R&D in Multinationals Professor Michele Cincera

Group Assignment

Group 10

Giuseppe Ciccone & Christian Hauschildt

Academic year 2007/2008

R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt Table of content TABLE OF CONTENT ...... 2 FIGURES ...... 2 TABLES ...... 2 THE ARTICLE ...... 3 1. Introduction ...... 3 2. Conceptual framework ...... 4 3. Data and method ...... 6 4. Questionnaire results...... 6 5. Qualitative analysis ...... 7 6. Conclusion...... 10 TOYOTA ...... 12 Innovation towards a sustainable society...... 12 R&D at TOYOTA...... 13 Facts about R&D at Toyota...... 16 Organizational tension in international R&D management: why Toyota ...... 17 R&D internationalization – Toyota Motor Corporation ...... 18 APPENDIX 1...... 22 APPENDIX 2...... 23

Figures FIGURE 1: HEADQUARTER -CENTERED MODEL ...... 4 FIGURE 2: SUBSIDIARY -CENTERED MODEL ...... 4 FIGURE 3: PERCEPTION GAP AND (DIS )SATISFACTION ...... 6 FIGURE 4: STAGES AND TRANSITIONS ...... 8 FIGURE 5 AUTONOMY-INFORMATION TRADE -OFFS ...... 9 FIGURE 6: MOBILITY , PEOPLE AND SUSTAINABILITY ...... 13 FIGURE 7: TOYOTA ’S R&D LABS AROUND THE WORLD ...... 14 FIGURE 8: R&D INTERNATIONALIZATION ...... 18

Tables TABLE 1: TENSION ACCORDING TO EVOLUTIONARY STAGE ...... 10 TABLE 2: R&D INVESTMENTS ...... 17

R&D in Multinationals - Professor Michele Cincera 2 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt Introduction Organizational tension between a company’s R&D headquarters and its internationally based R&D facilities is a relatively new and unexplored topic as internationalization of R&D facilities has only really begun over the past two to three decades, especially for Japanese companies . This paper will summarize Kazuhiro Asakawa’s article “Organizational tension in international R&D management: the case of Japanese firms” and draw out the conclusions made by author. After the summary, there is an introduction about Toyota and its R&D facilities around the world, including what the different facilities do. Finally, using the models, theory and conceptual framework from the article, Toyota’s internationalized R&D facilities are analyzed, mainly focusing on the facility in Belgium.

The Article The article is entitled “Organizational tension in international R&D management: the case of Japanese firms” and was written in 1999 by Kazuhiro Asakawa and was accepted for publication in 2000. The article summary takes a rather large amount of place in the paper as the article contains a lot of concentrated information, which has to be included in order to maintain the logic that the following sections are built upon. The article consists of six main sections; these are kept as they are in the article, because otherwise the structure of the analysis upon which the article is based would be lost:

1. Introduction 2. Conceptual framework 3. Data and Method 4. Questionnaire results 5. Qualitative analysis 6. Conclusion

The summary focuses on each of these sections separately, however in sections 3 through 5 the focus is put on the findings rather than the data collection method and the statistical analysis of the collected data, as this is viewed as irrelevant to the assignment. The article states the following:

1. Introduction Internationalization of R&D facilities and the tension that arises as a result of this is a topic that has not been explored a great deal. The recent internationalization of these R&D facilities has created severe tension between companies’ headquarters and the labs around the world. These tensions arise as a consequence of different needs from the two sides. Headquarters often wants to coordinate and control the overseas labs, where as the labs want more autonomy to encourage and create more innovative thinking and ideas. A problem arises because labs with strong internal linkages to the headquarters are focus on what is going on in the company; where as companies without this strong internal linkage often links better externally; to the local science community, which enables the lab to tap into knowledge contained within the local science communities. The lack of balance between the internal and external linkages creates autonomy-control issues between the local labs and the headquarters. If there is no linkage between the lab and the local science community, there is no point in having that international R&D facility. On the other hand, if the external link to the local science community is too strong, then the internal linkage is weak and as a result, the objectives of the company may be lost. Japanese companies have for a long time been viewed as successful in avoiding these tensions, because they have been strong ethnocentric “clans”, however when R&D is no longer in the home nation and the foreign labs are controlled and managed by locals, this streamlining of efforts and information is lost. This is particularly the case in basic research (R). The article looks at how this loss of ethnocentricity in throughout the company unleashes problems in understanding the other parts needs and wishes, both as far as autonomy and information sharing

R&D in Multinationals - Professor Michele Cincera 3 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt is concerned. Furthermore it analyses how these facilities evolve over time and how and when the tension arise.

