The research objectives of BSF and expected outcome from the research

Author: Iloka Benneth Chiemelie
Published: 31st March 2017

Introduction

Over the course of the past two decades, BSF has been investing heavily on the development of fish feeds. Initial research features the use of plant-based and fish-based feeds. This received backlash based on the understanding that it only results to production of high quality fish for the rich, while leaving the poor malnutrition or even starving. As such, the company has reverted to other forms of research based on understanding how bacteria can be used to produce fish feeds from wood chips, residue of sugar cane, and recaptured methane gas. In essence, this paper is developed to analyze the research objectives of BSF, and to understand the company’s expected outcome from the research process.

Nature and value of the research being done by BSF Ltd

Basically, the nature of the research is on how to develop advanced fish feeds in order to ensure that sustainability is assured. In essence, the research is geared towards ensuring sustainable supply of fish feeds, which will effectively bring about sustainable fish farming. If such is achieved, there is no doubting the fact that it will create more value for consumer-based level by providing the market with high quality aquatic products that can be used to meet the daily demand for nutrition. The importance of fish in the daily diets of families across the world cannot be over emphasized. This is because fish is a direct source of protein, beta-carotene and other essential minerals that are necessary for effective and efficient functioning of the human body. In general, the value of the research is that it will help create sustainability in supply of fish, by creating sustainability in supply of fish feeds.

Problems with earlier research by BSF Ltd

The company’s first research collages due to high-value piscavorian fish (e.g. fish eating species such as salmon, trout, tuna and others) failed to thrive. In the CBC (2016) report, it was noted that the specific reason behind the failure is that while the plant-based fish feed were supposed to be a solution to the fish-based fish feed that are converted at the rate of 10.0kg of low-value fish to 1.0kg of high value fish, the conversion were actually 30.0kg of plant-based wet feed (prior to oven drying) into 1.0kg of high value fish-plu. Over 1/3^rd of the fish died (and this is a big failure compared with less than 1/20^th of the fish-based feeds), and the time required for growth almost doubled, added to the fact that the mature fishes where actually smaller (as they were only 60% of the final weight of those grown on the fish-based feeds).

Nature of research and development

By definition, research and development is the term used to describe the varied activities that are performed by an entity (independently or together with other entities) for the purpose of creating new or improved products and processes (Aghion and Peter, 1998). In its broadest meaning, the term does cover common scientific research that are performed within the universities and laboratories down to testing and refining products prior to commercialization or use of such products.

In the modern business setting, industrialization, globalization and internationalization of firms are creating new measures for performing successful businesses. Thus, it is possible that a locally owned company that is underperforming in its locale can actually be performing well in another country (Hall, 2006). The success of any business depends entirely on the potential of such business to offer products and services that meet the individual needs of consumers. In order to offer such products, the company first need to understand what the needs of these consumers are, after which, the company will be able to develop products and services that meet such needs. Thus, while they are independent (as functions) research and development run concurrently (as a decision). That is to say, for development to take place, it is important to research on what to develop and how to develop it, as well as whom (consumers) to develop it for.

Difference between research and development

Although they are concurrent as a function, research and development are different. For instance, research is basically geared towards understanding a need while development is geared towards providing such needs. This is also the major difference between them. For research, the objective is to understand what the consumers need (in clear details that include specifications, volume, monetary value and so on), as well as when the consumers need them.  On the other hand, development is all about satisfying the needs of these consumers based on the findings from the research (Hall, 2002). For instance, diet cola was developed to meet findings from research that consumers want a calorie free soda.

How research and development are accounted for

As noted earlier, R&D is a form of systematic activity that is performed by the company, which combines both basic and applied research for the purpose of discovering new solutions to existing problems, or to create or update existing goods and services. The act of a company performing a research normally result in the company owning the intellectual property right of such research, which usually come in the form of copyrights or patents.

Expenses is an important aspect of an entity’s R&D. In some cases, these expenses can be relatively minor or they could be billions of dollars in cases of large corporations. R&D are usually the highest expenses incurred by industrial, technical, healthcare and pharmaceutical firms. Certain companies made the decision to reinvest huge portion of their earnings into R&D, and this usually the case for technological firms which consider R&D as an important aspect of their continued growth (OECD, 2002).

Accounting for research can be independent or combined. In an independent case, the company funds all aspects of the research process and the outcomes are normally geared towards achieving personal goals set by the company. Normally, where the research is fully sponsored by the company, the company does retain all findings from the research for personal gains and development of products that will be used to solve the issues identified. R&D can also be sponsored by external partners outside of the company. For instance, governments can sponsor a research for universities or top researchers to investigate issues within the country. Finally, research can catered for by different parties coming together to form a unit with the findings to be shared by the parties involved. Thus, R&D are catered for internally by the company, externally by other parties that want research to be done for them, or by group of parties coming together to conduct R&D for their desired needs.

Reasons for the differences between research and development

Based on earlier understanding, the difference between research and development was identified as: research is based on identifying a problem, while development relates to solution for the problems. The reason between these differences is due to the overall purpose. All researches are geared towards identifying certain issues and recommending solutions to these issues, but they don’t all result in a development (OECD, 2003). That is to say, it is possible to conduct a research, identify the issues and recommend solutions to these issues without actually developing products or services that address the identified issues. Thus, the object for each development is the reason behind the difference between research and development.

