06 December 2008

Four Reasons Economic Downturn is Good Timing For R&D

Global economies run in cycles. What goes up must come down. Likewise, we hope that what goes down must come back up. When we understand economic cycles we see, however, why a downturn is a good time to invest in R&D. Obviously cuts are in order during a downturn, this article explains four reasons why R&D shouldn't be one of them.


1) R&D is a better bargain. Economic downturn is a buyers market. Corporate lay-offs and budget cut-backs can yield a multitude of redundant professionals for cherry picking. The well known Bersin & Associates encourages "Rather than 'freezing all hiring', you should use this as an opportunity to upgrade your own organization. " Supply vendors, also under increased financial pressure, may lower prices for you to maintain sales. For those with cash, downturn is time to buy up, not sell out.

2) R&D keeps businesses internationally competitive. Most companies would agree with this. Some examples are
Taiwan, North Ireland, and the USA. R&D also finds smarter and cheaper ways of doing things internally, thus directly saving companies' capital. Some governments award subsidies to product innovation, especially to innovation that will be exported.

3) R&D investment is easier to focus. Poor R&D investment quickly becomes manifest. Durable brands and quality products distinguish themselves from gadgets that consumers start doing without when belts tighten. In times of financial crisis, well focused R&D spending can really make products stand out from the crowd. Develop products and services still appealing to the buyers who do have money, not those who don't.

4) R&D discovers new markets. A recent Business Week article entitled
"Innovate Out of the Economic Downturn" called R&D related activity "the single most important condition for transforming the crisis into an opportunity". An example of this is seen in the American Biomedical industry. "The CHI and PricewaterhouseCoopers 2002 report, "Biomedicine: The Next Wave for California's Economy," showcases the importance of medical and biomedical research, development, and manufacturing to California's regional economies and ultimately, to the nation's health." - Business Wire


The afore-quoted Bersin & Associates went on to state, "Downturns should be expected, so plan for them. Do not be surprised or panic." Financial downturn can be a reckoning to see who really has planned properly - and who hasn't. Those who have planned for rainy days should reap these rewards of innovation at lower costs than during periods of economic growth, resulting in more competitive products and services to offer for the economic cycle's next financial upturn.

1 comment:

CADDIT said...

Our analysis was recently vindicated by the auto-maker bankruptcy drama unfolding in the USA. Ford says the carmaker "kept up R&D spending when sales slowed". They are the only ones to have escaped relatively unscathed. Interview here: http://money.cnn.com/video/news/2009/07/07/f_co_ford_bankruptcy.fortune/index.html (video)

Thanks to everyone for reading and their positive expressions.

Google.