2. Conceptual framework This section talks about the three main problems causing tension between the overseas labs and the headquarters.

Autonomy-control perspective The two extremes of autonomy-control are: 1) The headquarter-centered MNC model of global R&D linkages (Figure 1). 2) The subsidiary-centered MNC model of global R&D linkages (Figure 2).

Figure 1: Headquarter-centered model

Figure 2: Subsidiary-centered model

As it is clear from these figures, the two models are very different. In figure 1, the link between the headquarters and the subsidiary (overseas lab) is very strong, but as a result of that the links to local R&D in Multinationals - Professor Michele Cincera 4 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt research environment is weak. Whereas in figure 2 the links between the subsidiaries and the headquarters is weak but the link between the subsidiaries and the local research environment is strong. In reality most subsidiaries do not fit either model, but is somewhere in between the two. One thing that is noticeable is that on neither model the headquarters is linked directly to the external environment, so the only way for the headquarters to acquire the information obtained through the external local research environment is to get it from the subsidiaries, so information sharing becomes essential for the headquarters, this is discussed further in the next subsection. If too much autonomy is given to the subsidiaries, the links to the headquarters, becomes so weak that the subsidiaries risk becoming so emerged in the local environment that the research they do is no longer relevant to the company and on the other hand, if the links to the external environment become too weak due to too much control from the company headquarters, the point of having overseas subsidiary is lost as the knowledge in that local environment is no longer obtained and thus cannot be exploited. This leads the author of the article to propose the following: Proposition 1 1. Internationalization of R&D entails a high organizational tension between parent and local R&D labs in Japanese MNCs regarding the current degree of autonomy granted to the local labs.

Information-processing perspective This subsection states that a problem which is not directly explained by the autonomy-control issue is the level of information flowing from the headquarters to the subsidiary and from the subsidiary to the headquarters. Here uncertainty is central, uncertainty is defined as the difference between the information required to perform a task and the information possessed. Originally in Japanese companies the overseas departments and subsidiaries were ruled by routine and hierarchical referral from the head-office in Japan and these were often controlled by Japanese expat managers, who exercised lateral relations with their compatriots at home. However as the degree of autonomy needs to be higher for the overseas R&D subsidiaries, these are often not managed by Japanese expats and thus the lateral relations become weaker as the ethnocentric “clan” is dissolved. Furthermore the uncertainty is higher as Japanese companies have internationalized their R&D facilities rather quickly and thus there is more uncertainty surrounding the external environment. This lack of strong lateral relations and increased level of uncertainty creates high levels of tension between the headquarters and the overseas subsidiary. Based on this the author proposes the following: Proposition 2. Internationalization of R&D entails a high organizational tension between the parent and the local R&D labs in Japanese MNCs regarding the current degree of information- sharing between them. Though the issues of autonomy-control and level of information-sharing were identified as two distinct management challenges by De Meyer and Mizushima in 1989 no systematical analysis has been made of these two dimension simultaneously concerning the internationalization of R&D facilities. This article aims to do it.

The perception gap In order to examine the dynamics of autonomy-control and information-sharing, the perception gap is introduced as well as the level of (dis)satisfaction. The perception gap is the difference between the way the headquarters and the overseas subsidiary see the issues. The degree of (dis)satisfaction is the degree to which either of the two sides is satisfied or dissatisfied with the current situation. Figure 3 illustrates these two concepts.

1 The propositions are taken directly from the article R&D in Multinationals - Professor Michele Cincera 5 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt

Figure 3: Perception gap and (dis)satisfaction

The author further defined the two concepts mentioned in the previous section as follows: The perception gap can be observed at two levels, the perceived reality (as it is) level and the normative expectation (as it ought to be) level. This allows us to see how the parent (headquarters) and the subsidiary see the same thing differently. The author then attributes two factors to the perception gap; directionality and whether the perception gap is relaxed or tense. The directionality refers to the overall comparison of the relative scores, in other words whether the score either the headquarters or the subsidiary gives itself is higher or lower than the other does. From this, it can be determined whether the perception gap is tense or relaxed. The perception gap is relaxed if both sides rates the other higher than the other rates itself. The perception gap is tense if for example the receiver rates the amount of information it receives lower than the sender does. All the perceptions are measured independently at the director’s level. Based on the new based on these new concepts the author rephrases the two propositions from earlier as follows: Hypothesis 1 2. Internationalization of R&D entails a high perception gap between the parent and the local R&D labs in Japanese MNCs regarding the current degree of autonomy granted to local labs. Hypothesis 2. Internationalization of R&D entails a high perception gap between the parent and the local R&D labs in Japanese MNCs regarding the current degree of information-sharing between them.

