Research or development?

According to a report released by the Department of Industry Tourism and Resources which was prepared by Antonio Balaguer, Steven Playford and Ian Tranter of the Innovation Division, R&D expenditure by industry is not a stable and predictable beast.

Three hundred and fifty-three firms with long histories of R&D expenditure were identified from R&D tax concession data and the report claims that "75% of Australian firms examined have moderate to highly variable patterns of R&D expenditure over time".

It is conjectured that the variable patterns may "be a consequence of the dynamic environment in which firms operate, for example, responding to customer demands or competition".

Further through the report it is revealed that many firms have altered their approach to R&D. The focus seems to have shifted to incremental improvements which can quickly be brought to market quite quickly. These improvements frequently arise on a needs basis and are driven by the customer.

This approach is really development not research.

Interestingly, it seems that this change is consistent regardless of the size of the firm involved.

R&D has traditionally been subsidised by the government

Governments have traditionally subsidised R&D because it has been perceived that this investment has follow-on benefits to the larger community. In Australia, the R&D Tax Concession Scheme is the principal program by which the government provides assistance to businesses. At the end of the financial year last year, around 5800 companies, with a total expenditure of $7.7 billion, were registered for the 2004-05 financial year

However, if companies do not have stable, long-term commitments to their R&D programs is this government support achieving what is desired for the greater community? Could the forms of R&D assistance be modified to better address the needs of the community? Should companies have to commit to long-term R&D investment before they access government assistance?

The answer to the latter question may be yes when you consider that the study found that the 20 top beneficiaries of the 175% R&D Premium (who represented 54% of the total benefits of the Premium element in 2003-04) have a history of relatively stable R&D expenditure patterns.

The report makes interesting reading and can be found here.