Expenses for development of new products and services by a company in order to obtain a competitive advantage.
Investments in Research and Development (R&D), as planned costs, can be increased or decreased depending on the nature of the business needs and the priorities of the financial policy.
Many organizations divert funds and efforts into R&D, either to enhance their current product design or to develop new products for future exploitation. This investment can be substantial, particularly in the drug and high tech industries where R&D/Sales might reach up to 10% or 15%. On the other hand, some industries, such as retailing, traditionally spend little on R&D : R&D/Sales is usually below 5%.
Minimizing R&D expenditure can lead to an improvement in short -term profits, but could adversely affect profitability in the long run, particularly if a competitor's R&D activities are aggressive.
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