Why companies engage in research and development

They are many reasons why corporations engage in research and development and they are related to the objectives identified and discussed earlier. They include:

·         To understand a need – the purpose of research is to understand what consumer’s needs. That is to say, the company wants to know why what they offer is not really valued by the consumers and the changes these consumers desire in order to effect purchases; or to understand existing needs of consumers that are not currently catered for.

·         To understand trends in choice – researchers are also conducted for the purpose of understanding new trends in choices. That is to say, the researcher want to understand what has changed over the years and the factors behind such changes.

·         To offer solution to an existing problem – once the needs and consumer trends have been identified, researches are also conducted for the purpose of understanding how the identified needs can be solved or catered for.

·         Develop new products and services – once a research has been successfully conducted, the solutions identified are used to develop new products and services to meet these needs. Such development will result to enhance value for the consumers are they can expect more form less monetary expenditure (OECD, 2003).

In summary, corporations undertake researches in order to understand how their performance can be enhanced by providing consumers with products and services that offer higher value. Additionally, they want to remain competitive by offering more values than their competitors or solving issues that have been ignored in the market.

Fair market value patent for the research

In the case of BSF as discussed above, it is expected that success in the research will help the company attain a net market value of $700 million by selling production patents, or generate $200 million per annum for 10 years by producing and selling the enhanced fish feed. In any case, the appropriate discount for this form of project is 8% of the defined expected value per annum. As such, the fair market value will be $644 million if the patent is sold within two years after production, or $184 million per annum for the 10 years if the company retains the patent, manufactures and sales the products.

Journal entries for research and development transactions: 2013-2016 (CSIRO grants)

BSF received $500 million in grants from CSIRO in return for spending at least $100 million per annum from 2013-2016, meant to serve as a reimbursement for expenditure (in the future) and this should be entered in accounting journal as below:

	Credit	Debit
2013 Income	$166.66 million
2014 Income	$166.66 million
2015 Income	$166.66 million

Decision and factors behind treatment of the decisions

The most vital standards for dealing with grants is the IAS 20 Accounting for government grants and disclosures of government assistance (IFRS, n.d). It is noted that such transactions should be recorded as income and that is the main factor behind such decision. Essentially, the value was divided into three, which is the number of years the grant was used to be used by BSF. Considering that no exact value was stated in the case, the decision was made to divide the value in equitable volume when recording it (assuming ceteris paribus).

Assertion of patent rights based on exclusivity of control over bacteria-based feeds technology by BSF Ltd

In the above discussion, it is noted that the company has been investing on bio-feeds for the past decades. Although it has failed in the past BSF was never deter from investing and even after receiving $500 in grants, the company is still committed towards investing about $200 from its wallet in the coming years. Therefore, the assertion developed by the company in this case is that it is the only organization that has been investing in the field (which none has ever ventured into), thus it is pioneer and evolutions established in the field are based on their continued efforts. As such, BSF wants to retain patent right for all technologies associated with prediction of bio-feed. This is a broad attempt but not viable. It is understandable that the government might actually grant them such due to the fact that it is a big organization and hugely sponsored by the Commonwealth. However, it is important to consider a number of factors as:

·         While the company is busy investing heavily in such technologies, the actual solutions might be minor and easily developable by other minute firms. Thus, granting them such patent could demotivate firms from searching for the solution as well.

·         Innovation will also be hindered in the sense that the system will relatively remain as developed by BSF based on the patent as companies will not generally be motivated to innovate the technologies.

·         Finally, there is the potential that the company could sale the products for an expensive price, limiting adoption by farmers and reducing the potential to meet desired outcome from the new technologies. While the main purpose of such is to create sustainability in feeds and fish production, if it is not fully utilized by the farmers, meeting such objectives will be relatively difficult.

Conclusion

In conclusion, BSF had invested numerous resources over the past decade for the purpose of developing sustainable feed supply, and the company’s expenditure seems to be about to pay off due to the increased level of achievement and support from government. However, there is a need to ensure that the patency is left open in order to motivate other companies to innovate, remembering that two head are better than one.

References

Aghion, Philippe and Peter Howitt. 1998. Endogenous Growth Theory. Cambridge, MA and London: MIT Press.

CBS News (2016). Shift to plant-based fish feed could hurt health, environment. Available at: http://www.cbc.ca/news/technology/aquaculture-feed-1.3262922 [Accessed on: 23^rd September 2016].

FIRS (n.d.) How to Account for Government Grants (IAS 20). Available at: http://www.ifrsbox.com/ias-20-government-grants/ [Accessed on: 23^rd September 2016].

Hall, Bronwyn H. 2002. “The Financing of Research and Development.” Oxford Review of Economic Policy 18 (1): 35-51.

Hall, Bronwyn H. 2006. “R&D, Productivity and Market Value” Annales d’Economie et de la Statistique, forthcoming. Available at http://www.econ.berkeley.edu/~bhhall/bhpapers.html

OECD. 2002. Frascati Manual: Proposed Standard Practice for Surveys on Research and Experimental Development. Paris, France: OECD.

OECD. 2003. Science, Technology and Industry Scoreboard. Paris, France: OECD. Reinganum, Jennifer F. 1989. "The timing of innovation: Research, development, and diffusion." In The Handbook of Industrial Organization, edited by Richard Schmalensee and Robert D. Willig, 850-908. Amsterdam: North-Holland.