For more than a decade, multinational enterprises from developed countries have been moving a substantial part of their research and development (R&D) activity to emerging markets such as India and China. While the location of R&D centers in other developed countries has been driven by lucrative markets or specific expertise available in the local ecosystems of those countries, the location of R&D in developing countries has been driven largely by the availability of skilled manpower at low cost. At first, these R&D centers in emerging markets operated largely as extended arms of R&D in the home country, executing well-defined projects under close supervision from headquarters.
However, the dynamics of multinationals’ R&D are rapidly changing. Emerging markets are new growth drivers of the global economy, and their unique bundle of opportunities and challenges can be a wellspring of innovation1 for a multinational company. Simultaneously, many R&D centers in emerging markets have evolved to accumulate advanced technical capabilities, leading their employees to clamor for higher-value-added work and to seek responsibility for a complete product or technology. This clamor gets louder when the R&D subsidiary is located in a country with a large local market, such as India or China.
Given these trends, R&D subsidiaries in emerging markets are uniquely positioned to play an important role in multinational companies’ innovation strategies. However, this thinking is often at odds with the dominant innovation mindset, structures, and processes within multinational companies based in developed countries. Also, the fact that the product-leadership capabilities of R&D centers in emerging markets are often not well established within the multinational enterprise creates a higher hurdle. Against this backdrop, we explore several questions: When is the subsidiary ready to take on such responsibilities? What kinds of products or technology should the subsidiary work on? How should this be developed? While many companies have struggled with these issues, a successful innovation from Cisco Systems Inc.’s R&D unit in India — a family of mobile backhaul routers, named ASR 901 aggregation services routers2 — offers insights into these questions. (See “About the Research.”)
1. “The World Turned Upside Down,” The Economist, April 15, 2010.
2. See www.cisco.com.
3. Telecom Regulatory Authority of India, “TRAI Annual Report 2009-2010” (New Delhi, India: Nov. 9, 2010).
4. KPMG and Federation of Indian Chambers of Commerce and Industry, “m-Powering India,” (New Delhi, India: Department of Telecommunication, December 2011).
5. Backhaul of a telecommunications network comprises the intermediate links between the core network and the small subnetworks at the edge of the entire hierarchical network. Definition from J. Salmelin and E. Metsälä, “Mobile Backhaul” (Chichester, U.K.: John Wiley & Sons, 2012).
6. V. Govindarajan and C. Trimble, “Reverse Innovation: Create Far From Home, Win Everywhere” (Boston, Massachusetts: Harvard Business Press, 2012).
7. “Bangalore R&D Unit Key to Us; Has Filed 800-Plus Patents: Cisco,” The Economic Times, February 8, 2015.