Research and Development R&D

The phrase research and development (also R and D or, more often, R&D), according to the Organization of Economic Cooperation and Development, refers to "creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications"

In 2006, the world's four largest spenders of R&D were the United States (US$343 billion), the EU (US$231 billion), Japan (US$130 billion), and China (US$115 billion). In terms of percentage of GDP, the order of these spenders for 2006 (no figure available for China) was Japan, United States, EU with approximate percentages of 3.2, 2.6, and 1.8 respectively. The top spenders in terms of percentage of GDP were Sweden, Finland, Japan, Korea, Switzerland, Iceland, United States, followed by 9 other countries, and then the EU.

In general, R&D activities are conducted by specialized units or centers belonging to companies, universities and state agencies. 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 without predetermined outcomes and with broad forecasts of commercial yield.

Statistics on organizations devoted to "R&D" may express the state of an industry, the degree of competition or the lure of progress. 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 U.S., a typical ratio of research and development for an industrial company is about 3.5% of revenues. A high technology company such as a computer manufacturer might spend 7%. Although Allergan (a biotech company) tops the spending table 43.4% investment, anything over 15% is remarkable and usually gains a reputation for being a high technology company. Companies in this category include pharmaceutical companies such as Merck & Co. (14.1%) or Novartis (15.1%), and engineering companies like Ericsson (24.9%).

Such companies are often seen as poor credit risks because their spending ratios are so unusual.

Generally such firms prosper only in markets whose customers have extreme needs, such as medicine, scientific instruments, safety-critical mechanisms (aircraft) or high technology military armaments. The extreme needs justify the high risk of failure and consequently high gross margins from 60% to 90% of revenues. 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 only 40% revenues.

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

Research often refers to basic experimental research; development refers to the exploitation of discoveries. Research involves the identification of possible chemical compounds or theoretical mechanisms. In the United States, universities are the main provider of research level products. In the United States, corporations buy licenses from universities or hire scientists directly when economically solid research level products emerge and the development phase of drug delivery is almost entirely managed by private enterprise.