Research and development

Last updated
Cycle of research and development Cycle of Research and Development.svg
Cycle of research and development
Spending on research and development as share of GDP (2015) Spending on research and development as share of GDP, OWID.svg
Spending on research and development as share of GDP (2015)

[1] Research and development (R&D, R+D), known in Europe as research and technological development (RTD), [2] is the set of innovative activities undertaken by corporations or governments in developing new services or products, and improving existing ones. [3] Research and development constitutes the first stage of development of a potential new service or the production process.


R&D activities differ from institution to institution, with two primary models [3] of an R&D department either staffed by engineers and tasked with directly developing new products, or staffed with industrial scientists and tasked with applied research in scientific or technological fields, which may facilitate future product development. R&D differs from the vast majority of corporate activities in that it is not intended to yield immediate profit, and generally carries greater risk and an uncertain return on investment. [4] However R&D is crucial for acquiring larger shares of the market through the marketisation of new products. [3] R&D&I or R&D&i are also acronyms with the same general meaning of R&D and stand for research, development and innovation. [5] [6] [7]


New product design and development is often a crucial factor in the survival of a company. In a global industrial landscape that is changing fast, firms must continually revise their design and range of products. This is necessary as well due to the fierce competition and the evolving preferences of consumers. Without an R&D program, a firm must rely on strategic alliances, acquisitions, and networks to tap into the innovations of others.

A system driven by marketing is one that puts the customer needs first, and produces goods that are known to sell. [8] Market research is carried out, which establishes the needs of consumers and the potential niche market of a new product. If the development is technology driven, R&D is directed toward developing products to meet the unmet needs.[ citation needed ]

In general, research and development activities are conducted by specialized units or centers belonging to a company, or can be out-sourced to a contract research organization, universities, or state agencies. [9] 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 but directed toward desired outcomes and with broad forecasts of commercial yield. [10]

Statistics on organizations devoted to "R&D" may express the state of an industry, the degree of competition or the lure of progress. [11] 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 are continuously maintained, public and reflect risk.

In the United States, a typical ratio of research and development for an industrial company is about 3.5% of revenues; this measure is called "R&D intensity".[ citation needed ] A high technology company, such as a computer manufacturer, might spend 7% or a pharmaceutical companies such as Merck & Co. 14.1% or Novartis 15.1%. Anything over 15% is remarkable, and usually gains a reputation for being a high technology company such as engineering company Ericsson 24.9%, or biotech company Allergan, which tops the spending table with 43.4% investment. [12] Such companies are often seen as credit risks because their spending ratios are so unusual.[ citation needed ]

Generally such firms prosper only in markets whose customers have extreme high technology needs, like certain prescription drugs or special chemicals, scientific instruments, and safety-critical systems in medicine, aeronautics or military weapons. [ citation needed ]The extreme needs justify the high risk of failure and consequently high gross margins from 60% to 90% of revenues.[ citation needed ] 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 40% revenues only.[ citation needed ]

On a technical level, high tech organizations explore ways to re-purpose and repackage advanced technologies as a way of amortizing the high overhead.[ citation needed ] They often reuse advanced manufacturing processes, expensive safety certifications, specialized embedded software, computer-aided design software, electronic designs and mechanical subsystems.[ citation needed ]

Research from 2000 has shown that firms with a persistent R&D strategy outperform those with an irregular or no R&D investment program. [13]

Business R&D

Mercedes Benz Research Development North America (13896037060) Mercedes Benz Research Development North America (13896037060).jpg
Mercedes Benz Research Development North America (13896037060)

Research and development are very difficult to manage, since the defining feature of research is that the researchers do not know in advance exactly how to accomplish the desired result. As a result, "higher R&D spending does not guarantee more creativity, higher profit or a greater market share". [14] Research is the most risky financing area because both the development of an invention and its successful realization carries uncertainty including the profitability of the invention. [15] One way entrepreneurs can reduce these uncertainties is to buy the licence for a franchise, so that the know-how is already incorporated in the licence. [16]

Benefit by sector

In general, it has been found that there is a positive correlation between the research and development and firm productivity across all sectors, but that this positive correlation is much stronger in high-tech firms than in low-tech firms. [17] [18] In research done by Francesco Crespi and Cristiano Antonelli, high-tech firms were found to have "virtuous" Matthew effects while low-tech firms experienced "vicious" Matthew effects, meaning that high-tech firms were awarded subsidies on merit while low-tech firms most often were given subsidies based on name recognition, even if not put to good use. [19] While the strength of the correlation between R&D spending and productivity in low-tech industries is less than in high-tech industries, studies have been done showing non-trivial carryover effects to other parts of the marketplace by low-tech R&D. [20]


