Critically Review the Incentives and Disincentives to Invest in Research and Development (r&d) Projects (to Innovate) for a Firm, Industry and Country. Illustrate Each of Your Arguments with Examples from the Business World.

Critically review the incentives and disincentives to invest in Research and Development (R&D) projects (to innovate) for a firm, industry and country. Illustrate each of your arguments with examples from the business world.

Firm

Firms such as Apple have invested significantly into research and development (R&D). Bring host of benefits for the firm. Diversification, which is evident by the variety of Apple products, thus increasing the customer base. In addition Apple benefits from Vertical integration, as it designs both its hardware and software, for example its iPhone and iPad run the same operating systems. Over the competition it’s evident that Apple are the forerunners in the Market. Creative destruction, firms may invest large amounts into R&D projects to outdate the exiting projects, incentivising firms to be the first players in the market.

This can also been seen as a disincentive as the leakage of private information occurred, as this ground-breaking technology is being copied by many competitors. The staff responsible for carrying out research may move to another firm, leaking private information, knowledge and technique. Posing a significant disincentive for the firm. No incentive to innovate, because firms will copy, what will Apple achieve, considering the reaction speed of competitors, they could have leverage of 3 months, allowing Apple to differentiate themselves. A new generation of products come out in rapid succession Denny Marketing (2015

Another disincentive for investing in R&D for firms is the uncertainty it brings. As projects may require significantly more funding then initially budgeted, these project will be costly as the staff carrying out projects will be carefully monitored by the principle.  It’s worth mentioning the yield from the R&D. The product may take such firms into new terroirs with record breaking sales. This incentive is long term and could prove critical for the longevity of the firm.

Firms can gain strategic competitive advantages by investing in R&D projects as the final result may differentiate firms from its competitors. This is seen as an incentive as firms can be the only one to offer such a product or service in a competitive markets. The key to investing is determining the competitive advantage of any given company and the durability of the advantage.

Industry

On an industry level, key players challenge each other to have the number one spot. In Grand prix racing, teams spend millions of pounds every month on research and development to stay on top. This leads to innovation which spirals down to consumers. In more regulated industries, government rules and regulations may prohibit any new innovations, this is seen as a disincentive as the industry cannot move forward very fast.

Whole industries can benefit from the learning curve (measures labour productivity) as investing in certain R&D projects can also make the way of doing things more efficient. The whole production process can be made more efficient across the industry thus reducing overall cost, making it an incentive. Policonomics (2012)