Business Risks Associated With R&D Activities

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Research and development is very expensive, time-consuming and risky. However, for certain sectors, R&D is the primary driver of new product creation and increasing revenues. Companies pursue R&D activities to add to products in the development pipeline and also to increase productivity and innovation, in general. Industries such as biopharmaceutical, semiconductor, telecommunications and other high-technology sectors are particularly reliant on R&D.

Strategic and Operational

Companies are able -- to some extent -- to exert control over strategic and operational risks. Managing these risks involves clear oversight over budget issues and ensuring adequate funding is available, as well as creating an atmosphere in which team members from various cultural and technical backgrounds are able to work efficiently together and meet projected deadlines. These risks also include poor goal-setting at the beginning of a research project and risks of bottlenecks occurring and significant changes needing to be made late in the development process.

Regulatory

Regulatory risks faced by the pharmaceutical and similar industries in the United States are notoriously difficult to manage and add substantial time and cost to new product development. One of the most serious regulatory risks is that a company allocates a large amount of funding to a promising product, only to have it held up in redundant test trials and potentially being rejected based on regulations that contradict those of comparable regulatory bodies in other Western countries. Companies may also have to face multiple regulatory frameworks in various countries if they want to sell their products globally.

External

External risks are extremely difficult to manage and can be almost impossible to prevent. These include political risks or shifting consumer tastes affecting later-stage acceptance of a product being developed. Also, macroeconomic risks can affect the products' potential market. Additionally, another company may bring a competing product to market, or the R&D process can take long enough for the product to be nearly obsolete at the time of its market launch.

Intellectual Property-Related

Intellectual property theft or counterfeiting is a huge risk faced by companies active in R&D. This risk is global, and a company's sole source of managing this risk typically involves filing patent and trademark claims and litigating, which can be expensive. Certain Pacific Rim countries are notorious for producing and distributing counterfeit products, often with their governments' tacit consent. Similar risks stem from corporate espionage and competing companies using extremely complex methods to bypass processes protected in patents.

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