Business R&D is risky for at least two reasons. The first source of risks comes from R&D nature, where R&D project could fail without residual values. The second source of risks comes from takeover risks, which means R&D is appealing to bidders because they could gain technologies from acquisition targets. [21] Therefore, firms may gain R&D profit that co-moves with takeover waves, causing risks to the company which engages in R&D activity. [22]


Global R&D management is the discipline of designing and leading R&D processes globally, across cultural and lingual settings, and the transfer of knowledge across international corporate networks. [23]

Government expenditures

United States

Mercedes Benz Research Development North America (13896049248) Mercedes Benz Research Development North America (13896049248).jpg
Mercedes Benz Research Development North America (13896049248)

President Barack Obama requested $147.696 billion for research and development in FY2012, 21% of which was destined to fund basic research. [24] According to National Science Foundation in U.S., in 2015, R&D expenditures performed by federal government and local governments are 54 and 0.6 billions of dollars. [25] The federal research and development budget for fiscal year 2020 was $156 billion, 41.4% of which was for the Department of Defense (DOD). [26] DOD's total research, development, test, and evaluation budget was roughly $108.5 billion. [27]

European Union

Research and innovation in Europe are financially supported by the programme Horizon 2020, which is open to participation worldwide. [28]

A notable example is the European environmental research and innovation policy, based on the Europe 2020 strategy which will run from 2014 to 2020, [29] a multidisciplinary effort to provide safe, economically feasible, environmentally sound and socially acceptable solutions along the entire value chain of human activities. [30]


In 2015, research and development constituted an average 2.2% of the global GDP according to the UNESCO Institute for Statistics. [31]

By 2018, research and development constituted an average 1.79% of the global GDP according to the UNESCO Institute for Statistics. Countries agreed in 2015 to monitor their progress in raising research intensity (SDG 9.5.1), as well as researcher density (SDG 9.5.2), as part of their commitment to reaching the Sustainable Development Goals by 2030. However, this undertaking has not spurred an increase in reporting of data. On the contrary, a total of 99 countries reported data on domestic investment in research in 2015 but only 69 countries in 2018. Similarly, 59 countries recorded the number of researchers (in full-time equivalents) in 2018, down from 90 countries in 2015. [32] UNESCO Institute for Statistics is the global custodian of these R&D data; data can be freely obtained from the UIS database.

See also

Related Research Articles

Innovation Application of better solutions that meet new requirements, inarticulated needs, or existing market needs

Innovation is the practical implementation of ideas that result in the introduction of new goods or services or improvement in offering goods or services. ISO TC 279 in the standard ISO 56000:2020 defines innovation as "a new or changed entity realizing or redistributing value". Others have different definitions; a common element in the definitions is a focus on newness, improvement, and spread of ideas or technologies.

Science and technology in Israel is one of the country's most developed sectors. Israel spent 4.3% of its gross domestic product (GDP) on civil research and development in 2015, the highest ratio in the world. In 2019, Israel was ranked the world's fifth most innovative country by the Bloomberg Innovation Index. It ranks thirteenth in the world for scientific output as measured by the number of scientific publications per million citizens. In 2014, Israel's share of scientific articles published worldwide (0.9%) was much higher than its share of the global population (0.1%).

Science park Area designed to promote science or technology business development

A science park is defined as being a property-based development that accommodates and fosters the growth of tenant firms and that is affiliated with a university based on proximity, ownership, and/or governance. This is so that knowledge can be shared, innovation promoted, technology transferred, and research outcomes progressed to viable commercial products. Science parks are also often perceived as contributing to national economic development, stimulating the formation of new high-technology firms, attracting foreign investment and promoting exports.

Research funding is a term generally covering any funding for scientific research, in the areas of natural science, technology, and social science. Different methods can be used to disburse funding, but the term often connotes funding obtained through a competitive process, in which potential research projects are evaluated and only the most promising receive funding. It is often measured via Gross domestic expenditure on R&D (GERD).

Science and technology in Brazil Overview of science and technology in Brazil

Science and technology in Brazil has entered the international arena in recent decades. The central agency for science and technology in Brazil is the Ministry of Science and Technology, which includes the CNPq and Finep. This ministry also has a direct supervision over the National Institute for Space Research, the National Institute of Amazonian Research, and the National Institute of Technology (Brazil). The ministry is also responsible for the Secretariat for Computer and Automation Policy, which is the successor of the SEI. The Ministry of Science and Technology, which the Sarney government created in March 1985, was headed initially by a person associated with the nationalist ideologies of the past. Although the new minister was able to raise the budget for the science and technology sector, he remained isolated within the government and had no influence on policy making for the economy.

