MARATHA MANDIR'S

BABASAHEB GAWDE INSTITUTE OF

MANAGEMENT STUDIES
Topic : R&D Cost in Marketing, Treatment of R&D
Cost, ROI on New Product Development
Presented by :
Name Roll Number
A-22 Saumil Mehta
A-27 Affan Shaikh
A-34 Avinash Dhawal
Presented to :
Prof. Ganachri Sir
Research and Development Expenses In marketing
R&D expenses are a line item from many companies' income statements.

R&D expense (short for research and development expense) is essentially the amount of
money that a company spends to develop new products and services each year.

For example, if a pharmaceutical firm hires research scientists to develop new drugs, the
salaries of these researchers will generally be expensed in the R&D expense category.

Like marketing expenses, but unlike capital expenditures, R&D expenses are subtracted
from revenues every year directly.

Therefore, accountants treat R&D spending as an expense rather than as an investment,
though there is continuous debate over whether this is the correct classification.

This is the cost of discovering and developing new products or
services that fill market needs, including any labour, raw materials,
clinical trials, and other costs incurred during the process.

Research and development (R&D) can be thought of as investments
to fuel new products that provide higher margins or increased market
share.

Research and development expense is common throughout most
companies that produce some product or service- companies like
Nike (NKE), Procter & Gamble Company (PG), and Pfizer (PFE) all
invest heavily in R&D.

Research and Development Expenses In marketing
Overall Global R&D
spending
Geographical split of
R&D spending
Vertical split of R&D
spending
1
2
3
India presence of top
1000 R&D spenders
4
Vertical wise Intensity
of top R&D spenders in
India
5
After witnessing a decline in the FY 2010, Global R&D spending has increased
significantly in FY 2011. Both Net Sales and R&D Spending has increased
significantly with a growth of 13.55 percent and 8.2 percent respectively
The R&D spend for NA and EU is 36% and 34% respectively
As compared to last year the R&D spending for companies headquartered in
APAC has increased by 28% followed by NA 11%
Telecom & Networking, Electrical & Electronic equipment witnessed a
marginal increase in their Global R&D spending while Industrial sector
witnessed a decline
About one-third of the Global 1000 R&D spenders have centers in India
About 30 percent companies with HQs in EU are in India and about 15%
which have their HQs either in Japan or APAC, are in India
Software and Semiconductor are mature verticals in terms of R&D headcount
intensity in India.
Automotive and Aerospace are fast growing verticals
Source: Zinnov analysis of global top 1000 R&D spenders and India R&D landscape, The analysis has been done for FY2011

ize = Total India Market
USD 6.9 Bn
India accounts for a small proportion of the total
despite having a strong talent pool across verticals
R&D investments by global companies
MNC Subsidiary Talent Pool in India MNC Subsidiary R&D Investment in India (USD millions)
MNC Subsidiary Installed Talent Pool in
India = ~220,000
MNC R&D spend on headcount in India
= 7.0 7.5 billion USD
Aerospace &
Defense
2%
Computer
Hardware
and E&E**
12%
Telecom & Networking
Automotive
9% E&E** and Computer Hardware
Others
8.0%
Software/
Internet
34.0%
Semi
799
Industrial
7.0%
Semiconduct
ors
10.0%
Telecom &
Networking
17.0%
17
Source: Zinnov analysis of R&D landscape in India. **Electrical and Electronic equipment

Software/Internet
2841

Tel

1322

971


Semi

conductors

Automotive
773

Industrial
595

Aerospace & Defense
149

Others
660
Global R&D spend has Increased; however,
remained constant from 2007-08 to 2010-11
R&D Spending as percentage of Net Sales has
Global R&D Investments Growth Trends, 2007-11 Global Net Sales Trends, 2006-11
(USD Billion) (USD Billion)
600 17,500
17,000
580
16,500
560
16,000
540
15,500
520
15,000
500
14,500
480
14,000
13,500
460
2007-08 2008-09 2009-10 2010-11
2007-08 2008-09 2009-10 2010-11
R&D spending in FY 2011 witnessed an increase due to increase in spending of semiconductor, industrial &
consumer hardware and Electrical and Electronic equipment companies
Intel, Samsung, General Motors, Pfizer, Volkswagen are the few companies which played a key role in increasing
R&D spend in FY 2011

Source: Zinnov analysis of global top 1000 R&D spenders
*Conversion Ratio from EURO to USD- 1.324. 6

16,980*
16,684

15,336

14,953
582*
549
538
511
Treatment of R&D Cost
R&D expense is the amount of money that a company spends to develop New
products and services each year.

R&D Cost is subtracted from revenues every year directly. Therefore, accountants
treat as R&D spending as an expense rather than as an investment

As 26 Describe the accounting treatment of R&D expenses is expenses incurred
on research phase should be expenses as when expenses incurred on
development phase should be capitalized by satisfying given conditions but it is
not possible to classify the same then all expenditure incurred should be treated as
on RESEARCH phase and charged to P&L a/c.
Treatment of R&D Cost
R&D costs should be treated as capitalized or as a expenses

The allocation of the costs of research and development activities to
accounting periods is determined by their relationship to the expected
future benefits to be derived from these activities.

Research and development costs are therefore usually charged to expense in
the period in which they are incurred.

Deferred research and development costs are allocated on a systematic
basis, either by reference to the sale or use of the product or process or by
reference to a reasonable time period

The need to provide depreciation on fixed assets used for purposes of
research and development
ROI ON PRODUCT
DEVELOPMENT
STEP 1:
Understanding
product lifecycles to
determine
payback period
THE APPROACH
STEP 2:
Sales aging
Individual product profile

STEP 3: ROI



The ROI calculation can be
expressed by this simple
equation:
ROI = First Year Profit Contribution / Product
Development Cost

STEP 4: Diagnosis and treatment plan:
CONTD..
BENEFITS
Create a product development team scorecard

Define success

Focus efforts and resources on best profit potential
products