European companies pledge more for R&D

05 Sep 2006 | News
European companies are set to increase their investment in R&D by 5 per cent per annum over the next three years, closing the gap with US counterparts.

"Very encouraging": Janez Potocnik, EU Commissioner for Science and Research

European companies are set to increase their investment in R&D by 5 per cent per annum over the next three years, closing the gap with US counterparts and boosting the chances of meeting the Lisbon objective of devoting 3 per cent of GDP to research.

This happy news comes from “The 2005 EU Survey on R&D Investment Business Trends in 10 Sectors”, published last week.

If the survey findings translate into reality it will be a stark contrast to the paltry increase in private sector R&D investment in 2005 of just 0.7 per cent.

“If we are to reach our objective of investing 3 percent of gross domestic product in R&D, we need increased investment by the private sector,” said Janez Potocnik, European Commissioner for Science and Research, commenting on the findings. “For this reason the results of this survey are very encouraging.”

Pharma, bio and chemicals dominate

However, as the survey itself points out, the predicted high rate of increase may reflect the predominance in the 400 businesses surveyed of companies in the high-spending pharmaceuticals, biotechnology and chemicals sectors. They account for almost 60 per cent of the total R&D investment in the sample.

While increasing and improving R&D investment is at the heart of the Lisbon strategy, it is not possible currently to get consistent comparisons, across the EU and across different sectors, of current and future plans for R&D investment. This pilot survey is the first to have gathered data at a European level, on factors and issues which surround and influence private sector R&D investment in companies.

Other findings include:

The incentives to increase R&D investment are cited as changes in market demand for products and services, changes in technological opportunities, and changes in company turnover or profit. Changes in the availability and labour costs of researchers are the least often cited.

Own funds are by far the principal source for financing company R&D, followed by tax incentives and public grants.

Overall, companies outsource an average of 18 percent of their R&D, with around two thirds going to contract research companies and one third to public research organisations. The sector which outsources most R&D is pharmaceuticals and biotechnology at 25 percent, and the least is IT hardware at 5 percent.

Where to locate R&D

The most important factors when deciding where to locate R&D are market access, availability of researchers, access to specialised R&D knowledge and results, macroeconomic and political stability, and R&D cooperation opportunities.

Labour costs, which are often cited as the reason for outsourcing or offshoring research were deemed to be less significant. Indeed, the survey confirms that companies prefer to locate R&D in their home country.

The top locations for private sector R&D activity in Europe continue to be Germany, the UK and France. Outside the EU, the US is by far the most attractive location, followed by China and India.

The results are based on responses from 449 companies covering ten sectors: automobiles and parts, chemicals, electronic and electrical equipment, engineering and machinery, food producers and processors, health, IT hardware, pharmaceuticals and biotechnology, steel and other metals and support services.

Taken together, the 449 companies fund a total global R&D investment of almost €30 billion, which is a significant share of European business investment in R&D.

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