Canada’s smaller R&D performers crank up spending even as revenues fall

Report provides FY01 snapshot

Small- and medium-sized companies are positioning themselves as the future engines of R&D growth. A recent report on corporate R&D spending in Canada shows that in FY01, many smaller firms posted substantial increases in R&D spending despite a drop in revenues. These so-called Tier 2 firms — companies that spend $2 million and $14.4 million annually on R&D — are 95% Canadian-owned and the smaller of the group are increasing their R&D expenditures even faster than the 22.9% average.

The report captures data for 208 Tier 2 companies and while they are not exclusively small in size, they provide a cross-section of new and growing firms as well as a sampling of larger firms with low R&D intensity (R&D as a percentage of revenue).

The data are contained in Canada’s Top Corporate R&D Spenders Report 2002, published annually by Research Infosource Inc, a division of The Impact Group and a sister firm to RE$EARCH MONEY. The report compiles detailed R&D and revenue data on 581 firms and breaks them into three tiers. Tier 2 firms account for 35.8% of the sample and their combined expenditures of $1.216 billion represent 9% of the total sample’s R&D total.

Ontario is home to 85 firms from tier 2, accounting for 43% of that group’s R&D spending. Quebec is next with 49 firms and $301.8 million in R&D outlays, followed by British Columbia (38 and $220.7 million).

Pharmaceutical and biotechnology companies are the largest single sector represented in tier 2. The group includes 46 pharma/biotech firms which spent $325.3 million on R&D. There were 25 software and computer services firms in the tier 2 sample, and they collectively spent $298.4 million on R&D. A distant third are telecommunication and telecom equipment firms. The 10 companies included spent $116.6 million on R&D.

While the R&D intensity of tier 2 firms was up considerably from FY00, at 1.2% it still lags the average of all firms in the three tiers (3.9%) There are several reasons for this, not the least is the inclusion in tier 2 of large oil & gas, mining & metals and telecommunications firms which have an average R&D intensity of 0.2 or lower. Firms from other resource sectors also displayed low research intensity — a characteristic that has defined those sectors for decades. The sector with the highest R&D intensity was pharma/biotech at 48.1%

FMI: researchinfosource.com

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