Researching the differences in the flora [R&D outsourcing]

Products today rely on many different technologies. As a result, no one company can do all the necessary R&D simultaneously. No one company can keep all the relevant technologies inhouse and keep them all on the cutting-edge. In fact, the most important research a company does may be investigating possible outsourcing options. Success or failure can depend on the process developed for managing multiple external vendors. The downside is that these vendors are typically not exclusive. They are selling their products to a broad array of customers, many who could be even classified as competitors. The inevitable result is the rapid dispersion of technology. That is not all bad. The very difficulty that firms have in capturing the benefits of new knowledge for themselves alone (that is, the tendency for knowledge to spill over to other firms) is now counted as a positive force for overall economic growth. Furthermore, studies suggest that there are high rates of return to research that is widely diffused across firms and industry boundaries. This paper briefly considers the main factors in outsourcing R&D.