The 'New' Globalization of Engineering

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A generation ago the typical multinational (MNE) was vertically integrated and hierarchically organized. Key functions were headquartered in one of the triad economies of the U.S., Japan or Europe. In the case of technology development, for example, more basic R&D work might be conducted by central research laboratories, with more applied work done at triad production facilities. Some engineering activities were conducted in emerging economies, but these had little to do with the core engineering programs of the firm.

At a Whirlpool facility in India, for example, washing machines were redesigned to keep out rats, to survive shipment on bad roads, and to cope with power ebbs and surges in electrical current (WSJ, June 12, 2004). At an automobile plant in an emerging economy, we found, as part of our study, that engineering activities during this earlier period had consisted of such things as developing oil pans that could survive severely potholed roads. Engineering managers at an electronics firm we studied did not consider doing work on their more advanced technologies at a site in India because, until recently, there was no market in India for products based on the newer technologies, and no sense that India provided a viable export platform. Further, according to Indian law at the time the multinational could not own a controlling interest of the Indian subsidiary. Engineering teams in the emerging economies worked in relative isolation from their counterparts at triad facilities and provided little that was useful in the triad economies.

In the past decade, however, the geography of technology development has undergone profound shifts as multinationals disperse core activities, "unlocking" them from longstanding forms of organizational integration. Geographic embeddedness that, only a few years ago, seemed to confer unassailable advantages to areas such as Silicon Valley must be examined anew now that the "developing countries" are developing some of the world's leading-edge technology. Triad multinationals are racing to shift cutting-edge work on cellular telephones and other aspects of telecommunications to China. They are moving software development and some pharmaceutical research to India. Advanced aerospace work is being done in Brazil. Increasingly, specialized firms in a variety of countries are providing key design and research services to multinationals (Lynn and Salzman, forthcoming). We call this the "new globalization of engineering."

This ongoing transition represents an extraordinary "unlocking" of longstanding organizational forms. The reduction of international trade barriers and the development of new technologies allowing globally dispersed work on engineering have coincided with the push by firms to cut costs by dispersing engineering activities globally and the pull of growth markets in the emerging economies that requires new engineering and technology development, and offers the availability of highly skilled human resources. The result has been a massive transfer of technological capacity to the emerging economies. Although the transition is not yet complete, and its full ramifications are as yet poorly understood, it is clear that firms are undergoing profound organizational change. It is not just the magnitude of change but the change in how firms organize core activities that is remarkable.

This paper addresses the processes of organizational change and makes a preliminary analysis of the specific impact on engineering activities. Based on on-going field studies carried out at technology development sites in nine triad and emerging economies, we examine the nature of the transformation, and the factors that have converged to create and facilitate these changes. We conclude with an analysis of the possibilities and threats posed by this evolving pattern of global engineering, of where the boundaries might exist between change that is adaptive and change that risks the loss of control over essential functions.

Note: This report is available in its entirety in the Portable Document Format (PDF).

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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