To what extent is it necessary for companies to reinvest profits in research and development?
In the past 20 years, intellectual property has been highly respected in the world. In other words, there has been a majority of companies that paid more and more attention with regard to the performance of department of research and development (R&D), and especially for technologic corporations that own the fast product-life-cycle. Despite the fact that some people will argue whether reinvesting more source in research and development is successful strategy or not, an important issue for management studies would be normally discussed to be to what extent companies have to reinvest in research and development. This essay will seek to discuss some solutions of a number of large technologic companies form different views and also try to find the optimum one. Firstly, there are two solutions will be discussed. Secondly , They will be compared each other. In the end, the essay could summarize that which solution is the best.
One way of solving the problem would be to undoubtedly reinvest a significant amount of profits in R&D, even if it may occupy more 15% of the revenue. In fact, John Madden (2010) emphasized that “Most successful companies reinvest 3-6% of net sales into research and development” and some companies in the specific industries would arrive at 15% of revenue into R&D. In addition, according to Chesbrough, H. W. (2006: xix), “Internal R&D was viewed as a strategic asset and even barrier to competitive entry in many industries”. In particular, those enormous technologic corporations with considerable capitals and extended schemes of R&D could compete, such APPLE, IBM and HTC. Therefore, it could be said that the solution entirely agree R&D is a vital cycle and asset in developing company. Evidence indicates that most products of technologic corporations be probably own shorter product-life-cycle. As a result, R&D will...
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