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In any industry, the top management of the companies decides on budgets
of spending on R&D and marketing because this decision will affect future
sales, besides future success. It is not easy to make such decisions and they
always involve trade-offs. Also it depends on the type of industry, whether to spend
more on R&D or marketing. High technology companies are highly dependent on
R&D and so the most crucial part of budgeting decision is the trade off between
R&D and marketing. In this paper, effort has been made to analyze the effect of
R&D and marketing (taken together) on the sales growth of
companies after considering 10 industry groups of India, which are more technology-oriented
(high spending on R&D). This analysis will help to answer questions like
`Does R&D and marketing really contribute to sales growth in all types of industries in
India?' Also it will shed light on the topic of effectiveness of R&D versus marketing on
sales growth in the Indian industries. The study gains relevance in the light of
high growth in R&D spending among the Indian companies. Investments on
research have grown from Rs. 2,405 cr to Rs. 5,333 cr
in the last five years. Also the
sectors like pharmaceuticals, automobile, petroleum, IT/software, electrical
equipments, engineering, etc., have spent more on R&D in FY 2006 than FY
2005. All these make it more important to analyze whether these spendings are fruitful or
not, or marketing is more important. The sectors considered (on the basis of data
from CMIE Prowess database) are base metals, electrical machinery,
nonelectrical machinery, electronics, chemicals, transport equipments, textiles,
nonmetallic mineral products, plastics and rubbers, and food products, beverages
and tobacco.
Odagiri (1983) has studied in detail the relationship between R&D and
sales growth for Japanese manufacturing corporations, by taking 13 industries
into consideration. A total of 370 manufacturing companies were considered for
the period of 1969-81 and through correlation and regression analysis
relationship was explored between sales growth, R&D intensity (ratio of R&D expenses
to sales) and royalty intensity (ratio of patent royalty payment to sales). Not
only the effect of R&D and royalty on sales growth was analyzed, but also the
effect of sales growth on R&D and loyalty was explored. Study on R&D spending of
the US companies for the period 1976 to 1985 showed strong relationship
between R&D and company performance (sales growth), but no correlation between
R&D intensity and profitability growth and also increasing sales growth did not
lead to increased R&D allocations (Morbey, 1988). R&D is considered core
business strategy of the firms in order to compete in the market; it is a measure
of innovation (Ural and Acaravci, 2006). On the other hand, expenditures
on marketing activities are for serving the purpose of market penetration and
market penetration is a strategy for growth of the firms (Ural and Acaravci,
2006). Marketing activities like price cuts, advertising, etc., increase usage of
current customers, attract new customers, and thus, increase sales. The ratio
of marketing expenses to sales (marketing intensity) is a good indicator of
marketing efforts. |
