Many studies have established the importance of investment in R&D to facilitate innovation and consequently improve firm productivity. Firms decide whether or not to undertake R&D depending on a range of factors such as market orientation, business objectives, competitive advantages and absorptive capacity. This paper studies the factors that influence this decision in peripheral locations; and for firms that do not undertake R&D, we analyse the reasons for not doing so. The research is based on data from a survey of some 250 matched firms operating in Northern Ireland, about half undertaking R&D and half not. Northern Ireland is an interesting case study because it exhibits a low level of investment in R&D despite the public subsidies and policy initiatives that have existed over the last 30 years. For firms that undertake R&D, our results mostly confirm the findings of others while for firms that do not undertake R&D the results point to a capabilities-gap rather than a resource-gap as the fundamental problem. Policy conclusions are drawn as to what might be done to boost both the amount of R&D undertaken and the number of firms engaged in R&D in peripheral regions.