3. Data and method As mentioned the summary does not focus on the statistical data and collection methods, but rather on the results found from it, so this section is omitted and the two following sections only contain the findings of the article as that is what is relevant to the assignment.

4. Questionnaire results Hypothesis one was not supported by the collected data, as the perception gap was measured to be statistically non-significant. The tendency was that the parent side felt that they controlled more than the subsidiary side felt it was being controlled. Hypothesis 2 was supported by the collected data, confirming that the parent side felt that it sent enough information to the subsidiary, but the subsidiary did not feel it received enough information. However the hypothesis was not confirmed in the other direction. So the parent did not perceive

2 Hypothesis are taken directly from the article R&D in Multinationals - Professor Michele Cincera 6 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt feel that it received as much information from the subsidiary as the subsidiary felt it sent to the parent. The analysis of dissatisfaction revealed that the subsidiary did not think it had enough autonomy, however intriguingly enough, the parent felt that the current level of control from its side was excessive and was willing to grant more autonomy to the overseas subsidiary. So in other words: here they show identical directionality; both wanting the subsidiary to have more autonomy. In spite of the subsidiary’s dissatisfaction, this means that the perception gap is relaxed as they both agree that the subsidiary should have more autonomy. Above it was determined that the perception gap was tense on both sides when it concerned information-sharing. Looking at the dissatisfaction, the subsidiary was dissatisfied with the information flow in both directions as it felt it sent too much information and received too little. However the parent agrees that it should probably send more information to the subsidiary, however on the other side disagrees as it does not feel that it receives enough information from the subsidiary. However this last disagreement from the parent’s side is statistically insignificant. So even on the information-sharing side, the parent and subsidiary agrees on the directionality, but the parent does not agree as strongly on this as it did on the autonomy side. The biggest issue found by the data, was the difference in perception when it came to the information sent from the parent to the subsidiary, where the parent feels that it sends enough information to the subsidiary, but the subsidiary does not feel it get enough information from the parent. There were differences in the perception gap in the different industries. In the automotive and mechanical industry, the perception gap in the information-sharing was tense as the subsidiary felt that it received less information than the parent felt it sent. Surprisingly the directors nationality did not affect the patterns of perception gap, so the loss of the ethnocentric “clan” was not as big an issue as assumed, showing that the local director underestimate the level of information sent from the headquarters; regardless of whether they were Japanese or not. Regarding the age of the subsidiaries, for subsidiaries with an age of 5 to 10 year, but not older or younger, the perception gap was tense when it came to information they received from the parent, they did not feel it was enough. However the parent side tends to feel that they do not receive enough information from the subsidiaries especially from the younger ones. This implies that when the subsidiaries are young they enjoy high levels of autonomy with low levels of information exchange with the parent, but as they get older, they try to re-integrate them selves into the company’s network after 5 to 10 years. As far as size is concerned the perception gap is more significant regarding both autonomy and information-sharing. This may be a sign that the larger overseas subsidiaries hold a stronger identity vis-à-vis the headquarters.

5. Qualitative analysis Qualitative interpretation of the collected data shows that there is a consensus among the interviewees on both sides that granting autonomy to the overseas subsidiaries is important. Granting autonomy is also essential when recruiting local research staff as they may have connections to the local environment, which they wish to keep. As the purpose of having overseas R&D subsidiaries is to tap into the local research environment, headquarter do not send too much organizational information to the subsidiaries, to avoid interfering with the connection to the local environment. This indicates that the headquarters are aware that information is often a tool of subtle control. This especially counts for knowledge-intensive activities like basic research. However, this is a two edged sword, in some cases the headquarters refrains from sending too much information, in order not to disturb the connection the subsidiary has with the local environment but the subsidiary then feels that it does not receive enough information from the headquarters. The data also indicated that the headquarters often does not know what kind of information the subsidiary wants and this was confirmed by both sides. Another issue is that once autonomy is given, this

