"Innovation Shift" to the Emerging Economies: Cases From IT and Heavy Industries

Abstract

The current shift of technology development work by multinationals to the emerging economies is distinctive, as many are now observing, though less understood are the implications for innovative capacity and location. It is now high-end (rather than adaptive) development that is being carried out in countries like India, China, Brazil and Mexico. And, increasingly, multinationals from the U.S., Japan and Europe are finding themselves competing against, or working with, new technology-based companies from the emerging economies. Our study focuses on the processes and outcomes of globally distributed engineering. Field work was carried out at 67 engineering headquarters or development sites in eight countries. The firms in our study were in IT and a range of other industries, though in this paper we concentrate on the IT and heavy industries sectors. Based on our fieldwork we conclude that this new shift in the location of technology work at the top of the value chain is not only distinctive, but it is also disjunctive, not following past trajectories of offshoring. We also find that it is occurring as a matter of incremental value chain creep, rather than being guided by “strategy.” We believe current trends are inconsistent with some widely accepted postulates and prescriptions of organization and innovation theory. We find that the consequences of these trends have not been well conceptualized by managers and policy-makers.