Corporate R&D slides for second year running, according to latest data

TOP 100 Corporate R&D Spenders

New data show that Nortel Networks Corp has plenty of company when it comes to disappointing R&D performance. Of Canada’s Top 100 reporting firms, 55 either spent less or the same amount in FY03 as they did the year before, resulting in a 5.1% decline in the Top 100 total from $11.1 billion in FY02 to $10.6 billion in FY03. The slide in corporate R&D expenditures for the second year in a row spells trouble for Canada’s innovation targets, which are predicated upon boosting private sector spending to $32 billion by 2010.

From a high of nearly $6 billion in FY00, Nortel’s R&D output is now less than half that amount, even though its research intensity (R&D as a percentage of revenue) has increased to more than 20% (see chart). When Nortel is removed from the mix, the other 99 firms only managed a cumulative increase of 1.9%.

The data are contained the 2004 update of Canada’s Top 100 Corporate R&D Spenders List, produced by Research Infosource Inc, a sister company to RE$EARCH MONEY.

“The data tell us that innovation through research has stalled. It’s no longer growing despite the fact that corporate profitability is up,” says Ron Freedman, CEO of Research Infosource and co-publisher of RE$EARCH MONEY. “The flywheel effect kept research going for a year after the stock crash of 2000 and there may be the same effect next year. We may see a resurgence, but I wouldn’t bet on it.”

Despite the generally discouraging state of corporate R&D, there were several bright spots in the data. Bell Canada locked onto the number two spot with $1 billion in R&D spending, only the second company in Canadian history to reach the billion dollar plateau. In the top 10, double digit increases were also registered by ATI Technologies Inc (#5) and Ericsson Canada Inc (#7).

Even Nortel, after taking a year-over-year plunge of 20.4%, still towers over the rest of the pack, accounting for 26% of the Top 100 total. That helped the communications/telecom equipment sector maintain its status as the largest R&D spending sector with 12 firms commanding 33% of the total. That’s followed by 32 pharmaceutical and biotechnology firms with a 16% share, four telecommunications services firms (including Bell Canada) with an 11% share, 12 software and computer services firms for 8% and five aerospace firms also claiming an 8% share.

Magna International Inc is the only automotive firm to make the Top 100 list but the amount of its R&D expenditures ($631 million for a #3 position) accounts for 6% of the Top 100 total. Five primary energy firms (Atomic Energy of Canada Ltd, Ballard Power Systems Inc, and others) account for 4% of the total.

The firm registering the largest annual R&D growth comes not from the high-technology arena but from the oil and gas sector. Petro-Canada increased its R&D outlays by 150%, jumping from $6 million to $15 million for a #95 ranking. Labopharm Inc, ID Biomedical Corp and Genpharm Inc increased their R&D spending by 130.8%, 107.5% and 74.2% respectively. Another firm of note to significantly boost R&D expenditures is Honeywell, which increased outlays by 54.5% to $78 million for a #27 ranking.

Firms experiencing the largest declines in R&D spending came from several sectors, with most hailing from the pharma/biotech sector — Hemosol Inc

(-48.9%), Biomira Inc (-48.1%), World Heart Corp (-43.0%) and Stressgen Biotechnologies Corp (-38.0%). Others with major reductions in R&D spending include BCE Emergis Inc (-37.8%), Bombardier Inc (-33.9%) and Ontario Power Generation (-46.2%).

POLICY IMPLICATIONS

With the latest corporate R&D data, the chances of meeting the Innovation Strategy’s R&D spending target have all but disappeared. Little wonder then that the Strategy has been abandoned by Ottawa in favour of a major policy thrust towards commercialization (R$, October 12/04).

Freedman says the the current emphasis comes at the expense of policies that support innovation, productivity and growth in the private sector. Private sector R&D increases throughout the 1990s were driven by the Internet revolution and no technology breakthrough of that magnitude is on the near-term horizon. Freedman asserts that it’s time for a major “re-think” with respect to the policies aimed at R&D and innovation.

“Looking at the data from the past several years, it seems that the public policy measures we have in place now have gone as far as they can. There has been no major re-adjustment of our innovation programs for many years and we’re not going to get any significant growth in R&D unless there are changes,” he says. “It’s not an encouraging situation when you look at the movement of goods and services to countries like India and the rise of the service economy. It makes you wonder how the country is going to earn its living in 20 years’ time.”

To obtain a copy of the Top 100 list and further analysis, go to www.researchinfosource.com.

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