Industrial R&D spending stagnant as more firms spend less: Statistics Canada

The number of firms in Canada performing R&D exploded by nearly 76% between 2000 and 2005, with Ontario and Quebec increasing their already dominant share of R&D outlays from 77% to 80%. Despite the increase in R&D performers, however, overall R&D expenditures are projected to increase only $157 million in 2008 to $16.3 billion, following an even smaller increase of $22 million in 2007.

When measured in constant 2002 dollars, industrial R&D declined 3% between 2006 and 2007, reflecting continuing difficult times economically and the inability of policy makers to stimulate increased private sector R&D performance.

There were more than 19,000 R&D-performing firms in 2005 compared to nearly 11,000 in 2000, leading StatsCan to observe that "it appears that industrial R&D is gaining importance as a business strategy amongst firms operating in Canada".

For the past several years, Quebec has reported more R&D-performing firms than Ontario. Quebec lags Ontario when it comes to R&D spending however — $4.6 billion in 2006 compared to Ontario's $8 billion.

The increase in R&D performing firms represents both an opportunity and a quandary for policy makers seeking to stimulate greater private sector R&D spending on par with competing OECD nations. If firms can be convinced or incented to boost their R&D outlays, Canada has a good chance of at least gaining ground on other countries. So far, the impact has been negligible with more firms performing R&D but spending less than previously. Between 2000 and 2005, firms' average R&D expenditures dropped from $1.1 million to $751,000.

BERD declining

As a result, business expenditures on R&D (BERD) as a percentage of GDP is declining in Canada, from a high of 1.16% in 2004 to just 1.06% in 2006. That compares to the OECD average of 1.56%

The data are found in a new report from Statistics Canada, using data that were previously published last year (R$, September 19/08). This time, however, there is far greater detail and extensive analysis.

Nearly half of all R&D in 2008 was performed by Canada's six leading industries — information and cultural industries ($1.7 billion), communications equipment ($1.6 billion), scientific R&D services ($1.4 billion), computer system design and related services ($1.1 billion), pharmaceutical and medicine ($1.1 billion) and aerospace products and parts ($0.9 billion).

The greater number of R&D performing firms combined with the massive cuts to R&D outlays by Nortel Networks Corp has blunted the dominance of firms with large R&D budgets. Firms spending more than $1 million annually on R&D accounted for 82.7% of all industrial R&D in 2006, compared to 85.9% in 2002.

Firms with less than $50 million in revenue make up 94% of the country's R&D performers but just 34% of the total R&D performed. The largest 258 firms with revenue exceeding $400 million spent an average of $26.9 million in 2005 and account for 44% of the industrial R&D total.

When examined by areas of specialization, biotechnology R&D declined between 2004 and 2006 from $1.3 billion to $1.1 billion. In contrast, software R&D increased from $3.5 billion to $4.1 billion in the same period, mainly due to increases in software used in manufacturing and services.

R$