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Brussels, 26th October 2010
2010 "EU Industrial R&D Investment Scoreboard"
What kind of data does the Scoreboard present?
The "EU Industrial R&D Investment Scoreboard" presents information on the top EU and non-EU companies investing the largest sums in research and development (R&D). The data are drawn from the latest available audited companies' accounts (2009).
As in most cases these accounts do not include information on the place where R&D is actually performed, the company’s whole R&D investment in the Scoreboard is attributed to the country in which it has its registered office. The term "EU companies" therefore refers to companies whose ultimate parent company has its registered office in a Member State of the EU.
What sample of companies has been used?
Data is gathered each year on the top 1000 EU and top 1000 non-EU R&D private investors in the world. But the analysis is done on a sample including only companies with comparable R&D investment levels. These are world's top 1400 companies that each invested more than about €28 million in R&D in 2009 (400 companies based in the EU and 1000 companies based elsewhere).
Which is the scope of the analysis?
The Scoreboard is a benchmarking tool which provides reliable up-to-date information on corporate R&D investment and other economic and financial data. It allows companies to compare themselves against competitors and provides data to analysts and policy makers on emerging investment trends and patterns in industries.
Companies listed in the Scoreboard represent about 80% of worldwide business enterprise expenditure on R&D. The data in the Scoreboard are published as a four-year time-series to allow further trend analyses to be carried out, for instance, to examine links between R&D and business performance.
Why is this data relevant to analysts and policy makers?
Scoreboard data is complementary to traditional territorial statistics, the business enterprise R&D (BERD), which focuses on R&D activity within territorial units or countries. It captures the behaviour of the companies and reflects the increasing globalisation of economic (and R&D) activities.
Evidence gathered from previous Scoreboards has allowed analysts and policy makers to understand better the nature of the EU R&D intensity gap with the US. The differences in industrial structures (rather than problems related to different behaviour by companies competing in the same sectors) explain most of the gap as explained below.
Additional comparative analysis this year on the age of companies in the EU and the US Scoreboard samples, has supplied additional evidence supporting the need to take measures – like those set out in the Commission's Innovation Union plan (IP/10/1288, MEMO/10/473) - to increase the dynamism and growth of young innovative companies (companies created in the last thirty years in high R&D intensity sectors like biotechnology, semiconductors or software) in Europe.
How has the crisis affected companies' investment in R&D?
The 1400 Scoreboard companies invested €402.2bn in R&D in 2009, 1.9% less than the previous year. This ends the positive trend of the past four years, when annual growth rates were well above 5%. However, considering how seriously the crisis impacted on companies’ net sales (-10.1%) and profits (-21.0%) and given that most of the R&D investment decisions reflected in this Scoreboard were taken in late 2008 (at the height of the financial crisis), this figure suggests that R&D remains a top priority for the largest R&D investors (see Figure 1).
Has the crisis hit all industrial sectors in the same way?
The overall R&D figures mask significant differences in individual industrial sectors. R&D investment in the pharmaceuticals sector continues to rise whereas the automobile and IT hardware sectors show a substantial decrease.
The pharmaceuticals sector consolidated its position as the top R&D investor, increasing R&D by 5.3%. It is also one of the few sectors that managed to increase sales during the crisis (6.4%). Moreover, large pharmaceutical companies are reinforcing their position by increasing their R&D capacity through mergers and acquisitions, often involving biotech firms.
In contrast, the automobiles & parts sector was severely hit by the crisis, decreasing R&D by 11.6% (as mentioned above, including a number of US and European companies that made significant R&D cuts). R&D investments in technology hardware & equipment also fell significantly (-6.4%).
The alternative energy sector continued the rapid growth trend seen in the past three years, in terms of both number of companies and size. The Scoreboard now includes 15 companies (9 more than last year) fully focused on clean energy technological development. These companies, 13 based in the EU and 2 based elsewhere, invested more than €500 million in R&D in 2009, representing a considerable increase of 28.7% compared with the previous year.
Has the crisis changed anything in terms of industrial structures in different regions?
If industrial sectors are grouped according to high, medium-high, medium-low and low R&D intensity, it can be observed that as far as EU companies are concerned, the medium-high R&D intensive sectors continue to predominate, accounting for 48%. The most R&D-intensive sectors contribute to 69% of the total R&D for US-based companies, 37.8% for Japan-based firms and 34.9% for their EU counterparts (see Figure 2).
Over the medium term, the most significant change in sector composition was observed in US companies, where the share of Automotive R&D changed from 14% in 2000 to just over 9% in 2010, as shown in the Scoreboards. This has partly contributed to the longer-term trend in the US where, over the last 30 to 40 years, the size of the R&D-intensive sectors has increased significantly.
How does the Scoreboard data relate to progress towards the Europe 2020 target of investing 3% of EU GDP in R&D, with two-thirds of that investment coming from the private sector ?
There is no direct statistical relationship with private sector R&D investment as a proportion of GDP, for two reasons.
First, simply because the trends expressed for individual companies in the Scoreboard do not take account of GDP figures and because real terms increases or decreases in R&D investment do not automatically imply the same increases or decreases in R&D relative to GDP – that depends on how GDP moves. In 2009, due to the crisis, GDP developments varied widely between EU Member States and overall EU GDP fell by 4.2%.
Second, the Scoreboard attributes a company’s whole R&D investment to the country in which it has its registered office, whereas the target refers to total expenditure on R&D within a territory, proportionate to its GDP.
In other words the 3% target includes all private sector R&D which takes place in the EU, whether by EU based companies or through inward investment by companies with their head office in other countries, whereas the Scoreboard does not. It refers only to how much the 1400 companies covered are investing worldwide, without reference to where the R&D takes place.
Only the more detailed figures on overall R&D intensity published by Eurostat, referring to where the R&D physically took place and covering all companies rather than just the top 1400 are a full and true guide to Member States' R&D performance. Those figures are more complex to gather and prepare, so 2009 figures will not be ready until December 2010. 2008 figures are available on Eurostat's website.
What the Scoreboard does provide is reliable data on how large private companies (many of them multinational groups) have behaved in terms of R&D investments relative to sales and profits. Evidence compiled in the EU and by the OECD shows that these multinational groups have tended to invest around 80% of R&D in the region where they are registered, so the Scoreboard figures have in the past correlated fairly closely with overall private sector R&D investment trends in each region.
Moreover, as the ultimate decision making usually happens where a company is headquartered, it is relevant to follow closely developments in R&D investment by Europe's leading players, as those companies will play a key role in progress towards Europe's R&D intensity targets.