Few markets avoid change, which involves 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 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 to a country of encouraging R&D spending include:
•creation of high-tech jobs
•creation of high-added-value products that may then be manufactured in that country •prestige – a country being linked to scientific and technological breakthroughs •Attraction of investment by multinational corporations.
Several factors may influence the level of research and development (R&D) and innovation by a business: •The nature of the industry. Rapidly changing technologies – and consumer expectations – in pharmaceutical products, defense, computer and software products and motor vehicles lead to the need for substantial investment in R&D by leading firms. Other businesses, such as hotels and hairdressing, would need to spend much less as the scope for innovation is more limited.
•The R&D and innovation spending plans of competitors. In most markets, it is essential to innovate as much as or more than competitors if market share and technical leadership are to be maintained. However, a monopoly may limit R&D spending if it believes that the risk of a more technically advanced competitor entering the market is limited. On the other hand, profits from a monopoly could be used to finance research into innovative products if the risk of competitor entry into the industry is high.
•Business expectations. If business managers are optimistic about the future state of the economy and the rate of economic growth and consumer demand,
then they are more likely to agree to substantial budgets for R&D and aim to introduce more innovative products.
•The risk profile or culture of the business. The attitude of the management to risk and whether shareholders are prepared to invest for the long term will have a significant effect on the sums that businesses can inject into R&D programmes. ‘Short-termism’ is an accusation made towards many major UK financial institutions and the need to satisfy these investors could discourage managers from investing in R&D. Government policy towards grants to businesses and universities for R&D programmes and the range and scope of tax allowances for such expenditure will influence decisions by businesses.
•Finance is needed for effective R&D. In many firms this may be limited and will restrict the number of new innovations that could be made.
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