European Federation of Pharmaceutical Industries and Associations

The European Federation of Pharmaceutical Industries and Associations (EFPIA) is a Brussels-based trade association and lobbying organisation, founded in 1978 and representing the research-based pharmaceutical industry operating in Europe.

Science and technology in Turkey is centrally planned by TÜBİTAK and in responsibility of universities and research institutes. Research and development activities in Turkey show a significant jump in recent years. Turkey was ranked 41st in the Global Innovation Index in 2021, and has increased its ranking considerably since 2011, where it was ranked 65th.

Research and development intensity is generally defined as expenditures by a firm on its research and development (R&D) divided by the firm's sales. There are two types of R&D intensity: direct and indirect. R&D intensity varies, in general, according to a firm's industry sector, product knowledge, manufacturing, and technology, and is a metric that can be used to gauge the level of a company's investment to spur innovation in and through basic and applied research. A further aim of R&D spending, ultimately, is to increase productivity as well as an organization's salable output.

The Aho Group Report on Creating an Innovative Europe was published in 2006. The report was written by a four-member group chaired by Esko Aho, former Finnish Prime Minister. The committee was created at the Hampton Court summit in the United Kingdom (UK) in October 2005. The report focuses on the creation of innovation friendly markets, strengthening of R&D resources, increasing the structural mobility in Europe and to foster a culture which celebrates innovation.

Expenditure for scientific research and Development in Albania does not exceed 0.18% of GDP, which marks the lowest level in Europe. Economic competitiveness and exports are low, with the economy still heavily skewed towards low technology.

Financial technology Subset of technologies used in finance

Financial technology is the technology and innovation that aims to compete with traditional financial methods in the delivery of financial services. It is an emerging industry that uses technology to improve activities in finance. The use of smartphones for mobile banking, investing, borrowing services, and cryptocurrency are examples of technologies aiming to make financial services more accessible to the general public. Financial technology companies consist of both startups and established financial institutions and technology companies trying to replace or enhance the usage of financial services provided by existing financial companies. A subset of fintech companies that focus on the insurance industry are collectively known as insurtech or insuretech companies.

Innovation in Malaysia describes trends and developments in innovation in Malaysia.

Brexit and arrangements for science and technology refers to arrangements affecting scientific research, experimental development and innovation that are within the scope of the negotiations between the United Kingdom and the European Union on the terms of Britain's withdrawal from the European Union (EU).

Science and technology in Botswana examines recent trends and developments in science, technology and innovation policy in this country. The Republic of Botswana was one of the first countries of the Southern African Development Community (SADC) to adopt a science and technology policy in 1998. This was later updated in 2011.

Science and technology in Armenia describes trends and developments in science, technology and innovation policy and governance in Armenia.

Science and technology in Kazakhstan outlines government policies to develop science, technology and innovation in Kazakhstan.

This article summarizes the development of science and technology in Cambodia from a policy perspective.

The main managing agency responsible for science and technology (S&T) in Vietnam is the Ministry of Science and Technology (MOST). MOST's responsibilities include scientific research, technology development and innovation activities; development of science and technology potentials; intellectual property; standards, metrology and quality control; atomic energy, radiation and nuclear safety; and state management on public services in fields under the Ministry’s management as stipulated by law.

Deep technology or hard tech is a classification of organization, or more typically startup company, with the expressed objective of providing technology solutions based on substantial scientific or engineering challenges. They present challenges requiring lengthy research and development, and large capital investment before successful commercialization. Their primary risk is technical risk, while market risk is often significantly lower due to the clear potential value of the solution to society. The underlying scientific or engineering problems being solved by deep tech and hard tech companies generate valuable intellectual property and are hard to reproduce.

Research Quotient (RQ) is a measure of companies' innovation capability developed by Anne Marie Knott., Robert and Barbara Frick Professor of Business at Washington University in St. Louis.


