Why Do Companies Invest in R&D?| Pipette & Chart
Some people think that Research and Development is valuable only to large enterprises and those engaged in specific industries. However, it’s actually essential for all business types and sizes, regardless of the industry they’re in. To remain relevant in an increasingly competitive world, a business enterprise must invest in an R&D solution to innovate products, improve processes, and enhance consumer services.
Although they already have a huge market share, multinational corporations still spend billions of dollars every year in R&D. Why do they invest heavily? Let’s go over the benefits and a few real-world examples to understand why companies invest in R&D.
Why Investing in R&D Is a Good Idea
Aside from creating new products or improving old ones, R&D also supplements your business strategy. Incorporate it into your business plan, and you can see marked growth in productivity and reduced costs in the long run. R&D programs may require substantial investment, but they do bring a host of benefits.
Are you thinking about developing an R&D strategy? Let us help you! We will give you the expertise, network, and management bandwidth to build attractive businesses and products in an accelerated manner. Read more about the success stories and how R&D benefits small companies at the end of the article.
Product innovation and differentiation are the typical outcomes of R&D initiatives. Usually, this is the primary goal of pharmaceutical, electronic, manufacturing, and science-driven companies. But again, having a unique product or service is important for any business, whatever the industry.
Also, having a product that takes the market by storm today doesn’t guarantee sales growth in the future. Consumers are always looking for new products and services, so businesses must constantly innovate.
If your business delivers consumer goods, it will definitely be worthwhile to invest in research and development. It can help you create new product types and bring innovation to your market.
Some mistakenly believe that R&D is merely for product innovation by technology-driven companies. But R&D is also essential in improving business processes. By developing and implementing more efficient systems, you can see a significant increase in overall productivity. Moreover, when your business performs in a way competitors can’t replicate, you gain a competitive edge in your industry.
The Internal Revenue Service offers a tax credit for qualified businesses. These are usually small enterprises or startups with relevant research and development activities. If you’re eligible, you can use your research expenses—including the wages of employees engaged in R&D—to offset tax liabilities or get tax breaks.
Investing in R&D can draw even more investors. Having proactive innovation management shows that your business is growth-driven. It bolsters your capacity to effectively manage your company and sustain its profitability.
Potential Mergers and Buyouts
Buyouts are most common in the IT sector, but they also happen in other industries. Entrepreneurs and startups can make substantial amounts of money with products and services that more established firms can benefit from. Whenever there’s a potential to innovate and commercialize an invention, there’s a potential buyer for that idea or product.
Top Global Companies That Invest Heavily in R&D
South Korean giant Samsung has its own R&D hub with more than 10,000 researchers and developers working in 14 R&D centers and 7 AI centers in 12 countries worldwide. It consistently tops the list of highest R&D spenders, investing approximately $15 billion a year.
This huge investment has helped Samsung maintain its position at the helm of the consumer electronics industry. It pioneered LED Display technology, vCore solution for 5G, and High-Efficiency Video Coding, among many others. It continues to develop future technologies that can enhance our way of living.
Johnson & Johnson
Johnson & Johnson is a multinational company specializing in consumer goods, medical devices, and pharmaceuticals. It has established innovation centers around the world and invests over $10 billion in its research and development programs.
Like other pharmaceuticals, Johnson & Johnson has to deal with patent expirations. When a product patent expires, other companies can produce the drugs it has developed and take a huge chunk of its market share. So it must constantly develop new and better technologies to create products that keep it on top of the industry.
Roche is another pharmaceutical company that invests billions in research and development. This Swiss pharma company spends approximately $10 billion annually to fund its healthcare research programs.
Its R&D programs are mainly centered on understanding the mechanism of diseases, developing a cure, and patenting the medicine. It also acquires smaller biotechnology companies to bolster its R&D initiatives. Today, it owns Spark Therapeutics, Ventana, Genentech, and Chugai Pharmaceuticals.
