University Research Centers and New Product Development for Small High-Technology Firms

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UNIVERSITY RESEARCH CENTERS AND NEW PRODUCT DEVELOPMENT FOR SMALL HIGH-TECHNOLOGY FIRMS

Small businesses account for about 95 percent of all U.S. businesses and generate almost 43 percent of the U.S. gross national product. It appears that small firms--even small high-technology firms--tend to remain small. Growth is an obivous and serious problem for most small firms. In order to grow, they must compete not only among themselves, but also with larger firms.

It has been suggested that small firms competing in industries dominated by large firms (as is the case with many small high-technology firms) should carve out specialized niches within the market; niches that larger firms are unwilling or unable to fill. Although niches can be developed geographically or in terms of customer order quantity sizes, a more common strategy requires that small businesses develop new products to be sold to specialized markets. Often, buyers of such products are large firms.

Thus, for many small, high-technology businesses, survival and growth require the development of new products for several specialized markets. The development of new products, however, usually requires undertaking research and development (R&D). This can pose serious problems for small firms. It is estimated that all U.S. small businesses account for less than 5 percent of total R&D expenditures throughout the nation. Although it is likely that the high-technology segment of small business is more capable of successful R&D efforts than their low-technology counterparts, it is nonetheless clear that even the former group has experienced problems related to R&D.

The purpose of this article is to report the results of a survey of University-Affiliated Research Centers (UARCs). The survey investigated product development and other services available to small businesses, along with the reasons for small business failure to take full advantage of thee services.

RESEARCH AND DEVELOPMENT

IN SMALL HIGH-TECHNOLOGY

BUSINESSES

A firm's R&D efforts and its success in developing new products are closely related in high-technology industries. R&D is thus a very important component of the new product development (NPD) process. All businesses can develop new products and processes in two ways: internally, or by engaging external assistance. Intenal development of new products requires that a firm have in-house R&D capabilities, as well as the ability to generate ideas for new products, to analyze their potential profitability, and to market them. The capital expenditures and the associated fixed costs for such an undertaking are often beyond the means of even well-established and profitable small businesses.

External new product development involves contracting the services of private laboratories or firms which specialize in the development and testing of products for their clients. Because of the temporary, task-oriented nature of this relationship, the fixed costs and capital expenditures associated with external new product development are substantially lower than mainteance of in-house facilities and staff.

Factors other tahn fixed costs also play a part in the decision to develop new products, whether internally or externally. For example, firms that practice a follow-the-leader strategy with regard to new products and those planning new products similar to their existing ones can probably better rely on internal resources than firms that seek to be first in the market with new products or to develop new products that are very different from their current offerings. The latter strategy requires levels of creativity, innovativeness, and expertise which many large firms and most small ones do not have.

In short, for many small high-technology businesses, external development of new products and processes is clearly the best strategy to use to (1) conserve financial resources and (2) develop state-of-the-art new products which permit successful cmpetition with larger firms. …