European corporate R&D falls back

Research spending by European companies has fallen even further behind major competitors, according to the EU’s 2009 R&D scoreboard published this week.

At first glance, the statistics seem relatively flattering: in the face of recession, investment in R&D by Europe’s leading companies fell by 2.6 per cent over the year. This looks modest in comparison to the 10.1 per cent drop in sales and a 21 per cent fall in profits these same companies were confronting at the same time.

It is also looks modest in comparison to the position in the US, where the leading industrial investors in R&D cut their budgets by 5.1 per cent. But despite this drop, U.S. companies on the scoreboard still invested far more than their European counterparts in three key industries – five times more in semiconductors, four times more in software and a massive eight times more in biotechnology.

Corporate R&D budgets up in Asia

If the position vis-à-vis Europe’s long-term industrial competitors in the US looks bad, the situation in relation to rivals in Asia is worse. Japanese companies included in the scoreboard saw their profits evaporate, falling by 88 per cent, on sales that fell by 10 per cent. Yet these companies maintained their R&D spending.

And big corporate R&D spenders elsewhere in Asia continued to put more money in, with companies in China increasing research budgets by a full 40 per cent in 2009, India 27.3 per cent, South Korea 9.1 per cent and Taiwan 3.1 per cent. No matter if these are increases on lower bases, the critical factor is that these companies recognise the need to maintain spending on R&D to drive the bottom line.

Little wonder then that the Research and Innovation Commissioner Máire Geoghegan-Quinn felt obliged to echo her previous warnings about Europe’s “innovation emergency”, made when she announced the EU’s Innovation Union plan of 6 October. “We urgently need heads of state and government at the December European Council to back the Innovation Union proposals,” she said in response to the scoreboard figures.

Whatever the ups and downs in particular territories, the R&D scoreboard illustrates that R&D investment remains an important strategic priority for the leading technology companies world wide – in bare-faced defiance of the unprecedentedly bad economic backdrop.

There’s an exception to this however – and that is in the huge reduction in R&D spending at the leading car manufacturers, with Ford seeing a 32.4 per cent cut, Renault 26.5 per cent and General Motors 24.1 per cent. Even Toyota – which tops the table as the world’s biggest R&D spender at Euro 6.8 billion – cut its R&D budget in 2009.

Bright spots in the gloom

Amongst the general gloom for Europe there are some bright spots. Take for example, the fact that three of the world’s top ten spenders, Nokia, Volkswagen and Sanofi-Aventis are based in Europe. Add to that the fact that the Top 50 includes 16 European companies.

In terms of individual sectors, alternative energy was one that faced down the economic climate. The 2009 scoreboard includes fifteen companies that specialise in clean energy technologies – up from six in 2008. And of these, thirteen are based in the EU, giving some cheer that Europe is taking a lead in an important and fast-growing sector.

These fifteen clean energy companies between them invested more than Euro 500 million in R&D, an increase of 28.7 per cent over 2008, hinting that new clean energy technologies are poised to translate through to the market.

Across Member States some of the biggest falls in R&D investment were in those countries, like France - down 7.5 per cent, and Germany - down 3.2 per cent, that have large automotive sectors. Similarly, Finland down 6 per cent, and Sweden, down 6.6 per cent, reflect the fact that sales of IT hardware were badly hit by the financial crisis.

The scoreboard covers the top 1,400 companies in the world. Of these 400 are based in Europe. It measures R&D spending regardless of where in the world the research is carried out.