Research and Development
In the developing world of high competition, companies must find different ways of staying on top of the game. In a perfect market, firms would not struggle to gain to positions. There is a perfect flow of information with both consumers and producers well informed of everything happening within the markets. The interaction between consumers and manufacturers completes a market. When one makes a decision, it affects the other to a great extent. And this is why each participant must think carefully about the decisions they make.
One way of doing this is through research. Economic growth does not take place where there is no proper understanding of how systems work. Companies are always looking for new opportunities, and they use the data from their markets and other markets to make this decision. These processes come down to research and Development (R & D). One of the main reasons people open up businesses is so that they can make a profit. And when there is a new venture for investing, they will grab the opportunity and use it to expand their territory. They use research and development approaches for this. The process relies heavily on the availability of data in the markets they operate in.
As a student of economics, research and Development is one of the main topics you will be covering. It comes under firm competition and strategy to help you understand how firms make decisions to improve their market standing and offer better services. Were markets operating under perfect competition, there would be much need for researching. This is because it is such a market; there is perfect information for both consumers and companies, which makes it easy for them to operate seamlessly. But since perfect competition is only theoretical, every company must use different strategies to achieve their goals.
What are research and Development?
Research is what companies and individuals before making decisions. Generally, human beings are regarded as rational decisional makers, though there are times when rational thinking does not have much help. In other words, they need to know the profits that come with taking a certain decision and leaving out the other. If they realize the decision does not have much profit or exposes them to the risk of loss, they avoid it. For instance, when a company wants to increase its products' prices, they need to consider several market factors first. They will often begin with competitor research, to know what the competition is doing, and how much the changes will affect them.
Research and Development are including the activities that firms undertake to innovate and introduce new products in the market. As stated above, firms need good information to make a development decision. R & D is often the first stage in the process of Development. As stated above, a company will not introduce a new product on the market just because they are getting more revenues, or because the market looks promising. They have gone through a proper background check of the market to determine whether or not the consumers are ready for the new product or service. Some of the questions they must answer regards how much of the product is already on the market. And since the idea for research and Development includes adding value to the company's bottom line, they must be careful with every decision they make.
R & D includes every step and strategies the specific firm takes to reach their goal. This main include, but is not limited to, marketing and advertisement techniques. It is like a trial for a new product to see how they will be received in the market. It is a great route to follow when these firms want to improve their existing offerings. In the case of price increment above, the company looks at how the current prices are performing, and how much the product is on the market. Doing this allows companies to stay ahead of their competition. This is the real essence of imperfect market competition. Those who have the right information stay ahead of others, and they do not easily share the same.
Companies in different industries conduct R & B using a different method. It does not really matter the sectors; the processes are almost the same. Those in pharmaceuticals, semiconductors, and technology field follows fairly the same procedures to get where they need to be. The application of different theories, like the consumer and producer theories, becomes a vital part of making the conclusions. Note that research and Development help companies to either invest in other areas or not to. Also, they do this to gain more market shares, or when they want to work with other companies.
The term R & D has been linked mostly to innovation in the corporate and government realm, as well as the private sector. Any company that wishes to stay relevant, on the modern market, and ahead of everyone else must stay ahead of their company. This means it is one of the most important aspects of a firm's general survival. Without research and Development, it becomes tough for them to survive. In any case, they may have to rely on other innovative ways, such as mergers and acquisitions or partnerships. R & D enables these companies to design new products and improve their existing offering.
Research and Development also help companies to know their future and prepare for conditions that would otherwise cause serious damage to the company in question. During the 2008/2009 financial markets failure that led to the Great Recession, many companies fell because they were not prepared for the uncertainty. It was one of the worst moments for them, and many did not know what to do in the first place. Even some bigger companies could not survive for the same reason of lacking a good strategy to shield themselves from such issues. This is one of the main aims of research and Development. By looking at previous economies, markets can prepare for uncertainties and take necessary measures to protect themselves from the harsh impacts of market failures.
