2013-02-28

Time to Capture the Momentum – Drivers and Effects of Swedish Companies' Establishment of R&D in India

Under hösten 2012 utförde Rasmus Jönsson och Kajsa Olofsson från Linköpings universitet sitt examensarbete vid Tillväxtanalys kontor i New Delhi och inom ramen för myndighetens uppdrag kring Globala värdekedjor.

The globalisation of markets paired with mature home markets have a great impact on the case companies’ decision to expand their R&D to new and faster growing markets such as India, to keep a forward going momentum and further the expansion of the company. As the companies grow internationally they also need more R&D staff to keep their technological edge and also to be able to find and answer to the local demand. The fairly large increase of employed workforce is hard to facilitate by the number of viable personnel available in the home market and is more easily carried out in countries with a higher amount of engineers.

Cost benefits are deemed a major factor for general expansion of jobs to lower cost countries, but when it comes to high value functions like R&D the cost factor’s importance decrease and is replaced by the need for skilled labour and knowledge resources that can, and will cost more as long as the resulting outcomes provide high quality. This is the case with India, where well educated labour like engineers exist in abundance and is, generally  cheaper than in the western world. The Indian market is deemed very important both now and in the future, so R&D departments are set up in India to gain access to the domestic market. As the Indian culture and market climate is so different from the home conditions there is also a need for local R&D and access to local market knowledge to be able to properly utilize this market’s potential. The country specific business conditions are seen as mostly favourable in India and the regional Indian  authorities are actively trying to get foreign companies to India by offering attractive business conditions.

The Indian R&D is of an increasing importance for Swedish companies, even if it’s still on a smaller scale compared to the work being done in more mature markets. Research is generally kept close to the headquarters while development activities tend to be more scattered and both case companies have large scale development activities in India. The future is predicted to be much more global and decentralized for large companies, even on a management level. While strategic hubs will be maintained in countries of origin there are plans to decentralize strategic operations like R&D to better utilize the different knowledge bases around the world. The usage of IT-systems decreases the relevance of geographical localisation of R&D worldwide - another factor that facilitates a decentralized workspace. Important to have in mind is that an expansion or R&D in India does not automatically mean a reduction of these activities in Sweden, a country that after all is quite well prepared to face the new challenges the future will bring.

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