R&D in Multinationals - Professor Michele Cincera 7 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt autonomy is taken for granted and the subsidiaries expect even more, especially in more short-term operational matters. However if more autonomy is granted, the subsidiary may start to feel isolated, making them seek a better linkage with the headquarters. Contradictorily, the local side attributes the lack of linkage with the headquarters to a lack of information. This illustrates well, how complex the interplay between the two factors: autonomy-control and information sharing. This analysis may however not show the entire picture, as this is only a snapshot of the situation and the situation is not static so in reality the roles and dynamics in the relationships change over time. The author divides the life and role of subsidiaries into three categories and two transitional periods; these are illustrated in figure 4. He states that the tensions are significantly stronger in the transitional periods.

Stage 1: Role of the Starter

Transition A: Dis-integration

Stage 2: Role of the Innovater

Transition B: Re-integration

Stage 3: Role of the Contributor

Figure 4: Stages 3 and Transitions

Stage 1: Role of the Starter : At this stage, the role of the lab is to manage the start-up operation of the lab as well as to institutionalize the lab’s mission and roles assigned by the corporate, with a strong support and protection by the top management.

Transition A: Dis-integration: In this transition, the subsidiary is going from being controlled strongly by the headquarters as there under the initial startup is a lot of attention given to the subsidiary and its actions, to a much more independent role, where the focus is on the interaction with the local environment. In the transition is necessary that the headquarters are willing to give the subsidiary a greater degree of autonomy, however as previously mentioned this is often understood by both sides. The problem arises when it comes to information-sharing, as too much information from the parent may lead to an insufficient linkage to the local environment, and too little can mean that the subsidiary feels isolated and the research done could become too focused on the external environment and thus not be useful to the company even if it is shared. This is where a good balance needs to be found; the subsidiary has to get enough information from the parent so they don’t become isolated, but still having sufficient autonomy to optimize the interaction with the local environment. At the same time the parent needs enough information, in order for the subsidiary to fruitful, but at the same time not require too much connectedness, potentially leading to too much control.

Stage 2: Role of the Innovator: At this stage, the role of the lab is to develop its superior capability as innovator in R&D, as well as to maximize output within the lab. For that purpose, substantial autonomy is granted to the local lab, (especially to the basic R lab).

3 The definitions of each stage is taken directly from the article R&D in Multinationals - Professor Michele Cincera 8 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt

Transition B: Re-integration: In this transition, the subsidiary has to form a greater link with the headquarters, at the cost of the strong linkage to the local environment. This creates tensions as the initiative to commence this transition comes from either side and the other side may not agree and even if it does, it may not agree on the extent of the transition and the timeline. This means that in some cases autonomy-control tensions arise. This can be caused by either side not wanting the subsidiary getting less autonomy as this means a weaker link to the external environment. The data indicates a strong inertia against reintegration of subsidiaries due to the need for more information on the one hand and for maintaining local autonomy on the other.

Stage : Role of the Contributor: At this stage, the role of the lab shifts to become a contributor of knowledge and technology developed within the lab to the rest of the company. For that purpose, internal company linkages between the local lab and the parent would increase.

Figure 5 shows the association between the dimensions of organizational tension as the autonomy- information trade-offs.

Figure 5 Autonomy-information trade-offs

Path A would be the ideal one, however realistically this path may create the problem that due to the fact that the subsidiary is highly informed, focus will be put on the information received from the parent and although such a focus would mean a better linkage with the parent, it would also mean loosing connectedness to the local environment as there with such high levels of information is an implicit pressure for conformity from the parent, thus in reality abandoning path A and following path B instead. The challenge for management is to take path C, thus obtaining high information connectivity, whilst not loosing too much autonomy (not falling too low on the y-axis in Figure 5).

The data showed dissatisfaction with from the subsidiary as they were autonomous and uninformed; looking for more connectivity in information, not understanding that the intention from the parent was to avoid interfering. This dissatisfaction was aimed at the headquarters rather than the top management, as the top management pays a large amount of attention to new overseas subsidiaries.

R&D in Multinationals - Professor Michele Cincera 9 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt However, contrary to the theory the parent did not show dissatisfaction despite the low level of information flowing from the disintegrating subsidiary. Table 14 shows the different organizational tension according to the different evolutionary stage of overseas R&D subsidiaries.

