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R&D: In house or outsourced

I recently attended the Natural Products Expo show and really it is difficult to cover all kinds of new products that are constantly appearing. Companies are innovating so fast.  It is enough to stop in a food show to see the amount of launches that yearly happen. At the same time corporate companies struggle with the internal process, alignment and the cost that an R&D area implicates.

In other hand small entrepreneur companies have not the budget to have a sophisticated R&D group of people so they need to rely on external help.

Also it is possible to get intermediate approach where part of the R&D work is done internally and other part could be outsourced.

As it is possible that not all new launches will necessarily succeed in the market, so using outsource R&D could reduce the risk of high assets and elevated fixed cost and also the possibility of no completion success.

Some advantages of outsource is the speed to pass from an idea to prototype, other is one product one fee while you do not need to have a permanent staff.  Other is that ideas are not contaminated by the corporate thinking so the outcome could be more outside the box but also of practical application. A disadvantage of outsource is IP. IP could be a challenge if not set the terms since the beginning and it requires a good alignment and constant coordination for the activities involved.

Investing in internal R&D requires also the company to invest in assets and multiple disciplines. It is more expensive, while you can access other experts only when you need them depending on the project you are working on and count that those experts have an entrepreneurial approach. Large companies’ executives do not like the time it takes only to align internal resources so then outsource the R&D could be the right approach.

Also when ideas require new technologies for the company and they do not have them but they want to explore a more entrepreneurial approach, outsource R&D could be the right solution.

Finally there could be a situation where a strategic alliance might be required to arrive to a technology solution for each of the complementary know how and technology important for the project that the parties will provide.  Licensing technology approach is other possibility.

It is important to recognize that there is a not a single answer but the advantages and disadvantages need to be studied case by case. What is important is open your options beyond only internal approach.

One of the challenges is to find the right outsource R&D companies or individuals around the world in particular in developing countries so there is a good opportunity to create those capabilities to provide a good level of services to the companies.

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