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Friday, March 11, 2005

Orchestrating Global Innovation Networks

(Via Businessweek) Names like HTC,Flextronics,Cellon, Quanta Computer, Premier Imaging, Wipro Technologies,and Compal Electronics, are fast emerging as hidden powers of the technology industry,They are the vanguard of the next step in outsourcing - of innovation itself. When Western corporations began selling their factories and farming out manufacturing in the '80s and '90s to boost efficiency and focus their energies, most insisted all the important research and development would remain in-house.

The likes of Dell,Motorola,and Philips are buying complete designs of some digital devices from Asian developers, tweaking them to their own specifications, and slapping on their own brand names. It's not just cell phones. Asian contract manufacturers and independent design houses have become forces in nearly every tech device, from laptops and high-definition TVs to MP3 music players and digital cameras. The reigning view - "Customers used to participate in design two or three years back - but starting last year, many just take our product. Because of price competition, they have to."

The search for offshore help with innovation is spreading to nearly every corner of the economy., Boeing Co. (said it is working with India's HCL Technologies to co-develop software for everything from the navigation systems and landing gear to the cockpit controls for its upcoming 7E7 Dreamliner jet. Pharmaceutical giants such as GlaxoSmithKline and Eli Lilly are teaming up with Asian biotech research companies in a bid to cut the average $500 million cost of bringing a new drug to market. And Procter & Gamble Co.says it wants half of its new product ideas to be generated from outside by 2010, compared with 20% now.Underlying this trend is a growing consensus that more innovation is vital, but,current R&D spending isn't yielding enough bang for the buck. Companies either will have to cut costs or increase R&D productivity."Most leading Western companies are turning toward a new model of innovation, one that employs global networks of partners. These can include U.S. chipmakers, Taiwanese engineers, Indian software developers, and Chinese factories. IBM is even offering the smarts of its famed research labs and a new global team of 1,200 engineers to help customers develop future products using next-generation technologies. When the whole chain works in sync, there can be a dramatic leap in the speed and efficiency of product development.

The downside of getting the balance wrong, however, can be steep. Start with the danger of fostering new competitors. Another risk is that brand-name companies will lose the incentive to keep investing in new technology. The demarcation between mission-critical R&D and commodity work is sliding year by year. The implications for the global economy are immense. Countries such as India and China, where wages remain low and new engineering graduates are abundant, likely will continue to be the biggest gainers in tech employment and become increasingly important suppliers of intellectual property. Some analysts even see a new global division of labor emerging: Consultant Daniel H. Pink, author of the new book A Whole New Mind, argues that the "left brain" intellectual tasks that "are routine, computer-like, and can be boiled down to a spec sheet are migrating to where it is cheaper, thanks to Asia's rising economies and the miracle of cyberspace." The U.S. will remain strong in "right brain" work that entails "artistry, creativity, and empathy with the customer that requires being physically close to the market."

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