Brussels, 9 December 2005
The 2005 Key Figures for science, technology and innovation released last July showed EU R&D intensity (R&D expenditure as % of GDP) to be close to stagnation, due in large part to the slow-down in business funding of R&D. This background note gives some facts and figures relating to industrial R&D investment trends and prospects, principally from the global corporate perspective. In doing so, we draw on three information sources:
1) the 2005 edition of the EU Industrial R&D Investment Scoreboard;
2) a survey of companies that figured among the top 500 EU R&D companies in the 2004 EU Industrial R&D Investment Scoreboard; 3) analysis of the stock of
researchers working in industry.
Industrial R&D investment grows, unlike last year
This year’s EU Industrial R&D Investment Scoreboard reports on the worldwide R&D of 1,400 companies: the top 700 R&D investors with registered offices in the EU and the top 700 registered elsewhere. Together they invest €315 billion in R&D. This represents just over half of the total R&D investment by the private sector world-wide.
A positive signal from the 2005 Scoreboard is the turnaround in the R&D investment growth rate for EU companies from an annual decline for the top 500 last year of 2% to an increase of 0.7% for this year’s top 700. Top EU companies individually invest in R&D at least as much as their competitors from outside the EU. This year in addition, an EU firm, Daimler-Chrysler, tops the world list (see Figure 1). 45% of the EU 700 companies increased their nominal R&D investment by more than 5% this year, while 36% decreased theirs.
There are more EU than US companies among the top 50 R&D investors in the world. 18 EU companies account for 36% of the total R&D investment of the top 50 companies in the world, while 17 US companies account for 35% and 12 Japanese companies for 23%.
Furthermore, there are few sectors where there is not at least one EU company in a leading position - even in highly R&D-intensive sectors such as IT Hardware and Electronics & Electrical Equipment.
The investment gap between EU and non-EU companies continues to widen
The Scoreboard also shows that non-EU companies boosted their R&D investment by 6.9% (in euro terms), compared with an increase of 3.9% last year. Furthermore, 58% of these non-EU 700 Scoreboard companies increased their R&D by more than 5% while only 28% decreased theirs.
Figure 1: Top 25 R&D investing companies in the world in 2004
Different sectoral composition results in EU companies investing a lower proportion of their sales
EU companies have a strong presence in sectors of medium R&D intensity (i.e. where the average R&D investment-to-sales ratio is between 2 and 5%). They invest a large amount of R&D in these sectors, resulting in products which often command a premium for quality and reputation. This is the case of the Automobile & Parts sector, which accounts for 26% of the EU Scoreboard company total R&D investment.
Where EU companies are working in high-R&D-intensity sectors, they perform above the average for that sector. However, the overall average R&D intensity of the EU companies (3.3%) remains substantially lower than that of the non-EU700 companies (4.2%).
This is explained by the fact that EU companies have a weaker presence in high R&D-intensive sectors such as biotechnology, health and ICT (especially, software, internet, computer services, and semiconductors). In other words, high R&D-intensive sectors make up a smaller ‘piece of the pie’ in the EU economy. The EU is also weak in enabling smaller companies to eventually become successful medium- to large R&D investors, particularly in emerging R&D intensive sectors. In these latter sectors, R&D is concentrated in a few EU firms.
Figure 2. Share of R&D investment by level of R&D intensity in 2004
Highest global growth rates in services, and Pharmaceuticals & Biotechnology
In volume terms, the three biggest sectors for R&D investment are Pharmaceuticals & Biotechnology, Automobiles & Parts, IT hardware. Pharmaceuticals and Biotechnology is the fastest growing of these, with an average world R&D investment growth of 12.6% p.a. for 2001-2004, compared with 4.9% and -5.0% for the other two sectors respectively.
Services sectors, however, had the fastest growth in R&D investment in 2001-2004. Altogether, the share of these sectors grew from 8.3 to 10.4% in the last five years. The term “services sectors” includes software & computer services, health, media & entertainment, leisure and hotels, general retail, and support services.
