Globalization of R&D: Leveraging Offshoring for Innovative Capability and Organizational Flexibility

Within the realm of globalization of R&D, offshoring is a relatively recent and still emerging phenomenon. Rooted in the notion of comparative advantage, offshoring of R&D involves disaggregation and global distribution of the firm’s R&D value chain activities to leverage innovation capacity of low-cost countries. Characteristically different from market- and technology-seeking globalization of R&D, offshoring is motivated by the intertwining competitive needs to gain efficiency and access knowledge resources. This study represents a systematic, grounds-up attempt to explore the terrain of the phenomenon of offshoring of R&D and its influence on the competitive advantage of firms. Specifically, going beyond structural cost savings, the research examines the link between offshoring of R&D and the firm’s innovative capability and organizational flexibility—the two most important organizational capabilities of high technology firms. Employing an interpretive approach, the research includes multiple case studies of intra-firm and inter-firm offshoring of software R&D across a range of industries. The study demonstrates that by strategically organizing and managing offshoring of R&D, firms can significantly enhance their innovative capability and organizational flexibility. The findings suggest that offshoring of R&D is a new global organizational form that not only serves as an adaptive device but also allows firms to achieve ambidexterity.