Offshoring research and development

By Susan Meisinger, President and CEO, Society for Human Resource Management


The offshoring of business processes is often seen in the context of production and services. After its accession to the World Trade Organisation, China emerged as a prominent destination for production offshoring. And as rapid development in telecommunications technology expanded the possibilities of trade in services, India became a leader in this domain, although other countries are now emerging as offshore destinations.

Today, more and more companies are offshoring projects requiring highly developed skills—research and development disciplines, in particular—to expanding economies with strong education systems and growing numbers of scientists and engineers, such as China and India.

The original economic logic behind offshoring was to reduce costs. But contrary to popular belief, lower cost isn’t the chief factor driving organizations to locate their research and development operations in foreign countries. According to a 2006 study sponsored by the Ewing Marion Kauffman Foundation, the quality of available R&D personnel and opportunities for university collaboration are often more important factors than cost.

Survey respondents said that lower labor costs in emerging markets are not the major reason for hiring researchers overseas, though they are a consideration. Tax incentives do not matter much, they also said. Organizations—particularly those engaged in high technology or scientific development—want to develop close relationships with leading universities to work with professors and hire promising graduates.  Maintaining a competitive advantage in research and development, the study concluded, requires an environment that fosters the formation of a high-quality workforce and productive collaboration between corporations and universities.

In the survey of more than 200 multinational corporations on their research center decisions, 38 percent said they planned to “change substantially” the worldwide distribution of their research and development work over the next three years—with the booming markets of China and India, and their world-class scientists, attracting the greatest increase in R&D projects.

The companies surveyed, including such well-known firms as Dow Chemical, Hewlett-Packard, and IBM, were from the United States and Western Europe, and represented 15 industries. The study concluded there was no statistically significant difference between the American and European companies. Whether placing research centers in their home countries or overseas, companies often use similar criteria. The quality of scientists and engineers and their proximity to research centers are crucial.

While analyzing an emerging trend in the offshoring of business functions, the study also underscored a fact of modern business life—that multinational organizations are global shoppers for talent.

It also brings into focus a new challenge for human resource professionals. R&D facilities require talent steeped in scientific disciplines, a circumstance that will require staffing managers to become familiar with their organizations’ research environments as well as the skills, goals and expectations of research specialists.  For example, compensation levels for both experienced and entry-level researchers are generally higher than those for workers in other technological fields.  According to R&D Magazine’s 2007 Career Survey, scientists and engineers working in research labs saw their salaries improve by nearly twice the inflation rate on average in 2006, while receiving substantial bonuses over the same period for their work.

The same survey said that the ability to work independently was one of the most important job factors for researchers and that they were attracted a by variety of projects and the opportunity to solve challenging problems.  Survey respondents also stressed that their employer’s commitment to research and a lack of bureaucratic restraint were also important job considerations.  Staffing professionals must be able to assure candidates that their organizations will meet these expectations.

And, since much of this staffing activity is increasingly taking place offshore, HR professionals must also become familiar with widely varying local laws and customs.  Such are the realities of operating in today’s global business environment.