe & Mudambi, 2009;Mol, Pauwels, Matthyssens, & Quintens, 2004;Mol, van Tulder, & Beije, 2005;Un, 2009). 3 As a consequence, the R&D function is being disintegrated into different technologically separable R&D services (Fosfuri & Roca, 2002;Gottfredson et al, 2005;Howells et al, 2008) that can be performed in different locations either by the firm or by an external contractor (Arora & Gambardella, 2005;Hirshfeld & Schmid, 2005;Levy, 2005;Lewin & Peeters, 2006;Lewin, Massini, & Peeters, 2009;Manning, Massini & Lewin, 2008;Maskell, Pedersen, Petersen, & Dick-Nielsen, 2007). Therefore, firms need to search for the optimal governance (outsourcing versus internal development) and geographical location (offshoring versus domestic) of each of the activities or R&D services within their value chain.…”

“…First, they are increasing the range of activities along the value chain that are outsourced (Gilley & Rasheed, 2000;Hätonen & Eriksson, 2009;Hitt, Keats, & De Marie, 1998;Jacobides, 2005;Kotabe & Murray, 2004;Quinn & Hilmer, 1994) including areas that were traditionally vertically integrated, such as those related to the innovation process (Cesaroni, 2004;Gooroochurn & Hanley, 2007;Granstrand, Patel, & Pavitt, 1997;Howells, Gagliardi, & Malik, 2008;Leiblein, Reuer, & Dalsace, 2002;Manning, Massini, & Lewin, 2008;Narula, 2001;Quinn, 2000;Subramaniam & Venkatraman, 2001;Tsai & Wang, 2009;UNCTAD, 2005;Veugelers, 1997). Second, firms are increasingly outsourcing innovating activities offshore, not only to providers located in developed countries but also to those in developing ones (Bunyaratavej, Hahn, & Doh, 2007;Doh, 2005;Dossani & Kenney, 2007;Javalgi, Dixit, & Scherer, 2009;Jensen, 2009;Kedia & Mukherjee, 2009;Kotabe & Mudambi, 2009;Mol, Pauwels, Matthyssens, & Quintens, 2004;Mol, van Tulder, & Beije, 2005;Un, 2009).…”