Battelle report exposes fundamental shifts in R&D funding as emerging nations surge

US exceeds $400 billion for first time

Industrial R&D spending in the US in 2011 is expected to increase 3.4% to $265.4 billion, an annual growth of about half the rate experienced between 1981 and 2008 but enough to lift overall R&D funding above $400 billion for the first time in history. US R&D investment is projected to remain greater than the next three R&D-leading nations combined. China is also expected to expected to slip past Japan for the first time to occupy the #2 spot, driven by successive increases in R&D funding exceeding 10% annually.

The findings are contained in the 2011 Global R&D Funding Forecast, produced by R&D Magazine, a publication of Battelle, the world's largest independent R&D organization. It projects that global R&D funding will stabilize in 2011 after the shocks of the economic recession, growing 3.6% to $1.2 trillion. Much of the growth will be generated by emerging Asian nations, offset by slower growth in the US, Canada and Europe.

Battelle ranks Canada globally at #9, unchanged from 2009 and 2010, with R&D funding during that three-year period increasing $1.1 billion from $23.2 billion to $24.3 billion. GERD to GDP will remain unchanged at 1.8%.

The report highlights the fundamental shifts that are occurring in global R&D, with the rapid rise to prominence of developing nations that for the first time are challenging the ability of developed nations to attract the best and brightest. "Globalization of R&D is slowly altering the dominance that the US has maintained for the past 40 years," states the report. "Emerging economies are starting to challenge the technological capabilities of the historic R&D leaders."

China's GDP and R&D funding are maintaining sizzling growth rates of four times that of the US in absolute dollars, translating into $10 billion a year or equal to that of the US growth rate. All other developed nations are losing ground against China, although Battelle says rising wage rates will eventually reduce China's cost advantage in the performance of R&D.

The report attributes China's remarkable R&D growth to government leadership and the fact that eight of the nine members comprising its Standing Committee of the Political Bureau hold engineering degrees. In contrast, only one of the US Cabinet's 15 members has a scientific degree.

The trend towards developing nations is underlined by the behaviour of large multinationals, which are increasingly decentralizing their R&D operations across both developed and developing nations.

The report paints a troubling picture for European nations, many of which have been hit by severe debt problems. The oft-repeated EU target of a 3% R&D to GDP ratio appears to have been abandoned, the victim of high labour costs and weak local demand for R&D in some countries.

Germany remains one of the EU's few strong consistently stellar R&D performers, remaining solidly in the #4 spot globally with world leading strength in several key technologies underpinning renewable energy sources.

japan falls to #3

While Japan has fallen behind China in terms of R&D funding and GDP, its GERD to GDP ratio remains extremely high at 3.4% in 2009, second only to Israel at 4.2%. Japan is also home to the world's largest industrial R&D performer. Toyota Motors spends more than $11 billion on R&D annually and produces the largest number of cars by revenue and number of cars manufactured.

US R&D holding steady

The Battelle report provides the most detail on the US R&D environment, which it says faces short-term uncertainty due to the Republican victory in the House of Representatives and slow recovery of the massive automotive sector. The Obama administration's budget requests for federally funded organizations will likely be under pressure from the new House, which is seeking areas to reduce federal expenditures.

US federal funding of R&D is expected to dip slightly in 2011 to $111.4 billion, only the fourth time in 30 years that there's been a cut in real terms. That includes the remaining $6.1 billion from the American Recovery and Reinvestment Act, which dedicated $18.4 billion for R&D.

Industrial R&D growth will be responsible for the overall increase in 2011, assisted on a smaller scale by R&D funding from internal academic sources (up 4.4% to $21.1 billion), other government sources (up 5.3% to $3.4 billion) and non-profit funding sources (up 1.5% to $12.9 billion).

For the full report, www.rdmag.com.

R$