Outsourcing R&D in the Defense Industry : Developing Strategies for Collaborating with Indian Suppliers

Abstract: An important step in making an impact on the Indian market, Saab India Technology Center, SITC, was inaugurated on October 21, 2011. SITC is a collaboration with the Indian company Tech Mahindra, and supplies all of Saab’s Business Areas with skilled engineers. The growing interest for SITC has spread to TDH, the department for Human Machine Interface and Avionics. Possible benefits, but also challenges, of utilizing SITC have been discussed. This thesis attempts to address challenges and maximize benefits for TDH by exploring how a Swedish R&D organization in the defense industry, that has a tradition of performing most work in-house, can initiate outsourcing to a supplier in India. In order to do this, a literature study was performed. Since gaps in the literature regarding outsourcing in the defense industry were identified, a combination of a descriptive and exploratory research approach was chosen. Following the literature study, interviews were conducted to collect experience from working with external partners at TDH, experience from working with SITC, experience from other companies that have outsourced R&D to India and experience of working with Saab from SITC. Empirical data was also gathered via informal meetings and observations during the researchers’ 5 month stay at TDH in Sweden and SITC in India. The outcome of this study shows that drivers and risks for outsourcing R&D, as well as the characteristics of the outsourcer and the supplier, will influence how the strategy for initiating outsourcing should be built. TDH’s main drivers in deciding to use SITC are mainly cost reduction goals, the possibility to access the Indian defense market and the opportunity to gain knowledge from collaborating with international suppliers. The type of risk that is most urgent for TDH is operational risk. Risks in this category, like overestimating cost reduction and risks associated with not understanding cultural differences are all highly relevant for any organization with limited experience in outsourcing. Strategy wise, the main finding is that an R&D organization in the defense industry will benefit from working in a more collaborative manner than traditional outsourcing entails. In an R&D organization, tasks are often complex and highly integrated with each other which, combined with a limited level of outsourcing experience, requires a tighter collaboration. With a high level of involvement from the outsourcer, problems can be detected early and insufficient requirements can be handled. Close collaboration also enhances knowledge sharing, which is important to ensure that the goal of gaining knowledge from international collaboration is achieved. Furthermore, organizational acceptance can be improved by a collaboration that enables close contact between outsourcer and supplier. Improving acceptance in the organization for collaborating with the supplier should be prioritized in order to strengthen the positive effects of outsourcing.