Healthy increase in corporate R&D raises cautious optimism of turnaround

There's cautious optimism that Canada's biggest R&D performers are prepared to boost their spending with new data showing a surprising 6.9% increase in 2015. Canada's Top 100 corporate R&D performers spent $12.8 billion compared to $12 billion in 2014 with 68 firms registering increases while 31 experienced declines, according to a report by Research Infosource.

Beleaguered Bombardier Inc remains the country's top R&D performer with a respectable 13.4% increase to $2.3 billion while Magna International Inc moves into second spot with expenditures of $693.4 million, overtaking Blackberry Ltd which suffered a steep 23.6% decline to place third.

Policy makers and politicians have long bemoaned the relatively weak R&D performance of the business sector, and while the 2015 uptick (compared to a 2.8% decline in 2014) is encouraging, one year does not mark a long-term turnaround.

"You need more than one dataset to say it's more than an anomaly," says Ron Freedman, CEO of Research Infosource Inc. "Companies do R&D for a number of reasons. For oil and gas it's defensive so they can improve their environmental performance and increase efficiencies. For other companies it could be offensive to launch a new product or capture a new market."

The biggest increase among the top 25 is Valeant Pharmaceuticals International Inc, a specialty drugmaker headquartered in Laval QC. The 57.4% hike in R&D spending comes as the firm fends of charges of price gouging, resulting in a steep drop in its share price. Those investments make Valeant the top pharmaceutical R&D performer, followed by generic drug maker Apotex Inc (#12/$274.5 million) and Sanofi Canada (#23/$133.3 million).

Aerospace is the top-performing sector with just five firms accounting for 23.2% of the Top 100, followed by 17 companies in the software and computer services (S&CS) sector which captured 14.5%.

IBM Canada Ltd remains the top performing S&CS company with $477.0 million in R&D spending, followed by fast-rising Constellation Software Inc, whose R&D outlays have grown from $91.3 million in 2010 to $349.3 million in 2015, largely through an aggressive acquisition strategy.

"Constellation has a good strategy for increasing R&D. There's a gap in Canada's S&T strategy premised on the notion of organic growth," says Freedman. "That happens only rarely as the real world of commerce doesn't work that way. Yet we tend to ignore the impact of merger and acquisition strategies."

To mark its 15th year of compiling corporate R&D data, Research Infosource has produced a 15-year snapshot of the top-spending firms. Bombardier is the overall top performer with R&D expenditures of $12.6 billion between FY01 and FY15. It is followed by Blackberry ($10.2 billion), Magna ($9 billion), Pratt & Whitney Canada Corp ($7 billion) and IBM ($6.3 billion).

The former Nortel Networks Corp was not included on the list as it is no longer an active company since declaring bankruptcy in 2009.

"The criteria is that a company must have R&D spending in all of those years," says Freedman.

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