Table 1: Tension according to evolutionary stage

The data revealed that the tensions are highly dynamic, according to the stage of evolution. The perception gaps, which create the problems, emerge due to a change in the subsidiary’s role and how receptive the subsidiaries members were to this change. In some cases the headquarters tries to change the role too often and as the transition and acceptance of the new role takes time, this creates even greater tensions than otherwise. Furthermore not all local scientists etc. may want to stay when the role changes, as this changes their connectivity to the local research environment. A change in role does not change management’s perception overnight and even when the awareness of change has emerged, the resistance to accept it starts. Furthermore all this change does not happen in a vacuum, the organizational intra-firm dynamics also affects the situation along with the general business climate. In this case the change in business climate in the 80’s and 90’s led to a recession in Japan, which meant more scrutiny concerning R&D projects, which also led to a change in role for some overseas R&D facilities.

6. Conclusion Contrary to the initial prediction the perception gap was not significant in the autonomy-control dimension, which implies that in the majority of cases both sides approve of the level of autonomy

4 Taken directly from the article R&D in Multinationals - Professor Michele Cincera 10 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt held by the overseas subsidiaries. However it did show that there was a significant perception gap concerning information-sharing. The main tensions were from the subsidiaries, which felt that they got insufficient information and autonomy from the parent. The analysis upon which the article is based, identified these trends 5: 1) The perception gap was higher in electronics/electric industry than in pharmaceutical especially (as for the amount of information sent by the local labs to the headquarters). 2) Director’s nationality did not affect patterns of perception gap. 3) The local labs of five to ten years old (but not any older or younger) seem to underestimate the amount of information sent by the headquarters most. 4) The perception gap seems to be more salient in the larger labs, both in information-sharing and autonomy-control dimensions.

Furthermore based on the collected data three stages of evolution and two corresponding transitional periods in the life of overseas subsidiaries were identified. The main issue with the data collected is that it forms a static picture of the situation, but the situation is dynamic. There are other issues like taking the regional context into account and most of the fieldwork was done in Japan and Europe and not the rest of the world etc.

5 Taken directly from the article R&D in Multinationals - Professor Michele Cincera 11 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt TOYOTA 1867-2008

Kiichiro Toyoda, founder of the Toyota Motor Corporation, was born in 1894. Inheriting the spirit of invention and creation from his father, Kiichiro devoted his entire life to the manufacturing of cars, which was an unknown frontier at that time. After years of hard work, he succeeded in completing the A1 prototype vehicle in 1935. that was the beginning of the history of the Toyota Motor Corporation. Since its founding, Toyota has been aiming to enrich society through car making. The main goal is to be a "good corporate citizen," constantly winning the trust and respect of the international community. Continuing in the 21st century, Toyota aims for stable long-term growth, while striving for harmony with people, society and the environment.

Endless evolution, timeless principles Some of Toyoda’s precepts

Knowing the cultural background and features of the Japanese society, in order to understand how a Japanese company develops and interacts with the world around it, we think it is important to have a deeper insight in what are the driving values within Toyota, most of which were undoubtedly inspired by its founder.

• Honor the language and spirit of the law of every nation and undertake open and fair corporate activities to be a good corporate citizen of the world. • Respect the culture and customs of every nation and contribute to economic and social development through corporate activities in the communities. • Dedicate ourselves to providing clean and safe products and to enhancing the quality of life everywhere through all our activities. • Create and develop advanced technologies and provide outstanding products and services that fulfil the needs of customers worldwide. • Foster a corporate culture that enhances individual creativity and teamwork value, while honouring mutual trust and respect between labour and management. • Pursue growth in harmony with the global community through innovative management. • Work with business partners in research and creation to achieve stable, long-term growth and mutual benefits, while keeping ourselves open to new partnerships.

Innovation towards a sustainable society The first step that Toyota can take toward a sustainable society for the future is to conduct research and development related to its primary business, mobility technology. Toyota will realize sustainable mobility, which targets an automotive society where people and the earth live in harmony. To do so, Toyota is moving ahead with research and development that at all times takes into consideration the integrated whole of urban spaces and infrastructure, people, and mobility (figure 6). Toyota’s fundamental stance with regard to technological development is embodied by the terms “Zeronize” and “Maximize.” “Zeronize” symbolizes the vision and philosophy of its persistent efforts in minimizing the negative aspects of vehicles, such as environmental impact, traffic congestion and traffic accidents, while “Maximize” symbolizes efforts to maximize the positive aspects of vehicles, such as fun, comfort and convenience, which are desirable in automobiles.

