The importance of R&D
Research and development helps a business stay competitive, but it involves a huge cost.
Mar 17, 2012 08:00 am
When times are tough and cash is in short supply, research and development takes a back seat. “Many companies would concentrate more on sharpening their core competencies than in developing or innovating new products,” says Mercy Gamboa, business and marketing product consultant. Many businesses perceive research and development as a slow and unproductive exercise that does not lead to tangible and immediate results.
But Richard Sanz, president of The Tea Square Co., seller of specialty iced tea and bread sticks in carts, thinks differently. “The Filipino consumer is always on the lookout for something new,” Sanz says. “That’s why if we want to be competitive, we really have to develop new products.”
Indeed, research and development is eating up between five percent and 10 percent of the Tea Square’s operational budget, but Sanz thinks his investment has been paying off. “So far, we don’t have any product that has flopped in the market,” he says, even going on to consider R&D as a key strategy to developing the business.
It takes The Tea Square one to two months to develop a new product, which begins with Sanz gathering friends whom he thinks represent his target market and getting them to sample the product. If the new concoction passes his friends’ muster, then it goes into the menu. “I think the success that we’ve had so far in developing new products comes from the value we give to R&D,” he says.
Chemrez Inc.’s expansion into coco biodiesel production is also a result of a substantial investment in R&D. Established in 1991, Chemrez was a manufacturer of polyester resins, paints, and coconut-based oleochemicals. It went into biodiesel following a study that showed biodiesel, an oleochemical by product, could be used as a diesel fuel substitute. Now Chemrez is slowly making a name for itself as the largest producer of coco biodiesel in the Philippines.
“We invested P650 million to build an oleochemical plant that would also house the first biodiesel plant in Asia. That is how much we believe in our R & D,” says Carlos Palad, Chemrez public affairs officer.
The company’s R&D investment has indeed been substantial, as can be gleaned from its creation of a department devoted solely to product development and research and a laboratory where pilot production; color-matching and tinting; product analyses; and application, accelerated, and stability tests are being done to serve a slew of clients that include the Tokyo Metropolitan Government, Fortune Tobacco Corp., and RRCG Bus Lines.
The coco biodiesel is considered to be a prime find. Currently being marketed as a fuel enhancer, the product was developed closely with the Asian Institute of Petroleum Studies and the Department of Energy. As a fuel alternative, coco biodiesel is being pushed for its “cleaning” properties that help reduce vehicle emissions and remove harmful gases resulting from inefficient fuel burning.
Chemrez produced 14.4 million liters of coco biodiesel in June 2003. A year later production shot up to 78 million litters, and again to 98.5 million letters last year, raising the company’s hopes that their hefty investment would pay off in the end.
“R & D is an important tool for companies,” declares Gamboa, who has done consultancy work for multinational companies like Citibank. For companies, especially entrepreneurs, it is necessary to engage in R & D to develop new products and remain competitive in the market. “Businesses need information and this is one way of getting information not only internally but also externally.”
And because lack of budget will always be the concern of any entrepreneur wanting to do research and development, Gamboa suggests the use of available sources, like the Internet, in doing preliminary work.
“However you want to do it, whether small scale or large scale, it is important to invest in R & D and understand its value to your company,” Gamboa says. Besides, in business, one has to spend money to make more money.