Consider the factors that might determine whether an increase in Research and Development would improve the financial performance of UK manufacturing firms.

Research and Development can often be a very risky process, since much money can be spent on ideas that will never be commercialised. In product oriented firms, such as manufacturing companies have many factors which affect their financial performance. Research and Development is a useful way of improving profits, if there is significant funding, to employ scientists and researchers to produce and develop the most technically advanced products to date, which can then be marketed and turned into cash cows or stars. Also Research and Development could develop new methods to produce existing products, to lower average costs. However this depends on the skill of the scientists and researchers, because despite how much money is pumped into the Research and Development department, without ideas, invention and innovation the business will have no rewards. Furthermore, even if Research and Development does

its job, this will be worthless if the manufacturing firm has too specialised equipment, which is unable to be flexible enough to change to creating this new product or process. With a manufacturing firm, and almost all companies there is a balance needed between, quality, price, and costs. If for example Research and Development produced a higher quality product, then this may cost more to produce, but may gain the benefits of been able to charge higher prices. However, say for example this manufacturing firm was producing scissors, and the R & D department produced a titanium sharpest ever pair of quality scissors. The quality would undoubtedly be higher, but their may not be a market or demand for a higher quality product, when steel scissors and low prices do the job practically just as well, and are ultimately cheaper.

Also with UK manufacturing firms, especially those which import or export merchandise, the state of the economy and exchange rates may also affect their financial performance. For example, R & D could create the greatest product ever for this UK games console manufacturing firm, but if this company exported all its products abroad to France, and France was in the middle of a very bad recession, then luxury products such as games consoles would take heavy losses in sales, and therefore reduce profits. External factors such as this, and the type of products the company manufactures could ultimately affect the end result, despite the efforts of R & D. Also to a certain extent the rate of interest can also be a factor, because if a company can borrow money more cheaply to fund R & D then this can allow the process to be started more promptly to ultimately see any benefits sooner rather than later. Research and Development effects can also rely on timing, if the manufacturing firms products are starting to drift towards been dogs, then R & D may be used to attempt to force the products into either cash cows, problem child or even stars.

As is clear by now the businesses which are most likely to succeed in the future are those which develop more new products than their closest rivals, bring their new products to the market in less time than their rivals, compete in more product- and geographic-markets than their rivals, and provide very strong after-sales service to customers. The deciding factor in whether or not R & D may improve the financial performance of a UK manufacturing company could be many things, which depends on the type of product they are producing, its geographical location, the state of the economy, the firms flexibility to produce new products, the skills and funding put into the R & D process, the Corporate Culture, whether it encourages innovation and creativity, or whether it promotes more traditional tayloristic principles. Finally, the short term and long term objectives of the firm also affect its financial performance, whether its plans are to develop new products with short life cycles to continually adapt to the changes in consumer needs, or whether to economize and focus on long term survival.