Brussels, 03 Nov 2005
Only those companies that constantly seek to improve and innovate will be in a position to grasp the major opportunities that increasing globalisation offers, while research will play a crucial role for many in keeping existing markets and growing new ones, says the UK Department of Trade and Industry in a foreword to its '2005 R&D Scoreboard'.
The aim of this annual R&D (research and development) scoreboard is to give UK firms and investment institutions an insight into the R&D activities and capital investment of the best global companies, and to highlight the benefits of R&D to companies, investors and business organisations. It is a global benchmarking tool designed to help companies decide if they are investing the right amount compared to the best global and national competitors in their sector as part of their overall business strategy.
Obviously, the R&D reported in companies' annual accounts is not the only measure of innovation. Investments in capital equipment, market development, skills, brands, new ways of working, new business processes, other intangible assets and linkages with other organisations are all methods of gaining competitive advantage.
This year's scoreboard is the most comprehensive ever, covering 1,000 global and 750 UK R&D companies. The UK has 54 companies in the global 1000, the fourth largest total after the US, Japan and Germany, and there are encouraging signs of growth in smaller and medium-sized UK firms carrying out R&D.
The report finds proven links between R&D investment and national prosperity, and also between R&D intensity and company performance: value added, sales growth and market capitalisation. Company success depends on good strategic choices (of sub-sector and growth route), operational excellence and making wise and balanced investments in R&D and other areas.
The scoreboard highlights the concentration of R&D in six countries (the US, Japan, Germany, UK, France and Switzerland), together accounting for 86 per cent of the top global 1,000. The last 200 companies of the top 1,000 account for only 2.5 per cent of the 1,000 companies' R&D intensity.
According to the study, developed economies face two challenges in R&D: continuing to compete in markets where R&D is already important and using R&D to gain an advantage in sectors that currently do relatively little. In established sectors, companies from South Korea and Taiwan are already becoming major R&D investors. South Korea is now the eighth largest country in terms of R&D intensity in the global 1000 list, with its companies having increased their R&D by 40 per cent over the previous year.
Concerning the R&D distribution by country and sector, the six major countries have very different sector specialisations. The US has a major presence in pharmaceuticals, IT hardware and software (where it carries out 85 per cent of software R&D), Japan in the automotive sector, and the UK in pharmaceuticals. The UK also has a large presence (by sales) in low R&D intensity sectors such as food production and telecoms, and in very low intensity sectors like oil and gas, and utilities.
The 2005 R&D Scoreboard finds that the United States is proving stronger than Europe and the Asia-Pacific region in terms of increases in overall sales growth, profitability and R&D levels. This acknowledgement of US global leadership differs from the vision expressed in two recently published reports: Cientifica's report on the Global R&D Spend 2002-2004 and the latest 'Science, technology and industry scoreboard' from the Organisation for Economic Cooperation and Development (OECD). Both focus on the increasing globalisation of knowledge, both signalling a decline of American leadership in R&D. It should be noted that as a scoreboard for company funded R&D, the study naturally excludes R&D funded by public sources.
Whoever is right, alarm in the US over a possible loss of leadership in global competitiveness is reflected in a recent report from the United States National Academy of Sciences (NAS). The report warns that the country faces serious challenges from global competition and that the nation's economic health and standard of living are being threatened.
According to the authors of the report, 'America must act now to preserve its strategic and economic security by capitalizing on its knowledge-based resources, particularly in S&T [science and technology], and maintaining the most fertile environment for new and revitalized industries that create well-paying jobs.' The report urges national measures to increase investment in education, scientific R&D and basic research, structured around four basic pillars: education (to increase America's talent pool); commitment to long-term basic research (sowing the seeds); making the US the most attractive setting in the world to study and conduct research (to recruit and retain top students and scientists from all over the world), and incentives for innovation to ensure that the country remains first in the world for innovation.
The contents of the report have been echoed in the American House of Representatives, whose Members have expressed deep concern about the findings of the National Academy and, following a Science Committee hearing examining it, have called for renewed investment in science, technology and education.