Denzil Doyle: R&D Junkies

Anyone who is involved in high technology in Canada would have to agree that the country has a very strong R&D lobby. Politicians and policy makers are bombarded with messages from both industry and academia on a daily basis saying that we need more of it, even though our incentives for doing it are already among the best in the world. And everyone in the debate is frustrated because they know that we are not getting the appropriate economic results from the R&D we are doing. As evidence, they point out that our economy is still too dependent on the sale of raw materials like lumber and minerals and that most of the technology that is developed for those activities tends to get developed elsewhere. They argue that if we were better at innovating, economic diversification would be automatic. And there is a broad consensus that R&D is the engine of innovation.

A closer look at those incentives will reveal that they may be a little too focused on R&D and not enough on other things that go into the commercialization mix, like marketing (and particularly market research), selling, raising risk capital, and product management. The country’s two most popular incentive programs are NRC/IRAP and SRED, but in order to use them effectively, a company must have a pool of its own cash to perform the other functions. And that money is hard to come by.

Unfortunately, many entrepreneurs and their financial backers believe that they can use the money from the R&D programs to finance those other functions and they keep on doing R&D when they should be out selling their products and services. They might be referred to as “R&D junkies”. They may even engage in contract research for companies and establishments that do significant amounts of R&D and are comfortable with contracting some of it out. As a result, they never do get around to developing the products and services that the original R&D was intended to produce. But so long as they are doing R&D, the R&D money will flow to them.

The fact of the matter is that contract R&D can be a very lucrative business, particularly if it is done for a foreign customer where sales taxes do not apply and the R&D money goes toward reducing the cost of sales. Also, it is an activity that requires very little selling and marketing effort because the Canadian R&D is usually of a very high calibre and tends to sell itself.

The way to keep the companies on their original paths is to provide them with enough money to perform all functions adequately and have them report on such expenditures to their investors on a regular basis. May parties must play a role in the transition process including our trade associations who are too quick to join in the chorus for more R&D incentives.

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