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R&D outsourcing growing faster than total R&D spending

November 24, 2009

A report from the Center for Research in Innovation and Competition in the University of Manchester concludes, “Firms, even large multinational corporations, can no longer expect to be totally dependent on their in-house research and technology resources to maintain innovative performance.”

Contract R&D is in fact more of a necessity for SMEs, who often don’t have the wherewithal to invest heavily in setting up their own R&D facilities. In the pharma sector, where R&D spends are possibly the highest, R&D contracted to the third parties has given birth to a nascent new industry — the CRO industry.

The benefits in R&D outsourcing are the same as for any other kind of outsourcing — Access to IP, access to new specialist expertise, building new expertise, filling capability gaps, resourcing flexibility and driving change. The evidence of this can be found in the following statistics :

  • In France, the total value of externally placed R&D contracts grew by over 600% between 1983-1993, almost 21/2 times faster than R&D spending in general.
  • In Germany, while the total R&D spend between 1991-1994 varied between ca. 28.5 and 29.3 billion ECU per year, the percentage of R&D purchased from third parties, increased every consecutive year from 10.1% of total R&D spending in 1991 to 13.0% in 1994!
  • The figure for Italy for the same period (1991 to 1994) is 12.5%.

Fact is that increasingly, small and medium companies are turning into “hunters and gatherers” of technology rather than technology creators. “Globalization and increasing speed to market are causing more and more companies to review all aspects of their business efficiency, including their R&D organization and spending,” James Glover comments in a recent analysis published by the Industrial Research Institute. This for SMEs imply increasing expenditure on technology purchase from technology innovators in low cost countries.

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  2. Is China’s Economy Growing?
  3. Specialization – Name of the Game in IT Outsourcing
  4. Stock Valuations of IT Outsourcing Firms Up
  5. India & innovation: Why hasn’t India produced an Apple, Google or Microsoft?


Written by Radhika · Filed Under Outsource Blogs 

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