Everything about Research And Development totally explained
The phrase
research and development (also
R and D or, more often,
R&D), according to the
Organization for Economic Co-operation and Development, refers to "creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications"
New product design and development is more than often a crucial factor in the survival of a company. In an industry that's fast changing, firms must continually revise their design and range of products. This is necessary due to continuous technology change and development as well as other competitors and the changing preference of customers.
A system driven by marketing is one that puts the customer needs first, and only produces goods that are known to sell. Market research is carried out, which establishes what is needed. If the development is technology driven then it's a matter of selling what it's possible to make. The product range is developed so that production processes are as efficient as possible and the products are technically superior, hence possessing a natural advantage in the market place.
R&D has a special economic significance apart from its conventional association with scientific and technological development. R&D investment generally reflects a government's or organization's willingness to foregos current operations or profit to improve future performance or returns, and its abilities to conduct research and development.
In 2006, the world's four largest spenders of R&D were the
United States (US$343 billion), the
EU (US$231 billion),
Japan (US$130 billion), and
China (US$115 billion). In terms of percentage of
GDP, the order of these spenders for 2006 was China (US$115 billion of US$2,668 billion GDP), Japan, United States, EU with approximate percentages of 4.3, 3.2, 2.6, and 1.8 respectively. The top spenders in terms of percentage of GDP were
China,
Sweden,
Finland,
Japan,
Korea,
Switzerland,
Iceland,
United States, followed by 9 other countries, and then the EU.
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In general,
R&D activities are conducted by specialized units or centers belonging to
companies,
universities and
state agencies. In the context of
commerce, "research and development" normally refers to
future-oriented, longer-term activities in
science or
technology, using similar techniques to
scientific research without predetermined outcomes and with broad forecasts of commercial yield.
Statistics on organizations devoted to "R&D" may express the state of an
industry, the degree of
competition or the lure of
progress. Some common measures include:
budgets, numbers of
patents or on rates of peer-reviewed
publications.
Bank ratios are one of the best measures, because they're continuously maintained, public and reflect risk.
In the U.S., a typical ratio of research and development for an industrial company is about 3.5% of revenues. A high technology company such as a computer manufacturer might spend 7%. Although
Allergan (a
biotech company) tops the spending table 43.4% investment, anything over 15% is remarkable and usually gains a reputation for being a high technology company. Companies in this category include
pharmaceutical companies such as
Merck & Co. (14.1%) or
Novartis (15.1%), and engineering companies like
Ericsson (24.9%).
Such companies are often seen as poor credit risks because their spending ratios are so unusual.
Generally such firms prosper only in markets whose customers have extreme needs, such as medicine, scientific instruments, safety-critical mechanisms (aircraft) or high technology military armaments. The extreme needs justify the high risk of failure and consequently high gross margins from 60% to 90% of revenues. That is,
gross profits will be as much as 90% of the sales cost, with manufacturing costing only 10% of the product price, because so many individual projects yield no exploitable product. Most industrial companies get only 40% revenues.
On a technical level, high tech organisations explore ways to re-purpose and repackage advanced technologies as a way of amortizing the high overhead. They often reuse advanced manufacturing processes, expensive safety certifications, specialized embedded software, computer-aided design software, electronic designs and mechanical subsystems.
Particulars in pharmaceuticals
Research often refers to basic experimental research; development refers to the exploitation of discoveries. Research involves the identification of possible chemical compounds or theoretical mechanisms. In the United States, universities are the main provider of research level products. In the United States, corporations buy licences from universities or hire scientists directly when economically solid research level products emerge and the development phase of drug delivery is almost entirely managed by private enterprise. Development is concerned with proof of concept, safety testing, and determining ideal levels and delivery mechanisms. Development often occurs in phases that are defined by drug safety regulators in the country of interest. In the United States, the development phase can cost between $10 to $200 million and approximately one in ten compounds identified by basic research pass all development phases and reach market.
R&D alliance
An R&D alliance is a mutually beneficial formal relationship formed between two or more parties to pursue a set of agreed upon goals while remaining independent organisations, where acquiring new knowledge is a goal by itself. The different parties agree to combine their knowledge to create new innovative products.
Further Information
Get more info on 'Research And Development'.
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