  1. Nelson, Alvar (1996). Varningars värde (Value of Warnings). Uppsala universitet, Juridiska institutionen. OCLC   1234914977.
  2. "Policy for research and technological development | Fact Sheets on the European Union | European Parliament".
  3. 1 2 3 Staff, Investopedia (2003-11-25). "Research And Development – R&D". Investopedia. Retrieved 2017-12-12.
  4. Yiu, L. M. Daphne; Lam, Hugo K. S.; Yeung, Andy C. L.; Cheng, T. C. E. (2020). "Enhancing the Financial Returns of R&D Investments through Operations Management". Production and Operations Management. 29 (7): 1658–1678. doi:10.1111/poms.13186. ISSN   1937-5956. S2CID   216529963.
  6. Expenses for university R&D&I increase moderately in Spain
  7. Research, Development and Innovation (R&D&I), Fundação Para a Ciência e Tecnologia
  8. Anderson, James C.; Narus, James A. (1998-11-01). "Business Marketing: Understand What Customers Value". Harvard Business Review. No. November–December 1998. ISSN   0017-8012 . Retrieved 2019-02-06.
  9. HackerNoon. "How Remote R&D Helps Accelerate the Pace of Innovation". HackerNoon. Retrieved 2020-03-13.
  10. ChartsBin. "Research and Development Employees by Country". ChartsBin. Retrieved 2019-02-06.
  11. Khan, Firdos Alam (2018-09-03). Biotechnology Fundamentals. CRC Press. ISBN   9781498723459.
  12. All figures UK R&D Scoreboard Archived 2005-10-27 at the Wayback Machine as of 2006.
  13. Dingwall, Robert; McDonnell, Mary Byrne (2015-06-26). The SAGE Handbook of Research Management. SAGE. ISBN   9781473914452.
  14. "Aerospace and Defense: Inventing and Selling the Next Generation" (PDF). Center for Strategic and International Studies. Center for Strategic and International Studies, International Security Program. December 5, 2009. p. 1. Retrieved 6 August 2017.
  15. "Investor-partner business partner finder Business dictionary".
  16. "Investor-partner business partner finder Business dictionary".
  17. Ortega-Argiles, Raquel; Potters, Lesley; Vivarelli, Marco (2011). "R&D and productivity: testing sectoral peculiarities using micro data". Empirical Economics. 41 (3): 817–839. doi:10.1007/s00181-010-0406-3. hdl: 10419/35059 . S2CID   59130979.
  18. Ortega-Argiles, Raquel; Piva, Mariacristina; Vivarelli, Marco (2011). "Productivity Gains from R&D Investment: Are High-Tech Sectors Still Ahead?". IZA Discussion Papers. IZA (5975): 1–22.
  19. Crespi, Francesco; Antonelli, Cristiano (2011). "Matthew Effects and R&D Subsidies: Knowledge Cumulability in High-Tech and Low-Tech Industries". Working Papers. Università degli Studi Roma Tre (140): 1–24.
  20. Mendonca, Sandro (2009). "Brave Old World: Accounting for 'High-Tech' Knowledge in 'Low-Tech' Industries". Research Policy. 38 (3): 470–482. doi:10.1016/j.respol.2008.10.018.
  21. Bena, Jan; Kai, Li (2014). "Corporate innovations and mergers and acquisitions". The Journal of Finance. 69 (5): 1923–1960. doi:10.1111/jofi.12059. hdl: 10.1111/jofi.12059 .
  22. Lin, Ji-Chai; Wang, Yanzhi (Andrew) (2016). "The R&D Premium and Takeover Risk". The Accounting Review. 91 (3): 955–971. doi:10.2308/accr-51270.
  23. Chiesa, V. (2001). R&D Strategy and Organisation, Imperial College Press
  24. Sargent, John F Jr, ed. (2011). Federal Research and Development Funding: FY2011 (PDF). Library of Congress, Congressional Research Service. OCLC   1097445714.
  25. "Research and Development: U.S. Trends and International Comparisons, National Science Foundation" (PDF).
  26. "Federal Research and Development (R&D) Funding: FY2021". 17 December 2020. Retrieved 20 February 2021.{{cite web}}: CS1 maint: url-status (link)
  27. "RDT&E Programs (R-1)" (PDF). Office of the Undersecretary of Defense (Comptroller). February 2020. Retrieved 20 February 2021.{{cite web}}: CS1 maint: url-status (link)
  28. "European Commission - PRESS RELEASES - Press release - Horizon 2020 – the EU's new research and innovation programme".
  29. "European Commission – PRESS RELEASES – Press release – Horizon 2020: Commission proposes €80 billion investment in research and innovation, to boost growth and jobs". Retrieved 2017-12-12.
  30. "EUR-Lex – 02013R1291-20150704 – EN – EUR-Lex". Retrieved 2017-03-16.
  31. "Research and development expenditure (% of GDP) | Data". Retrieved 2017-12-12.
  32. Schneegans, S.; Straza, T.; Lewis, J., eds. (11 June 2021). UNESCO Science Report: the Race Against Time for Smarter Development. Paris: UNESCO. ISBN   978-92-3-100450-6.