One of the biggest R&D spenders in the IT industry is Intel. As the leading semiconductor manufacturer in the world, Intel invests over $10 billion every year to develop new technologies. It allocates most of its R&D expense for data-centric innovation that can further enhance the performance of electronic devices we use every day. If you have a laptop, a smartphone, or any other device, chances are, it has several components produced by Intel.
Over the years, Intel’s research and development projects have brought us breakthrough technologies and innovative products that changed our lives. To remain at the helm of its industry and make a difference in the world, Intel prioritizes its R&D initiatives.
Essential for All Businesses
Large corporations may be the top spenders when it comes to R&D investments, but smaller companies stand to benefit by investing in it as well. Most SMEs despite having long-term oriented business strategy tend to doubt return on investment of research and development strivings.
Indeed, R&D is an essential element for staying competitive. Incorporate it into your business plan to keep up with market trends, remain relevant, and improve processes. Use it to innovate products, expand your market share, and increase revenue.
Regardless of your business type and size, invest in Research and Development if you want to grow your business today. Manage R&D programs well and bring innovation to market.
Can Research and Development Efforts Bring Value to Small Businesses?
Of course! Just like for TOP companies, R&D brings smaller ones even more advantages. Let's summarise them again:
Potential Mergers and Buyout;
While many institutional investors and corporate venture capitalists are concerned that companies are not adequately rewarding long-term R&D investments, we can take a look at some brilliant examples of small and medium-sized entrepreneurs running R&D-driven companies.
Phonexia pioneers a cutting-edge voice recognition platform.
Phonexia is an innovative software company, founded in 2006, with the vision to provide the world with cutting-edge speech and voice biometrics technologies. Through its close cooperation with the Brno University of Technology, Phonexia is transforming the latest science into the everyday reality of highly accurate speech and voice recognition commercial solutions, such as voice verification and call transcription for call centers, as well as governmental solutions used in more than 60 countries.
“Phonexia is able to develop the world’s most accurate voice and speech recognition technologies only due to its heavy emphasis on in-house research. This is why our R&D department of top researchers from the Czech Republic and South Africa represents around 40% of our human resources costs. We know that the only way to be commercially successful on a global scale is to invest in the innovations provided by your own teams of researchers and developers, together with product, sales, and marketing teams.”
Nenovision drives new discoveries with top technology tools for scientists.
NenoVision is a high-tech-oriented company that develops, manufactures, and sells a revolutionary type of atomic force microscope (AFM) LiteScope™ designed for fast and easy integration into scanning electron microscopes (SEMs). The company's mission is to create unique tools on the top technological level which are used by the scientific community and drive new discoveries with significant impact. The top technological level of the product is a key strategy to the success and the principal company value.
High investment into R&D activities enables them to be globally competitive and improve chances to become leaders in their business field.
“Investment into product or services development is one of the best ways how to keep ahead of the competitors. Since the results of R&D process and activities come in a relatively long time period, companies are pushed to think more about a long-term strategy, priorities and customer needs. Smart investment into the R&D activities should be a natural part of sustainable business strategy even in small companies.”
SpaceKnow unlocks the power of data from space.
Founded in 2014, SpaceKnow Inc. is a boutique satellite data analytics company headquartered in New York, with a technology center in Prague. Our customer base ranges from Fortune 500 companies to governments, financial institutions, non-profits, and more. Our mission is to democratize satellite data analytics, so that any organization, no matter how big or small, can leverage this burgeoning technology. We pride ourselves on our scrappiness. Our affordability, flexibility, and innovative approach, along with our dynamic team of 50 (most of whom are scientists or engineers) enables us to deliver unmatched bespoke holistic solutions to customers of all kinds. We translate remote sensing data into actionable intelligence. We help you unlock the power of data from space.
The satellite imagery market is rapidly evolving. Image providers are launching more, cheaper, and better satellites. Analytics providers, like SpaceKnow, are developing better algorithms, holistic use cases, and more valuable insights. The customer base, which only 10 or so years ago consisted exclusively of governments and large corporates, has grown to include organizations of all sizes and budgets. Customer-centric, cost-efficient, and creative R&D efforts are paramount to SpaceKnow's staying ahead of the competition. It is our penultimate competitve advantage.
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