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Outsourcing and innovations
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Outsourcing manufacturing is nothing new. For decades firms have outsourced to save costs and focus on their core competencies. But today, companies are also outsourcing many professional services, including R&D, and that is new.
Close to 11% of Canadian manufacturers outsourced at least some of their R&D from 2002 to 2004. Sixty-eight percent outsourced to Canadian establishments—65% outsourced only within their own province—while close to 30% used both Canadian and foreign suppliers. Just 1.7% of outsourcing manufacturers went exclusively to establishments outside Canada.
A look at firms that are comparable in terms of size, industry, location, workforce educational attainment and other factors showed that outsourcing companies produced significantly more innovations, and were more successful in commercializing their innovations. Seventy-four percent of R&D outsourcers produced more than one innovation from 2002 to 2004, compared with 67% of non-outsourcers. Companies that produced at least five innovations in that period showed an even greater difference: 45% of firms that outsourced R&D reported five or more new innovations, compared with 37% of firms that did not outsource R&D.
An assessment of only the companies that innovated showed that while their outsourcing of R&D did not result in their producing more innovations, they did produce more world-first innovations: 24% compared with 19%. These manufacturers tended to have more of their revenue coming from innovations they were already selling. This suggests that they used R&D outsourcing as a strategy to improve competitiveness, while concentrating on innovations.
