R&D is the cornerstone of innovation – thanks to constant research, new products are born, and the old ones get modern updates. Several decades ago, only large companies operating in scientific or industrial niches could afford to maintain an R&D department, however, today Research and Development have become a vital component of small technology startups with big ambitions.
- What is an R&D center and what is its role in software development?
- Can you do without R&D if you want to drive innovations and become a market leader?
- If you want to create a Research and Development department, what are the most affordable and risk-free ways to do so?
You will find answers to all these questions below.
The R&D center: meaning in software development
You can become a market leader with brilliant intuition and a bunch of luck, but succeeding becomes much easier if you have a Research and Development team. Just think of all the tech giants like Amazon, Samsung, and Facebook who spend billions of dollars every year! They invest in understanding their clients, getting insights, and improving their products day by day.
According to Nasdaq calculations for 2020,
- Facebook spent $18.45 billion, or a fifth of the company’s income, on research.
- Samsung spent $18.75 billion on research and development and got 6,415 patents.
- Apple is on par with Samsung and has also spent $18.75 billion on its R&D centers. The company ended the year with 2,791 new patents in its pocket.
- Microsoft has invested $19.27 billion in research and development. As a result, the company received 2905 new patents.
- Huawei has invested $22.04 billion in Internet research, 5G, and other technologies. At the end of the year, the telecommunications giant had 2,761 new patents.
- Amazon is the undisputed leader in spending on research and development. In 2020, the corporation spent a staggering $42.74 billion on research, for which it received 2,244 new patents.
Behind each of these patents is an innovation that will improve technologies and the lives of millions of people; or a discovery that will save its holder billions of dollars. All of them are forces for progress and a guarantee that companies will continue to hold leading positions in the market.
Just because the biggest, richest, and most innovative companies invest huge amounts of money in research doesn’t mean that your company should do the same. Unless you also want to take a leading position in your niche.
R&D as the first step in innovative software development
R&D is much more than the first step. This is the path you need to take before your research can finally pay off. One of the R&D peculiarities is that investments in research tend to have a delayed effect and sometimes don’t increase company revenues.
R&D can be divided into two sectors: Basic research and applied research. Basic research considers all opportunities for growth and innovation. The results of such research often don’t lead to the immediate creation of something new. Applied research, on the other hand, seeks solutions to specific problems.
For example, let’s say you’re designing health care software for people who want to lose weight. Your ecosystem already has a smart scale, a fitness band, and several calorie-counting apps. What else do you need to become a leader in this field? To answer this question, you will conduct basic research.
Image source: Matine for Acedesign, Dibbbler
Let’s assume that your basic research brought you to the conclusion that you must develop artificial intelligence that can determine the weight and calorie content of food by a photo. This is a long game – many of your competitors have already tried to invent this kind of AI but failed.
- How much do you believe in this idea and how much money are you willing to invest in its development?
- Do you think you can get a tax credit or any kind of investment from the government? After all, the whole sphere of public health would benefit from your invention.
- What kind of specialists should be included in your R&D group to study this issue?
- Will this technology be useful and appealing to your target audience?
After answering these questions, you can move on to the next stage: Applied research. If you can create an AI that can calculate calories by photo, you will revolutionize the niche of weight-loss apps and become the undisputed market leader. If you fail to invent an innovative approach to solving a problem, you will lose your investment.
Investing in R&D is a rather risky business. The probability of not getting a return on investment is extremely high. However, the benefits of successful research are undeniable.
Three ways to establish an R and D center
There are several ways to obtain research results. You can do research by yourself, you can become an investor for an existing R&D center, or you can delegate your problem to a contractor researcher. Each of these methods has its pros and cons.
1. Create your in-house research center.
If you are a US-based company that has decided to open a research and development center in your home country, you can receive an R&D tax credit from the government. This is the gratitude of the state to businesses for their striving for innovation and moving society forward. However, even though you get this nice little bonus, your spending on research will still be very high. The huge parts of your expenditures are going to be the wages of your R&D engineers.
According to Indeed, this is how much R&D specialists earn in different US cities:
- Product Development Engineer – av. $89,695
- Research Scientist – av. $78,052
- Process Engineer – av. $88,088
- R&D Engineer, New York, NY – av. $106,700
- R&D Engineer, Santa Clara, CA – av. $148,690
- R&D Engineer, Albuquerque, NM – av. $124,111
Today, the US spends huge budgets on research ($664,066 billion in 2020). The country has a culture of investing in innovation and research, but if you’re a small company that can’t invest 15% of your income in research, you might want to consider a more budget-friendly way to innovate your products.
