R&D Partnerships: Benefits and Considerations
The average business spends less than 5 percent of its revenue on research and development (R&D). As vital as researching the development of new products and services is to long-term success, the costs and risk involved in such initiatives often limit businesses from investing in their longevity.
Among other advantages, research and development partnerships offer businesses a way to maximize their return on R&D investments and gain quick or affordable access to technology that can galvanize new research techniques. So how are organizations around the world using R&D partnerships to their advantage?
What Are R&D Partnerships?
R&D partnerships are strategic partnerships between businesses and organizations capable of developing a new product or service (or improving an old one) and others who have a financial interest in the development of such innovations. Investors are often entitled to a percentage of the product’s profits, if any, along with other benefits.
By definition, a research and development partnership is a type of partnership devoted to the research and development of new products and services. This type of partnership is made up of limited partners who all contribute funds to pay for certain research and development opportunities. The partners providing the funding are entitled to a percentage of any income derived from the investment.”
Due to the unpredictable nature of research, R&D partnerships are not without risk. In many cases, however, R&D partnerships bring about valuable innovations and often provide the only way organizations can stay ahead of their competition in the long run. R&D partnerships are especially popular among government entities, technology companies and medical and educational institutions.
Benefits of R&D Partnerships
R&D partnerships exist between parties from all sectors. In some cases industry members contract with a research group or groups to help them advance their business. In other cases government groups offer funding to research consortiums to spur innovation. Still other R&D partnerships, such as government-university-industry partnerships, incorporate members from a variety of sectors in order to reach a research goal. Below are some of the benefits these and other types of R&D partnerships can bring.
R&D partnerships aim to produce new or improved products or to innovate operations. When they succeed, R&D partnerships help organizations stay ahead of the competition and maintain customer satisfaction over time.
Depending on the nature of the partnership, investors will receive a percentage of the product’s profits, if any, along with benefits like depreciation of equipment. Profit sharing is defined in the R&D partnership agreement.
Cost and Risk Sharing
Just as profits are shared among partners, so too are research and development costs and the risks associated with the investment of time, money and other resources. Sharing risk in this way can help members, especially those that are smaller or less established, take on more ambitious and potentially more valuable R&D projects.
By pooling resources like funding and special knowledge, members of R&D partnerships often produce results faster together than they could alone. This means that, through their collaboration, R&D partnerships can accelerate the creation phase and bring potential new products or systems to market faster.
Some R&D partnerships are designed to place more weight on resource sharing than on creating new products. In this case members have the opportunity to improve their own systems and offerings without investing in often costly assets like prototyping equipment, access to research documents, etc.
Access to New Markets
Often times partnering around R&D gives businesses the opportunity to test products in new markets. For example an organization aiming to develop more hearty crops could enter into an R&D partnership to test new breeds on various continents.
Research and Development Tax Incentive
In some cases investing in R&D can reduce taxable income. If this is of importance, members should look into potential R&D tax credits before investing.
R&D Partnerships: Considerations
Though R&D partnerships can bring about a competitive edge, increased profits, and a faster time to market, certain considerations must be made before a project goes live. Financials, results monitoring and intellectual property should be special considerations during the partnership planning phase.
Whether a partnership is between research and development companies and industry members, government, university and industry entities or more, the most successful partnerships clearly define investments, profit sharing and the ability to buy back IP in their R&D partnership agreement.
It’s not uncommon for R&D partnerships to involve multiple independent research teams. In these circumstances it’s especially important that research quality and information sharing is monitored. According to Jean-Marcel Ribaut, director of the CGIAR Generation Challenge Programme for resource-poor farmers, this is one of the hardest things to get right:
“A key challenge in true partnership is to strike the right balance between management that serves the Programme as a whole and creating ownership so all partners can nurture a network spirit.”
If R&D partners find a systematic way to share key information amongst themselves, track progress and spearhead separate areas of research, the partnership will be more likely to find success.
In the case of a cross-border R&D partnership, members should generally look to file patents and other intellectual property protection in both their home country and the country (or countries) the project is operating in. In some cases filing multiple international patents might be the best course of action. Checking with a patent law expert for best practices will help protect and retain your intellectual property.
R&D Partnerships in Action
R&D partnerships often allow industry leaders from different sectors to collaborate around common goals, pooling their knowledge and resources to advance technologies or systems. The Partnership for Research and Innovation in Sustainable Manufacturing, for example, is a collaboration between the University of Kentucky Institute for Sustainable Manufacturing and other industry members which aims to make U.S. manufacturing more competitive on a global scale. Specifically the Partnership aims to carry out a roadmapping effort for identifying and prioritizing significant challenges to achieving sustainable, closed-loop and advanced production processes across the U.S. manufacturing sector. The Partnership received $500,000 in support from the National Institute of Standards and Technology to pursue its goals.
Grow Your Business through R&D Partnerships
R&D partnerships have the potential to bring your business a competitive edge that will lead to long-term growth. When financials, results monitoring and IP concerns are handled well, R&D partnerships can be hugely beneficial.
Do you feel joining with R&D partners is the right next step for your business growth? Learn more about our business matchmaking platform, where businesses find customers, suppliers, partners and even get investment, financing or credit for your company. Fast.
Featured image by Geir Mogen, NTNU