The rising cost of research

Spending on research is rising almost everywhere – but is that because it costs more to do research, or because there’s more research being done? A new study commissioned by the European Commission’s Directorate-General for Research and Innovation offers an answer: A bit of both, but especially more research.

The study, “Analysis of the evolution of the costs of research – trends, drivers and impacts”, finds that “research costs have grown in the past five years, on average by 47% across all industries”. The survey asked companies to assess whether that is primarily due to rising input prices or volume of research done. The results show that “total research costs have grown mainly due to a volume effect”.

The report is based on surveys carried out by a consortium of European organisations within the European Techno-Economic Policy Support Network (ETEPS network). The researchers surveyed 64 organisations from among the top 500 main European non-university PROs. On the company side, the survey collected information from 103 firms from the top 2,000 on the European Industrial R&D Scoreboard.

Despite the rising volume of research, input costs are also increasing, the study found. Of those, wage costs are the most significant factor. They account for 50 per cent of all costs in companies and 62 per cent of the costs in public research organisations (PROs).

Wages may be an important part of R&D input costs but, according to the study, they come behind other drivers of rising R&D budgets. Most companies reported that, over the past five years, “the main R&D cost increases were due to increases in capital costs”, including investments in infrastructure, machines and so on. When it comes to PROs, which “spend less for capital costs and for purchasing R&D”, 35% said that capital costs were the largest component of R&D cost growth over the same period.

Rising costs will affect the ability of some organisations to increase their R&D output. In particular, the study found that PROs “expect that all research cost elements will in the future grow mainly due to price rather than volume. This, says the report, means that “PROs are rather sceptical of their ability to expand activities”.

The study also looked at differences between business sectors. In the automotive sector companies highlight the cost of materials and supplies over the past five years. Pharmaceutical companies expect rising financing costs to be important while businesses involved in information and communications technologies anticipate rising patenting costs.

For the future, says the study, “respondents expect that research costs will increase by only 30% over the next five years”. As before, the rising volume of activity, rather than rising costs, will be the biggest driver. “In other words,” says the report, “they foresee a slowing down of the dynamic development over the past five years.”

International wage differences do not appear to be a significant factor in determining where organisations conduct their R&D. the mobility of researchers is such that the “market for highly skilled international researchers has become a global market with globally comparable wages”. For this reason, companies do not see transferring research to lower cost locations as being very important for containing research costs.

When it comes to controlling R&D costs, organisations see “improving worker productivity and collaborative networks” as “the most important approach to addressing the challenge of increasing research cost”.

Another driver of rising research costs is the increasing complexity of the R&D process. Indeed, according to the report this is “the most important driver of research costs in the surveys”, which, the report adds, “reinforces the need for collaboration”. 

While the costs of R&D are important, the report warns against policies whose main intention is to reduce these costs. “Policy implications should hence not be identified primarily to address or encourage cost-reduction.” As the report puts it “R&D is best regarded not just a cost to a business but as an investment.”