R&D in Multinationals - Professor Michele Cincera 12 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt

Figure 6: Mobility, People and sustainability

R&D at TOYOTA In R&D, Toyota focused its efforts on three key areas: environment, safety and energy. It made a special effort in the area of the environment by expanding its line-up of hybrid vehicles, and has worked on R&D relating to plug-in hybrid. In addition, as part of Toyota’s efforts to respond to the diversification of energy, Toyota plans to introduce a flex fuel vehicle in the Brazilian market that will run on 100% bio-ethanol fuel. From this point on, based on the philosophy of providing “the right car, in the right place, at the right time,” and in accordance with the infrastructure and customer needs of each region, Toyota will continue to promote efforts to develop environmentally friendly technology and vehicles.

R&D in Multinationals - Professor Michele Cincera 13 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt

Figure 7: Toyota’s R&D labs around the world

R&D in Multinationals - Professor Michele Cincera 14 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt Asia Pacific - Japan

Head Office Technical Center Establishment: 1954 Location: Toyota City, Aichi Prefecture Activities: Planning and design of products, prototype manufacture, and vehicle evaluation.

Higashi-Fuji Technical Center Establishment: 1966 Location: Mishuku, Susono City, Shizuoka Prefecture Activities: Research and development of new vehicle technology and new engine technology.

Shibetsu Proving Ground Establishment: 1984 Location: Onnebetsu, Shibetsu City, Hokkaido Activities: Testing and evaluation of automobiles under high speeds and cold conditions.

Toyota Central Research & Development Laboratories, Inc. Establishment: 1960 Location: Aichi County, Aichi Prefecture Activities: Fundamental technical research for the Toyota Group

Thailand

Asia Pacific Engineering and Manufacturing Co, Ltd. (TMAP- EM) Establishment: 2003 Location: Samutprakan Province(Thailand) Activities: Development and evaluation of locally produced vehicles in Asia

Australia

Toyota Technical Center Asia Pacific Australia Pty. Ltd. Establishment: 2003 Location: Melbourne(Australia) Activities: Vehicle development, software development, Evaluation,

R&D in Multinationals - Professor Michele Cincera 15 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt Collection of information.

U.S.A.

Toyota Motor Engineering & Manufacturing North America, Inc. Establishment: 1977 Location: Ann Arbor, Plymouth(Michi), Torrance, Gardena(Cali), Wittmann(Ari), Washington, D.C. Activities: Vehicle development & evaluation, certification, collection of technical information.

Calty Design Research, Inc. Establishment: 1973 Location: Newport Beach(Cali) Activities: Exterior / Interior / Colour design

Europe

Toyota Motor Europe R&D/Manufacturing Establishment: 1987 Location: Belgium (Belgium), Derby (U.K.) Activities: Vehicle development & evaluation certification, collection of technical information

Toyota Europe Design Development Establishment: 2000 Location: Nice (France) Activities: Exterior / Interior / Color design

Toyota Motorsport GmbH Establishment: 1993 Location: Cologne(Germany) Activities: Development of Formula One race cars; Participation in F1 races

Facts about R&D at Toyota Toyota places a great deal of effort and resources in Research & Development. As we previously said, Toyota’s philosophy is all about continuous innovation in order to promote a more and more sustainable mobility. The R&D figures concerning Toyota

R&D in Multinationals - Professor Michele Cincera 16 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt definitely back this view, since the Japanese car manufacturer ranks 6 th in the world classification in terms of aggregate R&D spending, with a total investment of € 5423.93 million in 2005, with an increase of 10.7% compared with the previous year, as it can be seen from appendix 1. It also scores above the automobile sector average, whose increase was only 5.7%, as shown in appendix 2 As it can be seen from table 2, Toyota Motor Corporation is the third car manufacturer worldwide in terms of amount of resources invested in R&D activities, although the gap between the first top 3 companies is not significant, especially if we take into account the profitability of each of them in relation to sales.

