As protectionism in each country has been widespread and export restrictions of Japan on materials have arisen, the voices of fostering the upstream sectors in Korea are rising. In particular, the materials and components industry plays an important role in the domestic manufacturing industry. In addition, domestic small and medium-sized enterprises (SMEs) occupy a large part in terms of absolute number of companies and employment ratio. Therefore, the analysis of SMEs in the materials and components industry can foster development of the upstream sectors in Korea. In particular, this study examines the effect of R&D investment by SMEs in the materials and components industry on profitability of the firms. In the case of the products in upstream sectors, the effect of R&D innovation is relatively slow because it takes a long time to reach the consumer. Based on the empirical data of SMEs in the materials and components industry, the proportion of R&D investment in that same year has negatively affected profitability of the firm. On the other hand, R&D investment in the next year was analyzed to have a positive effect on profitability. It suggests that, in the short term, R&D investment can damage profitability of the firm, whereas it can be beneficial in the long-run. This study is expected to understand profitable opportunity in terms of the R&D investment for SMEs and related authority in the materials and components industry.