The Government should provide more public funding to firms undertaking research that will help to create higher value products and services in the future, the Enterprise Strategy report recommends.
It should also set up a new dedicated division in Enterprise Ireland to promote applied research in client firms, the report says.
The document stresses that many firms in the Republic find it difficult to build the in-house research and development necessary to develop better products.
Irish firms lack the resources not only to conduct research and development but also to absorb new developments from outside, according to the strategy report.
It recommends more Government intervention to help indigenous industry to apply new technologies in a way to create the type of new products and services that will be successful.
Public funding for applied research and in-firm R&D should be progressively increased to match that invested by the Department of Enterprise, Trade and Employment in basic research.
The Government is spending 2.5 billion on research and development under the National Development Plan.
The report also recommends that the Government should establish a new dedicated structure called "Technology Ireland" within Enterprise Ireland to develop a cohesive approach to research and technology developments.
This division should have its own budget and leadership, and should focus on developing a new market-led strategic approach to leverage research investments.
It should also identify specific technology platforms, such as biometrics, towards which Irish firms and the State should concentrate their research efforts.
This would to some degree alleviate the problems associated with the small scale of research activities in the Republic.
The report notes that at 0.88 per cent of gross domestic product, Ireland's business expenditure on R&D is only 73 per cent of the EU average and just 57 per cent of the OECD average. It will be difficult to achieve the 3 per cent target of GDP by 2010 agreed by the EU heads of State, it concludes.
The report acknowledges, however, that considerable progress has already been made in the area of promoting R&D under the National Development Plan.
It recommends that funding for Science Foundation Ireland and the Higher Education Authority should be continued beyond the current National Development Plan. There should also be more collaboration between industry and academia.