Table 2: R&D investments

Organizational tension in international R&D management: why Toyota The reasons why we chose Toyota as the company to base our case study on are numerous. First of all, a quantitative one: in the world’s top companies it is the Japanese firm that earmarks the highest budget for Research & Development, as we already seen. Secondly, because R&D activities are a fundamental part of Toyota’s business, being the world’s most dynamic and innovative car maker. Third important point that drove our choice is due to the fact that Toyota is not mentioned in the article among the companies used for the empirical study. Therefore it is the best possible choice to build our case study on and to confront the results obtained in the article with the data and information we got for Toyota, in order to check whether the end conclusion was consistent. All this, taking into consideration that it was extremely difficult to get Japanese companies with R&D facilities in Belgium and Holland to cooperate with us, as the information we required could be rather embarrassing to them considering that what we were looking for were inefficiencies and conflicts in Japanese companies, which are normally know for their efficiency and harmony. Having to chose one even if the information was limited, we decided to go for Toyota because it is very interesting to get to know more about the way R&D is managed within Toyota, a company with a very good reputation. Enabling us to investigate the different weights that the headquarter and decentralized labs have in the R&D activities.

We will start from a very telling chart, which shows how, despite the presence of several R&D labs throughout the world, most of the patents Toyota applies for are registered in Japan and they relate to inventions that were made by Japanese scientists and researchers.

R&D in Multinationals - Professor Michele Cincera 17 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt

TOYOTA - R&D Internationalization 0,2% 0,4% 2,8%

Japan USA Germany Sweden

96,6%

Figure 8: R&D Internationalization

The chart(Figure 8) takes into consideration the last 500 patents Toyota Motor Corporation has registered all over the world. The graph speaks for itself, as only less than 3% of the patents were registered in the USA and less than 1% in Europe. The bulk of patents (96.6%) relates to R&D activity carried out in the home country’s R&D labs. Such piece of information deserves an in depth analysis, to see to what extent the Japanese R&D labs influence the R&D activities in other countries in terms of granted autonomy. Furthermore it will be interesting to find out more about to what extent central and overseas R&D labs share information among themselves, in order to boost effectiveness and performance in terms of research and innovation, core activities at Toyota. As we have seen, when it comes to decentralizing, R&D is always a complicated issue, since the central labs ideally would like to have as much control as possible over the overseas labs, while these ones would like more autonomy and independence from the headquarter.

R&D internationalization – Toyota Motor Corporation We will now briefly explain how Research & Development is carried out at Toyota, with respect to the parameters that the paper analyzes, and then we will compare the situation at Toyota with the conclusions to the article, to see if they are consistent and to try to highlight the activities, if any, in which Toyota could have a different approach in order to render its R&D activities more effective.

Autonomy-control perspective The way R&D activities are organized at Toyota reflects in full the “ Headquarter- Centred ” model described in the article, since most of the work is carried out in Japan,

R&D in Multinationals - Professor Michele Cincera 18 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt with little autonomy being left to the overseas R&D labs with respect to alternative approaches to this activity. We can make two reasonable assumptions on this issue:

• The headquarter seeks control over the activity carried out by foreign R&D labs • The overseas R&D labs struggle for more autonomy and independence

Although the current situation of significant control is more than acceptable for the central R&D centre, the same thing cannot be said for the foreign labs. There is a large central database in Japan from which the headquarter sends the relevant information to the foreign R&D labs. While the amount and quality of the data transferred depend on what kind of project the foreign lab is undertaking, usually it’s the headquarter that takes the more important decisions about it. The overseas R&D centres’ perspective is often underrated by the central labs, which still works according to the hierarchical vision, typical of the Japanese approach to business and society.

Normative expectation – how it should be. When it comes to hierarchies, it is normal for those who stay at the top of the pyramid to seek control over the others. This is also the case with Toyota (and many other firms), especially in a crucial field like Research and Development, key to Toyota’s success. Although it is understandable from the headquarters’ viewpoint, that maybe looks for the one-way of doing things, we must recognize that there are several drawbacks if we look at the situation from the overseas labs’ perspective, thee main one being that the maintain focus on the internal aspect, thus neglecting the local science environment. A higher degree of autonomy could be indeed beneficial to the whole organization, as long as foreign researchers show a high degree of creativity that could be exploited and translated into a more dynamic and effective innovation process. It is instead hindered by the limited autonomy which is granted to them.

