Week 6 - Creating Worldwide Innovation and Learning

Question 1

Why is creating worldwide innovation and learning so important for MNEs?

Answer 1

• Competitive battles among leading-edge MNEs have shifted to their ability to link and leverage their worldwide resources and capabilities to develop and diffuse innovation.
• In today’s competitive environment, no company can assume that it can accumulate world-class knowledge and expertise by focusing only on its home-country environment, or that it can succeed just by tweaking its domestic product line.

• In addition to their traditional roles, the offshore sales subsidiaries, manufacturing operations, and R&D centers also must now:
o Become the sensors of new market trends or technological developments
o Be able to attract scarce talent and expertise
o Be able to act collectively with the parent company and other offshore units to exploit the resulting innovations worldwide, regardless of where they originated.

Question 2

Explain the center-for-global innovation model. Which strategic model does this fit with?

Answer 2

o The new opportunity was sensed in the home country
o The parent company then used its centralized resources and capabilities to create the new product or process, usually in the main R&D center
o Implementation internationally involved driving the innovation through subsidiaries whose role it was to introduce that innovation to their local market.
o Fits with companies following a “global” or “international” strategic model

Question 3

Explain the local-for-local innovation model. Which strategic model does this fit with?

Answer 3

o Responding to perceived local opportunities, subsidiaries use their own resources and capabilities to create innovative responses that are then implemented in the local market.
o Fits with companies following a “multinational” strategic model

Question 4

What is innovation?

Answer 4

Innovation is the practical application of ideas that result in different new types of new offerings, like products, services, processes, and business models, intending to improve or disrupt existing applications or creating new solutions.

Question 5

What types of innovation exist?

Answer 5

Sustaining - a significant improvement on a product that aims to sustain the position in an existing market.

Disruptive - technology or new business model that disrupts the existing market

Incremental - gradual, continuous improvements on existing products and services

Radical - technological breakthrough that transforms industries, often creates a new market.

Question 6

What is innovation offshoring? What are the advantages and disadvantages?

Answer 6

The term offshoring refers to the process of hiring or sourcing highly qualified talents across national borders to do the business task.

Advantages:

• Lower costs
• Focus on business development
• Access to skilled labour
• Reach new markets

Disadvantages:

• Lack of control over quality
• Rising labour costs
• Security concerns
• Increase in unemployment in home country

Question 7

What are some of the challenges companies face when offshoring R&D to China?

Answer 7

1. In recruiting, foreignness is becoming a liability. According to a 2017 survey, only 18% of Chinese university students want to work for a foreign company.
2. China’s intellectual property (IP) regime has been strengthened. The combination of a stronger IP regime, more capable Chinese companies, and Chinese state support for indigenous patenting poses several new challenges to how foreign companies conduct R&D.
3. Keeping advanced technology away from China comes with greater risks, but so does sharing it. MNEs generally relied on technology they created outside China to compete with foreign counterparts in China. However, rising Chinese innovation capabilities now make this strategy increasingly risky.
4. Innovation transaction costs can now jeopardize the lead. Foreign companies have long faced discriminatory regulations and uncertain government relations in China. Yet, they could innovate, while Chinese companies merely imitated. Now, Chinese companies also innovate while still avoiding many transaction costs that plague foreign companies.

Question 8

What is a locally leveraged innovation?

Answer 8

Locally leveraged innovations involve ensuring that the special resources and capabilities of each national subsidiary are available not only to that local entity but also to other MNE units worldwide.

Question 9

What is a globally linked innovation?

Answer 9

Globally linked innovations are created by pooling the resources and capabilities of many different units – typically at both the parent company and the subsidiary level – to create and manage an activity jointly.

Such innovations allow the company to take market intelligence developed in one part of the organization, perhaps link it to specialized expertise located in a second entity and a scarce resource in a third, and then eventually diffuse the new product, service, or activity worldwide.

Question 10

What are the problems associated with the following 4 models:

1. Center-for-global innovation
2. Local-for-local innovation
3. Locally leveraged innovation
4. Globally linked innovation

Answer 10

1. Center-for-global innovation - risk of market insensitivity, imperialism
2. Local-for-local innovation - risk of duplication, reinventing the wheel
3. Locally leveraged innovation - threatened by not invented-here
4. Globally linked innovation - high coordination costs

Question 11

What are the 3 methods of improving cross-border innovation activity?

Answer 11

1. Making central innovation effective
2. Making local innovations efficient
3. Making transnational processes feasible

Question 12

How can MNEs make central innovations more effective?

Answer 12

• Gain subsidiary input - create multiple personnel linkages
• Respond to different national needs - give subsidiary units resources to influence how central R&D money is spent (use of internal market mechanisms)
• Manage responsibility transfer - foster cross-functional integration

Question 13

How can MNEs make local innovations more efficient?

Answer 13

• Empower local management - disperse organizational assets and delegate authority
• Link local managers to corporate decision making processes
• Integrate subsidiary functions - encourage multi-level and cross-functional integration

Question 14

What are the 3 simplifying assumptions that have blocked progress with transnational processes?

Answer 14

1. Assumption that subsidiaries are symmetrical
2. Assumption that HQ-subsidiary relationship is based on an unambiguous pattern of dependence/independence
3. Assumption that corporate management exercises decision-making and control uniformly

Question 15

How can MNEs make transnational innovation feasible?

Answer 15

From symmetry to differentiation - demands for integration and responsiveness need to be addressed separately for each product, function, and geographic region

From dependence/independence to interdependence - implementation of an integrated network and inter-unit integration mechanisms

From simple control to flexible coordination - complex coordination of the flow of goods, resources, and knowledge: formalization, centralization, and socialization process

Question 16

What is reverse innovation?

Answer 16

Reverse innovation is the process whereby goods developed as inexpensive models to meet the needs of developing nations are then repackaged as low-cost innovative goods for Western buyers.