NEW DELHI: In the past few years, the contribution of the small and medium enterprises (SMEs) to innovation-led growth and job creation has gone up considerably. This is led by introduction of new products as they enjoy better understanding of customers' need and demand, given their expertise in the field and region. The next ideal step for SMEs is to focus more towards promotion of their innovations. This is how relevance of research and development (R&D) for SMEs gains prominence. It has been found that innovation as a whole can help in solving the challenges that new technologies and globalisation create for the small scale industries.
The present day economies across the globe are driven by scientific research and technology. The overwhelming consensus is that long term economic growth is primarily dependent on technological innovation, which becomes more prominent with the growing investment in R&D sector. The role of conventional scientific R&D is expected to be quite small as against informal/ general innovation based on management and business processes, marketing and promotion apart from organisational changes.
It has been found that within companies, investments made in marketing and promotions of businesses are higher as compared to R&D. The value of general innovations needs to be understood as they are the global indicators of national growth. The same can be achieved by assisting firms in adoption of innovations on the basis of new business models and processes, marketing, promotional and supply chain improvements.
It is absolutely necessary for SMEs to strike the right balance between growth and meeting the market demands on time and hence, R&D can play an important role in meeting these desired targets.
R&D means gaining knowledge about any particular product, process or service, which is again used for developing new or improving products, processes and services that help meet the market demand.
Usually, a business chooses to carry out R&D with the aim to either develop new products or procedures, or to improve the existing products, procedures. R&D is considered as one of the means by which businesses can strengthen future growth prospects successfully.
Though R&D is considered synonymous with high-tech companies, but many established consumer goods companies spend large sums of money to improve old products with the help of R&D. Reports suggest that on an average, most firms spend just a miniscule percentage of their revenue on R&D (usually under 5%). But, it has been found that companies engaged in sectors such as pharmaceuticals, software and semiconductor spend slightly higher on R&D. SMEs though are seen distancing from R&D.
It is believed that R&D activities can be carried out in-house or out of house (in cooperation with other firms or specialised institutions). The main point that comes to forefront while talking about R&D cooperation is the choice between internal and external R&D activities. The choices between these options vary on the availability of technological awareness, expected outputs, risks along with the costs.
There are few reasons such as high risks, costs and absence of available knowledge that mainly compel companies to look for external partners. The development of an optimal mix of external knowledge resulting from market opportunities and within the firm helps in carrying out R&D activities.
Understanding relevance of R&D and why it matters
The significance of R&D cooperation has jumped considerably in the last few years due to the change in market conditions. The importance of R&D comes with factors such as complexity, risk and cost of innovation activities. In regard to organisational modes, R&D cooperation usually differs from wholly-owned subsidiaries.
R&D has a significant role in the innovation process, which is important for the current and future profits for SMEs. It is believed that innovation has potential to create high quality jobs, successful businesses, better goods, improved services and also raises the efficiency level of processes.
Global research shows that R&D investment intensity and company performances share an important relationship. Businesses are able to position themselves better in the present global crisis with the help of R&D.
It also leads to valuable inventions, ideas and designs which can have potential value when it comes to gaining competitive advantage.
Presence of R&D in India
Time and again, Centre has pushed and promoted the concept of R&D among Indian companies. Recently, Prime Minister Manmohan Singh said that the spending by Indian industry on R&D is quite low. Reports suggest that the overall R&D expenditure as a percentage of GDP needs to rise to 2% by the end of the 12th Five Year Plan from the present level of 0.9%. It can be attained if industry, which is responsible for 25% contribution to the total R&D expenditure today, raises its contribution.
India is home to various R&D hubs of global companies such as GE and Motorola, which shows that there are ample opportunities available in India that can be tapped. India houses nearly 1300 R&D units. Reports suggest that India's main competitor China is making considerable improvement in enhancing its R&D sector. Analysts feel that India should incentivise private R&D investment and also steps needs to be taken to raise public-private partnership (PPP) in this sector.
The Indian government has been offering fiscal incentives and also support measures to encourage the setting up of R&D units among the private, joint and public sector industrial units. Approximately 70,000-80,000 people are currently working in the R&D units across India.
It is important that funds are pumped into R&D programmes along with the alignment of the company strategy as time and again, it has been proved that innovation can bring desired results. A corporate organisational innovation culture which comprises of R&D is the need of the hour to attain success amid global economic meltdown.
It is believed that innovation initiates with the consistent desire to be out front along with exploring new territories.