For more than a decade, multinational enterprises from developed countries have moved a substantial part of their R&D activity to emerging markets such as India and China. The location of R&D in developing countries was initially largely driven by the availability of skilled manpower at low cost. At first, these R&D centers in emerging markets operated primarily as extended arms of R&D in the home country, executing well-defined projects under close supervision from headquarters.
However, the dynamics of multinationals’ R&D are rapidly changing. Emerging markets are new growth drivers of the global economy, and their unique bundle of opportunities and challenges can be a wellspring of innovation for a multinational company. Simultaneously, many R&D centers in emerging markets have evolved to accumulate advanced technical capabilities, leading their employees to clamor for higher value-added work and to seek responsibility for a complete product or technology.
Given these trends, R&D subsidiaries in emerging markets are uniquely positioned to play an important role in multinational companies’ innovation strategy. However, this thinking is often at odds with the dominant innovation mindset, structures, and processes within multinational companies based in developed countries. This article advances a framework that can be used by managers in multinational companies to support the key decisions on innovating for emerging markets. The framework is based on learnings gleaned from the successful development of the ASR 901 aggregation services routers, a product family that was conceptualized and developed by Cisco’s India R&D center for emerging-market customers but was also adopted by global customers. The authors argue that managers in emerging country R&D outfits need to consider three key factors before they embark on innovation for local and similar markets: the technological capability of the R&D unit, the size and uniqueness of the market opportunity, and the presence of executive champions both at headquarters and at the subsidiary.