Corporate R&D spending up substantially in FY00, but handful of firms dominate

Research Infosource Report

A new report on corporate R&D spending in Canada reveals a precariously unbalanced distribution among firms and sectors, with a disproportionate amount concentrated in Canada’s former shining technology star, Nortel Networks Corp. Data for 330 R&D spenders show that Nortel, with FY00 R&D outlays of $5.948 billion, accounts for a full 50% of the total of $11.892 billion. The collapse of the Brampton ON-based giant’s fortunes spells bad news for the coming year and possibly longer if the technology meltdown persists.

The document — entitled Canada’s Top Corporate R&D Spenders Report 2001 — captures Canadian firms at the height of the technology boom, when stock prices and surging demand frequently translated into skyrocketing R&D expenditures. For FY00, the companies profiled in the report collectively increased their R&D spending by 27.8% over the previous year. Three sectors — communications/telecom equipment, pharmaceuticals/ biotechnology and software and computer services — account for nearly three quarters of all spending. But the top 12 firms (those with R&D expenditures exceeding $100 million annually) were responsible for $8.4 billion or 71% of all spending by the 330 firms.

With that kind of skewed weighting, the sagging fortunes of just a small number of firms could dramatically drive down the overall R&D performance of the corporate sector. That should be of the utmost concern to government architects of Canada’s drive to move from 15th to 5th among R&D spending nations by 2010, as the majority of that spending must come from the private sector.

“I would describe the situation as fragile in the sense that the results are weighted by a small number of companies ,” says Ron Freedman, author of the report and president Research Infosource Inc, a sister company to RE$EARCH MONEY. “If Nortel got bought tomorrow, we would be reporting dramatically different levels of spending by the corporate sector.”

REMOVAL OF NORTEL CHANGES NUMBERS

Given Nortel’s dominance of corporate R&D spending, the report also presents its data with the Nortel numbers removed, providing a somewhat more accurate picture of who else is performing R&D and in which sectors. What emerges is the strength of Canada’s pharmaceutical/ bio-technology sector, which places first when Nortel is discounted.

The 73 pharma/biotech firms that placed among the 330 R&D performing firms collectively spent $1.167 billion on R&D, compared to the 33 ranking communications/ telecom equipment firms (minus Nortel) which racked up a total of $948.5 million. Not only was the spending of the pharma/biotech firms high, so was their research intensity, which gauges R&D spending as a percentage of revenue).

The report also presents revealing data on how R&D spending is distributed geographically and which regions are experiencing the fastest growth. Not surprisingly, Ontario is home to nearly half the firms included in the report, and accounts for 78% of R&D spending. In FY00, Ontario-based firms achieved $9.324 billion in R&D spending, up 29.5% from the previous year. Quebec lagged a distant second, with 71 firms accounting for nearly $1.5 billion in R&D expenditures for a 13% share in FY00, up just 8.7%. British Columbia has 53 firms in the top 330, with R&D expenditures of $691.8 million for 6% of the total. That’s up a dramatic 73.5% from the year before.

On a sector by sector basis, 10 industries posted substantial annual increases in R&D spending. Electronic parts and components experienced the strongest rate of growth, with 18 ranking firms spending $450.3 million on R&D in FY00, an increase of 85.6%. Transportation firms also enjoyed significant annual growth, but only three firms are included in the data with total FY00 R&D spending of $9.4 million. The third fastest growing sector is medical devices and instrumentation, with 16 firms spending $60.7 million, up 41.5% from FY99.

Other sectors which grew by more than 25% in FY00 are: agriculture (39.1%), software and computer services (37.5%), telecommunication services (36.8%), automotive (35.4%), communications and telecom equipment (31.6%), computer equipment (28.3%), and mining and metals (26.7%).

How severely the turmoil of 2001 will effect R&D spending is still a matter of conjecture, but Freedman says the admission by Nortel that it will cut R&D outlays provides some indication.

“From what we already know, next year the numbers are going to be turned on their head,” he says. Nortel has already said its R&D spending will drop from nearly $6 billion to $4 billion, so we may see a reversal in the concentration of R&D spending.”

For information on how to obtain a copy of the report, go to: www.researchinfosource.com.

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