The Importance of Regional Research and Development Networks
Regional research and development networks have numerous advantages. Applying a global R&D strategy enhances firms’ capability to tap local talents, access cheap labor, and hire regional experts at reasonable rates. Setting up regional operations encourages engineers, managers, and technicians to respond to local challenges, which leads to faster customization of product features. As a result, an organization enjoys growth, customer satisfaction, and competitive advantage. Shifting autonomy to regional centers strengthens the global presence of a firm (Thomke & Nimgade, 2002). R&D networks can integrate consumer interests during product development phases, which leads to improved features and enhanced sales. Although foreign subsidiaries are prepared to venture into new markets, applying a research and development strategy enhances corporate culture, improving work quality and productivity.
Some challenges characterize global R&D networks. For example, if a subsidiary does not break even, it transfers its losses to the parent company (Thomke & Nimgade, 2002). In addition, according to Thomke and Nimgade (2002), providing technical advice is a significant challenge to global firms. Notably, strategic guidance is important in influencing value and product quality. Still, it can be challenging since, as Lehdonvirta, Kässi, Hjorth, Barnard, and Graham (2018) illustrate, global R&D centers are characterized by the interdependence of sub-projects, coordination of cost variances, and contracting relevant employees from different locations (p. 568).
Another challenge includes the competitive working environment in that subsidiaries operate. For instance, the Indian market had competitors, such as Cisco and Lucent, looking for talented employees at better rates. Regional development centers encounter operational risks that require an effective strategy to mitigate.
Governance and Cultural Problems in the Siemens Centers
Operating an organization with subsidiaries requires an integrated approach that covers the cross-cultural, legal, and political environment. For instance, the German migration laws affected Siemens Company. The regulations were stringent for Indian software developers, and they denied entry (Thomke & Nimgade, 2002). The denial of visas and other relevant travel support to professionals from Indian subsidiaries deprived the company of an opportunity to integrate services through test runs (Thomke & Nimgade, 2002).
Experience is an important aspect of managing a business. Liou, Rao-Nicholson, and Sarpong (2018) illustrate that international organizations undergo challenges of inadequate management experience on a global assignment (p. 301). Offshore subsidiaries should develop strategies to manage stakeholders’ interests, such as employees, customers, local communities, and local governments (Liou, Rao-Nicholson & Sarpong, 2018, p. 303). Accordingly, companies should implement effective governance principles for subsidiaries and a stronger relationship with the parent organization for effective coordination and growth.
Culture and cross-cultural dynamics of people also affect the operation of international companies. For instance, although Indians and Germans had mutual respect, the German culture of strictness affected the operations (Thomke & Nimgade, 2002). Patrucco, Scalera, and Luzzini (2016) demonstrate that variations in employee cultures are a source of conflict among workers of offshore firms (p. 5). A positive culture between staff members and other stakeholders significantly influences a company’s growth and competitive advantage. Hence, integrating cultures is an important strategy for managing cultural differences in the workplace.
Since Siemens Company operated various R&D centers, it required a robust research and development department to examine markets. Industry analysis would have allowed the company to understand market dynamics and develop strategies to help identify and manage risks. For instance, if the company had anticipated migration issues, it would have been able to negotiate with the authorities to avoid such risks. In addition, Siemens would have empowered local subsidiaries with enhanced technological equipment to limit travel and hired a few expatriates to provide coaching and mentorship in the R&D centers for capacity building.
Lehdonvirta, V., Kässi, O., Hjorth, I., Barnard, H., & Graham, M. (2018). The global platform economy: A new offshoring institution enabling emerging-economy micro providers. Journal of Management, 45(2), 567-599, doi: 10.1177/0149206318786781
Liou, R. S., Rao-Nicholson, R., & Sarpong, D. (2018). What is in a name? Cross-national distances and subsidiary’s corporate visual identity change in emerging-market firms’ cross-border acquisitions. International Marketing Review, 35(2), 301-319. doi.10.1108/IMR-10-2015-0225
Patrucco, A. S., Scalera, V. G., & Luzzini, D. (2016). Risks and governance modes in offshoring decisions: Linking supply chain management and international business perspectives. Supply Chain Forum: An International Journal, 17(3), 170-182. doi:10.1080/16258312.2016.1219616
Thomke, S., & Nimgade, A. (2002). Siemens AG: Global development strategy (A). Harvard Business School, 1-27.