AN ANALYSIS OF UNILEVER THROUGH IVO ZANDER’S INNOVATION NETWORK TAXONOMY - BASED ON ARTICLE: HOW DO YOU MEAN ‘GLOBAL’? AN EMPIRICAL INVESTIGATION OF INNOVATION NETWORKS IN THE MULTINATIONAL CORPORATION By: Laura Cerri and Virpi Nieminen On April 18th, 2008 Solvay Business School – Université Libre de Bruxelles Course Assignment for R&D in Multinational Enterprises Professor Michele Cincera Table of Contents Introduction .......................................................................................................................... 3 Article Summary .................................................................................................................. 3 Methodology ................................................................................................................ 5 Results .......................................................................................................................... 7 Conclusion ................................................................................................................... 8 The case of Unilever ............................................................................................................ 9 History and Key Facts ...................................................................................................... 9 R&D Spending and Patents ............................................................................................. 9 Analysis of Unilever’s R&D according to Ivo Zander’s article .................................... 10 Introduction ................................................................................................................ 10 Unilever’s degree of diversification and duplication ................................................. 13 Unilever’s position in the taxonomy .......................................................................... 14 Conclusion ................................................................................................................. 18 Findings and Conclusion .................................................................................................... 18 Bibliography ...................................................................................................................... 20 Introduction Current literature recognizes the continuing boom in the dispersion of technological capabilities, as well as its advantages, but it fails to explore the differences in the resulting international innovation networks. The article summarized attempts to fill in the gap by identifying different types of innovation networks and at the same time, examining how the preconditions for exploiting dispersion may vary across firms. The resulting taxonomy consists of four different classifications of innovation networks across industries and corporations, based on the degree of duplication and diversification of advanced technological capabilities. The objective of the article is to shed light on the nature of technological capability dispersion, instead of the traditional approach of studying the coordination of dispersion. In the second part of the essay, Unilever is analyzed with the article functioning as a theoretical framework. Finally, the last section of Findings and Conclusion will summarize the key findings expressed in the article by Zander in light of the case of Unilever presented. Article Summary Recent literature has emphasized the geographical dispersion of technological capabilities as an important addition to internationalization strategies. In reality, a correlation between internationalization and the dispersion of technological capabilities exists, as expansionary activities have resulted in a higher level of technological capabilities transferred abroad in order to exploit internationally dispersed resources. Other benefits of geographical dispersion arise from enhanced flexibility, growth, and the formation of new innovation processes within the corporation. With dispersion, traditional innovation routines tend to be replaced by globally integrated innovation projects. Two different types of global innovation projects have been identified in practice. The first one is called cross-fertilization between geographically dispersed units, where units engage in similar types of innovation activities and benefit from knowledge exchange. The second type involves integration and recombination of distinct technological capabilities into new products and systems. Previous literature simply associated growth and dispersion of technological capabilities with increased international experience, commitment to foreign markets, and centrifugal forces boosting technological activity among foreign units. Expansion practices depend on product characteristics and industry affiliation, while the degree of dispersion of technological capabilities depend on management attributes towards internationalization, strategy, and the amount of operational and technological freedom of foreign units. More importantly, dispersion depends on market conditions at the critical time of foreign expansion, and opportunities to merger and acquisition. Some of these influencing factors are very company specific, causing significant variance in the degree of technological capabilities dispersed. Even within the same industry. With the traditional approach to R&D only minor activities, such as technology transfer or technological support, were allocated to foreign units, while the bulk of the research remained in the country of origin. This approach can be summarized with the home-base exploiting and home-base augmenting taxonomy, already discussed in class. With this strict coordination, costly duplication of efforts was effectively avoided, but these multinationals did just as effectively deprive themselves of growth and innovation synergy. Dispersion of technological capabilities now tends to follow the dispersion of sales and manufacturing operations. Innovation activities are hence expected to develop from local-to-local to global-to-global. In other words, before innovation was leveraged by adapting local products to other local markets. Now global, flexible links harness innovation synergy, scope economies, and worldwide learning. Names describing these new globally linked units are “internationally interdependent laboratories” and “global creators”. Against previous believes, duplication of capabilities is not always counterproductive, nor a sign of redundancy or lack of control. On the contrary, it can lead to innovation synergy through knowledge exchanges and project transfers. Methodology The taxonomy consists of two dimensions, duplication and diversification, that determine the classifications of the innovation networks. Note that these dimensions were drawn from previous literature and correlate with the afore-mentioned global innovation projects: cross-fertilization and recombination of technologies. The definitions of the dimensions are as follow: • International duplication of technological capabilities occurs when geographically dispersed units maintain capabilities in the same field of technology. • International diversification of technological capabilities occurs when geographically dispersed units represent unique fields of technological expertise. The two dimensions give an indication of the growth and internationalization of technological capabilities, as well as the type of leverage the firm exercises. The four classifications that form the taxonomy are as follow: • Home-centered firms retain the majority of their advanced technological capabilities in the country of origin. Some duplication or diversification may still exist, but no significant advantages are derived from dispersed research efforts. • Internationally duplicated firms have strengthened technological capabilities abroad, but foreign units are involved in the same technological field as home. Duplication may have resulted from technology transfer or foreign acquisition. Innovation activities involve the multinational as a whole, and the firms enjoy enhanced flexibility and knowledge exchange. • Internationally diversified firms exercise a strict division of labor, where all foreign units are specialized in a given technology. Activity might be geared towards local demand, but more often than not they are a part of a world product mandate with worldwide responsibility for selected components or products. Advantages include growth opportunities and a capacity to integrate and recombine different technologies into new products or systems. • Dispersed firms have shifted technological capabilities abroad the most with complex structures of both duplication and diversification. They have built the preconditions for cross-fertilization and knowledge sharing on a worldwide basis. The two dimensions selected for the taxonomy are easily calculated for each company using U.S. patents as indicators of advanced technological capabilities. The reason for selecting U.S. patents derives from the fact that they reflect high-quality inventions and reveal the nationality of the inventor. Patents records also divide technological inventions into 400 classes and subclasses, enabling narrow classifications of a firm’s capabilities and to analyze the changes in the geographical location. The measurement for duplication takes into account both the number of locations in which the firm is active and the distribution of technological activity across those locations. To even out fluctuations, patenting activity was aggregated