As for the autonomy granted by the headquarter to the overseas R&D labs, the information we gathered through an unofficial interview with an employee we managed to get in touch with outside Toyota’s European centre in Brussels, highlighted that the decentralized R&D labs are indeed given very little freedom in the R&D field, as there is a main flow of information from the headquarter in Japan that influences and addresses the overall R&D activity in all the overseas labs. The problems with the information that is sent from Japan is that it more than is needed and resources are wasted in attempting to sort the information; finding what is relevant and what is not. This leads to dissatisfaction and creates a tense perception gap, since the foreign R&D centres rate very low the degree of independence which is given to them, they feel that they are hindered by the lack of autonomy and that their creativity is stifled. Hypothesis 1 is therefore confirmed with respect to Toyota, since the internationalization of R&D activities creates tension within the company, as the way things are, is not viewed as fair by those labs which are not able to exploit their human resources to full

R&D in Multinationals - Professor Michele Cincera 19 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt potential due to restrictions and autonomy limitations. Furthermore there is a risk that this also limits the attractiveness for local scientists to work for Toyota, as they would loose their close ties with the local science environment.

Information-sharing perspective The case of the Belgian R&D centre is very telling in order to understand if the perception gap is relaxed or tense in terms of how information is shared between foreign and central labs. In our interview we tried to figure out how the Belgian R&D centre looks at two different kinds of information flow:

• The flow from Belgium to Japan • The flow from Japan to Belgium

Concerning the flow of information originating in Belgium, it is viewed as fair and appropriate, both in terms of quantity and quality, at least considering the information inflow, in other words the Belgian R&D centre rates it’s outgoing information flow highly. The knowledge created here is considered as useful for both the Belgian labs and the central one in Japan. Sometimes problems in English fluency in Japan represent an obstacle to communication between the different labs, this is a problem with both directions of information flow, but as we are going to see, that is an insignificant problem compared to the other ones highlighted in this paper. Significantly different is instead the other flow of data, that from the central labs to Belgium. Quantitatively speaking, dissatisfaction characterizes the relationship between the headquarter and the foreign labs, since the amount of data the overseas labs receive is often viewed as excessive and irrelevant in comparison with what effectively needed, as previously mentioned. Furthermore, it is not perceived as fair since there is still a significant control over what type of information is finally sent by the central lab to the overseas facilities. The central Japanese R&D facility always address the activities of the foreign labs by exerting a high degree of control over the information flow, thus using information as a tool of control. Toyota fits very well into this model also in terms of the relationship between the numerous decentralized R&D labs, since all the information and data processed by them is then conveyed back to the headquarters’ data centre, where it is processed and stored, rather than being freely available to the other overseas facilities. The stored information is only made available if the central lab deems it appropriate.

Normative expectation – how it should be. In the field of Research & Development, interaction and feedback to and from local researchers is of paramount importance when it comes to decentralizing the R&D activity, that’s why we assume that information sharing within different labs is beneficial to all participants. Each overseas lab gives the best in terms of Research & Development activities when it is able to maintain contact with the local environment, in order to

R&D in Multinationals - Professor Michele Cincera 20 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt receive information about the latest technological advances from local scientists and exploit and further develop these technologies those signals. If the foreign labs are not allowed to do this, because the only information flow available comes from the central labs and in too big quantities, they feel overwhelmed and will end up missing out the opportunities that the local environment offers in terms of innovation, as the link with the central lab becomes stronger than the one to the local environment. This is a double edged sword, since by ignoring the local developments and characteristics, not only do they miss the opportunity to grow and create new knowledge, but they leave the opportunity to their competitors, giving them the chance to tap into that pool of information and knowledge available, enabling them to exploit it to Toyota’s detriment. This is where uncertainty starts to play a considerable role in the game, as a real R&D approach does not come from within the foreign labs, since the kind of information required to perform the R&D activities properly is rarely received from the central labs and the level of autonomy granted by the headquarters is insufficient to create a proper link with the local environment.

Given this scenario, we can say that the perception gap is tense between Toyota’s central and foreign labs at least in the direction from the overseas lab to the central lab, as both quantitatively and qualitatively speaking the data received by the foreign labs is viewed as useless and it is rated consistently lower than the headquarter thinks or perceives, thus confirming the Japanese classic hierarchical structure of central control over the foreign labs’ activities. Under the light that we shed on the way Research & Development information is shared within Toyota, we can say that Hypothesis 2 is confirmed. Contrary to the most common cases, it is not a lack of information, it is an overflow, thus wasting resources and implicitly forcing the overseas lab to conform with the routines and practices used by the central lab.

R&D in Multinationals - Professor Michele Cincera 21 R&D IN MULTINATIONALS Group Assignment Group 10 - 2007/2008 Giuseppe Ciccone & Christian Hauschildt

Appendix 1

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Appendix 2

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