2. Invest in someone’s research and wait for the dividends.
Significant innovation breakthroughs usually occur in large corporations and not in small startups, but there is still a culture of investing in small but ambitious companies. As an investor, you can interact with any research institution or research center. If you are not ready to shell out a tidy sum for the creation of your own research center, you can always invest as much as possible in other centers to further benefit from the achievements of researchers.
3. Hire a contractor to do the research for you.
R&D outsourcing is an option for those companies that need high-quality research but are not ready for the costs associated with such research in their country. By choosing a country where the salaries of R&D specialists are lower than yours, you can save a lot of money. Don’t think that lower salaries mean lower professionalism of foreign experts, though. For example, in India, the Philippines, Ukraine, or Poland, the development cost can be several times cheaper than in the USA, Great Britain, or Israel simply because of the lower salaries of local specialists.
You’re not going to be alone in your decision to outsource R&D. The popularity of outsourcing research and development is confirmed by statistics collected by Deloitte. Although a fairly high percentage of companies choose to create corporate in-house research centers, 48% of companies surveyed by Deloitte chose to outsource their R&D centers.
Best countries for outsourcing R&D services
This countries we have chosen have three things in common:
- There are relatively low salaries for R&D specialists,
- There are many IT specialists who will help you research the market and opportunities before developing software,
- Their tech talents are skilled and show high levels of research and development.
India
Long gone are the days when the Indian code was considered low quality. Today, India is one of the leaders in the export of IT services, including research and development. In addition to the high level of professionalism of technical specialists from India, it is worth noting their relatively low salaries. According to Glassdoor, the average monthly salary of an R&D Engineer in India is ₹1,15,582* which equals $1,426.
The Philippines
The Philippines has become one of the favorite destinations in Asia for outsourcing IT services. Like India, the country has a high level of English proficiency, a high level of professionalism of technical specialists, and low salaries. The average salary of an R&D Engineer in the Philippines is ₱26,500 which equals $452.
It is also worth noting that the Philippine government strongly encourages the export of IT services and creates profitable conditions for mutually beneficial cooperation between the Philippine IT companies and their foreign clients.
Ukraine
Despite the war, Ukraine remains one of the most attractive places for outsourcing IT services. Almost all IT companies that were located in the east or south of Ukraine moved their employees to safer regions of the country, and many companies open new offices in other countries of Central and Eastern Europe.
MWDN is among the Ukrainian research and development companies that decided to relocate their staff to safer places. Some of our tech experts are in Kyiv and Lviv, and some of them have moved to Central and Western Europe. Moreover, we’re planning to open new offices in Warsaw (Poland) and Budapest (Hungary).
If you choose c by MWDN, our experts will provide you with an in-depth market analysis and set of tools and technologies, so you can create innovative software in the most competitive market niches.
More than a hundred research centers are now operating in Ukraine, including Amazon, Samsung, and Oracle. The salaries of Ukrainian developers are also significantly lower than in the US, UK, or Israel. The average salary of an R&D Engineer in Ukraine is ₴40,000 which equals $1,080. To find out how much R&D services will cost you with MWDN, contact our managers.
Poland
Poland is another significant technology hub in Europe. The country actively exports IT services and has highly qualified specialists. In addition to that, Poland invests a lot in its research – in 2020, for example, the country spent 1,3% of its GDP or $16.504 billion on R&D. These numbers prove that the country has a developed culture of research. At the same time, the average salary of an R&D Engineer in Poland is relatively low and composes only Zł6,940 which is $1,435 per month.
* All salaries are taken from open sources like Indeed and Glassdoor. These are average figures, the rates of the companies you contact may differ from the salaries indicated herein.
Summing up
- R&D is a significant component of any technological innovation. Without R&D centers, commercial corporations would not be able to move the world of science and technology forward.
- R&D is quite expensive. Market giants spend an average of 10-15% of their income on research. These investments rarely pay off instantly, as R&D is a strategic choice.
- If your business is located in the US, you can save a lot with the R&D tax credit, which applies to both in-house R&D centers and outsourced R&D teams in foreign countries.
- Outsourcing R&D is one of the ways to make research more affordable for small startups. You can save a lot on wage discrepancies in different regions of the planet.
- MWDN provides pre-development research services for your startup. We will help you analyze the market and create a competitive product that your customers will love.