Many people confuse R & D with operational activities performed by a corporation. Even though they seem similar and have the same goals in many cases, certain aspects make them different. For instance, the research and development process is followed, not with the expectation of immediate profit. Instead, the process is expected to contribute to the long-term profitability of the firm. The process may lead to patents, copyrights, and trademarks as companies make new discoveries and create new products. It focuses on the future of the company, not only for more revenue generation but also for its stability.
R & D is not, however, a cheap process. Companies that set up departments to handle R&D commit huge capital to the efforts. They have to estimate the risk-adjusted return on every investment they inject in the process. This inevitably involves the risk of capital, because it does not give immediate payoff, and there is a lot of uncertainty on its return on investment. The level of capital risk increases as more money is invested in research and Development. Other companies that may not have enough money to invest may choose to outsource their R & D for different reasons, including size and cost.
Companies in all sectors undergo activities related to research and Development. Firms and markets experience different growth levels through these processes, as well as the Development of new goods and services. Companies pharmaceuticals, semiconductors, and software/ technology industries tend to be the biggest investor in R & D. In the European market, research and Development are known as research and technical or technological Development. This term indicates the importance of the process and how crucial it is to the Development of the involved companies. The company does not only invest money but time and other resources in the activities.
What to consider
Research and Development are some of the most important activities any company should get involved with. However, this does not mean the engage just because other companies are doing so. There are certain things to put in mind the success of this process.
Research and Development are beneficial to the company's bottom line, but it is a huge expense that many firms cannot afford. Nevertheless, they still have to somehow find a way around the process. After all, these firms spend huge amounts on research trying to create new products and services. Whenever a company wants to know how the market will receive their products, they must invest in proper research and data acquisition. And every penny spent is reported for accounting purposes. Any basic, and applies research costs must be recorded as used. The cost of Development can be carried forward since the profits are long term.
Many companies spend billions of dollars on R & D to make the newest, most desired products and services. In a recent survey by PriceWaterhouse Cooper, companies that spent the most on innovation and improvements in 2018 include Amazon, Alphabet, Volkswagen, Samsung, Microsoft, and Apple, among others. The largest spender user $22.6 billion, and the least used $11.6 billion.
If a company has to set its own department for R & D must set aside a proper budget. It means hiring new staff and having a long-term budget for them. Such money should be well accounted for, which is why proper accounting must be done.
What are some types of research and development companies apply?
There are various approaches to research and Development, which are required for every company to choose one this is more suitable. In one R & D model, a company may have a department staffed specifically by an engineer who develops new product ideas. This team usually has to go through extensive research. This model does not have any specific goal or application in mind. Research is just done for the sake of research. Yes, it may lead to the production of new products, but this is just one of the many goals of the process. This model is the most commonly applied for large companies and has money to invest.
Another approach involves a department composed of industrial scientists or researchers. The team is tasked with applied research in technical, scientific, and industrial fields. Through this model, the company achieves proper Development of future products, or improvement of the current products and/or operating procedures. This model seeks to establish what makes more profit for the company and how it can be improved to create better products or revenues.
Another approach is the use of incubators and accelerators. In this case, corporates invest in startups and offer funding assistance as well as guidance to entrepreneurs in the hope that these new innovations can be used to their benefits. Many large corporations follow this method because it makes things very easy for them. They do not need to do a lot of work since the smaller company takes care of the ground research.
Business mergers and partnerships are other forms of R & D that companies use to understand the fundamental aspects of a concept or phenomenon.
Basic research aims to produce a fuller, more complete understanding of the underlying idea. Gaining the right understanding is the first step in R & D. These activities give companies a foundation of information, even without directed applications towards the products, policies, or operational process. Applied research, on the other hand, aims at acquiring knowledge with a specific goal in mind. The idea may be applied in determining and developing new products, policies, or operational processes. Basic research is a time-consuming process, while applied research is more of painstaking and more costly. It requires lots of detail to get through its complex nature.
Research and Development have been part of the business world for a long time. Firms need proper information to decide what new products are good for their market, and how to make the existing ones better. Entrepreneurs and businesses must learn the basic models of R & D and its importance in general economic growth and Development.
Author: James Hamilton