When deciding on investing in additional research capacity, several alternative targets exist for this investment. These are:
- own in-house research within established research laboratories;
- new research laboratory in a low-wage country;
- outsourcing to professional research companies;
- outsourcing to nearby universities;
- outsourcing to public research institutes in low-wage countries;
- outsourcing to CSI.
1. In-house research
The traditional choice after a decision has been made to expand a company’s research capacity is to do this research within the company and to hire more staff and invest in more equipment and working space.
This option has several advantages and disadvantages. It is:
- easy to implement. All that is required is to find well-qualified new staff and to order new equipment.
- easy to manage: the research is carried out close by and the researchers are easy to contact, visit and have meetings with.
- all business-sensitive information is kept in-house.
However, this alternative is expensive
- investment is high: new equipment has to be bought and new staff is to be found (which may not be that easy) and provided with working space
- fixed costs are high because of the high labour costs.
2. New research laboratory in a low-wage country
To take advantage of the low labour costs and the easily available well-educated staff of some low-wage countries, the establishment of a new research laboratory in such a country is an alternative. However, due to the high initial investment of a new (chemical) research laboratory, this is an option only for the largest multinationals. In addition, the large physical and cultural distance from the other site(s) of the company and its markets makes the research generally more difficult to manage.
3. Outsourcing to a professional research company
In recent years, several companies have been established that specialise in doing research for other companies. These are often based on the newly developed techniques of combinatorial chemistry and high-throughput screening. They offer facilities that should lead to fast discovery of new chemicals and compositions that may lead to new products by automating the research to a large degree. This means that the time from a discovery to its introduction to the market (“time to market”) is shortened, which gives a competitive advantage. Due to the large degree of automation, the investments for the research company are high and therefore their research is expensive. Another disadvantage might be that business-sensitive information is passed to a third party, but this can be taken care for by good confidentiality contracts and good confidentiality procedures within the research company.
4. Outsourcing to a nearby university
Research may be outsourced to a university, for instance by sponsoring a Ph.D. student or a post-doc. The main advantages are the possibility to create good connections to state-of the-art know-how and the somewhat lower costs. The main disadvantage is the university’s interest in publication of the results of the research, i.e. it is difficult to keep the results confidential.
5. Outsourcing to public research institutes in low-wage countries
Research may be outsourced to universities and other public research institutes in some low-wage countries. Due to the lower wages of knowledge workers in these countries, the costs of research are often much less than what it would cost to do the same research closer to home. The level of education in these countries is often very good, while the brain capacity of researchers is equal throughout the world. The economic situation of the research institutes is often such that they are quite willing to give up their desire to publish and their patent rights in order to earn some cash. However, many projects outsourced to these research institutes remain less fruitful due to the large cultural distance between the researchers and their customers: the researchers lack experience with the market economy, are unfamiliar with the requirements of commercial research and are not used to being able to spend money on consumables. The management of these projects from the customer’s site is expensive due to the travel costs and the time spent on communication by the customer’s project manager, thus loosing a large part of the cost advantage. However, management is necessary in order to get the right results and not replies to questions that were not asked.
6. Outsourcing to CSI
By outsourcing research projects to CSI, the advantages of outsourcing to a low-wage country are combined with those of outsourcing to a professional research company. CSI provides professional R&D management and fast results at low variable costs and no fixed costs.