The importance of research and

development

In most industries, change is the only constant. Change can result

in new products or new ways of making existing products. Some

industries are more likely to undergo substantial changes brought

about by new technologies and new adaptations of existing

technologies. The IT, computer and mobile-phone markets are

experiencing more innovation than most. How do businesses

benefit from introducing radical new products and processes, and

what factors influence the range and pace of innovation?

Spending on research and development (R&D) is growing globally

and in most industrial sectors.

The benefits of successful R&D spending to business include:

• Competitive advantage over competitors which enables

them to increase sales at a faster rate than rivals, e.g., Dyson

has become one of the world’s leading vacuum-cleaner

manufacturers in 20 years as a result of its ‘dual cyclone’

technology.

• It can create intellectual property rights for a business and

these can become valuable assets which yield income for

many years, such as patents (see section 35.3).

• Customer loyalty – Microsoft’s continuous development and

improvement programme for its computer-operating systems

help to keep customers loyal to the brand even though

competitors are growing in number.

High, premium prices – being first into a market with an

innovative product can allow high prices to be charged, e.g.,

the Hyundai Nexo is one of the first hydrogen-powered cars

available for consumers to buy and it is sold in relatively small

numbers at a premium price.

• Publicity – Apple receives free worldwide publicity for each

new innovative product it releases; senior managers invite the

world’s media to huge launch events.

• Lower costs – Zara has revolutionised the process of

designing, producing and marketing the latest fashions. It is

able to design, manufacture, transport and retail new clothes

more quickly than any other fashion businesses and this gives

it substantial cost savings through supply chain management,

data tracking and stock control.

So, the benefits gained from successful R&D spending can be

considerable. Why else would Volkswagen, for example, be

spending over $1.9 million an hour on developing new products

and processes? The companies with the largest R&D budgets in

2020 are shown in Table 35.1. Despite the global downturn between

2020 and 2021, most business analysts claimed that innovation was

still critical in preparing companies for the economic upturn. An

economic downturn is often the best time to build advantage over

competitors with R&D spending, especially weaker ones that may

have to reduce their own investment on R&D for financial reasons.