EU companies show high rates of growth over the past four years in some of these fast growing sectors. However, in many of these sectors, EU companies account for a relatively low share compared to their overall 31% proportion of total worldwide R&D and are losing ground in terms of average annual growth rates compared to the rest of the world – e.g. media & entertainment (average annual growth of minus 8.3%). Delayed uptake of fast-growing activities in Europe is an issue of concern.
Figure 3. Sector average growth rates of R&D investment for world top Scoreboard companies - 2001 to 2004 - (%)
Survey of companies shows positive outlook for R&D in the coming years
As a new tool for industrial R&D monitoring, this year the European Commission launched a pilot survey to gather qualitative information from companies on evolving R&D practices, prospective trends in industrial research and the impact of R&D on business. As part of this pilot, 95 of last year’s Scoreboard top 500 EU corporate R&D investors responded, giving a positive perspective on their expected future R&D investment.
95 of the top 500 EU corporate R&D investors stated that they expect their R&D investment to grow by about the same rates for the next year (+ 5.6 %) and the next three years (+ 5.8% p.a.). The respondents expect a recovery for R&D investment growth compared to previous years’ results. Companies in highly R&D intensive sectors expect bigger growth rates for R&D investment than those in the other sectors. The analysis indicates positive expectations for R&D investment for 16 of the 22 sectors covered.
The strongest factors affecting companies’ intention to increase R&D investment are market demand for new products and services (mentioned in 26% of cases as the most important factor), technological opportunities (19 % of cases as the most important factor), and the company’s turnover or profit (mentioned in 14% of cases as the most important factor). The least important factors influencing the decision to increase R&D investment are labour costs of researchers and the availability of researchers.
The most important factors when deciding where to locate R&D are: availability of researchers, market access, access to specialised R&D knowledge and a predictable legal framework for R&D. Labour costs of researchers and public procurement of innovative products are among the least important factors which make R&D investment locations attractive.
A company’s home country is still considered the most attractive place for locating R&D investment in more than two thirds of cases. Germany, the United Kingdom and France are the three most attractive EU countries for locating R&D activities. Outside the EU, the US is the most attractive location, followed by China and India.
Growing numbers of researchers working in industry, driven by services and smaller Member States
The total growth of the stock of researchers in the EU between 1995 and 2003 (29%) is driven by the business sector (38%). This can be seen as a proxy indicator for R&D investment given that much of business R&D investment goes on human resources.
This growth in the stock of researchers in industry is driven by services sectors, which corroborates the findings of the 2005 Scoreboard. As an example, the evolution from 1995 to 2003 resulted in a halving of researchers in computer manufacturing, and a doubling of the number of researchers in computer-based services.
Although three EU countries (i.e. DE, UK and FR) still account for a large fraction of the researchers in industry (62%), their share in the overall EU25 figure has decreased between 1994 and 2003 by over 7%. Some of the smaller countries (e.g. ES, DK, FI, AT) have substantially increased their weight during the same period.
There are striking differences in the distribution of researchers according to the size of the companies they are working in. In Germany, about 80% of researchers work in companies with more than 500 employees. In the UK or Sweden, the respective figures are 65% and 75%. On the other hand, the proportion of researchers in large firms is only 30% in Spain or Ireland and around 50% in the Netherlands, Denmark and the Czech Republic.
Source: Eurostat Newcronos
Figure 5. Change in proportion of EU total number of industrial researchers, by country
See also IP/05/1557 .
Item source: MEMO/05/471 Date: 09/12/2005
An analysis of the stock of researchers by Member State location in the EU, shows a substantial growth in industry, and that such growth is mainly driven by the service sectors. The analysis also demonstrates smaller EU countries rather than large countries are driving the overall growth in the number of industrial researchers, and that in these smaller EU countries industrial researchers are mainly within SMEs.
Evolution of the numbers of researchers (full time equivalent) and of BERD (in constant 1995 PPS) between 1995 and 2003
Total Business Manufacturing Services Researchers 29% 38% 24% 151% Expenditures 29% 33% 25%
122%
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