Corporate R&D spending stagnates with little prospect of improvement in short term

Anemic R&D spending, sagging research intensity and the further decline of high-tech titan Nortel Networks Corp conspired to keep corporate R&D spending stagnant in 2008 with only one of the top five performing companies posting gains from 2007. The Top 100 corporate R&D performers spent a total of $10.09 billion in 2008, down 0.2% from the previous year with 59 firms posting gains while expenditures by 40 firms declined.

Bright spots on the corporate R&D horizon such as TELUS Corp, Research in Motion Ltd and generic drug maker Apotex Inc were offset by major declines in R&D outlays by BCE Inc, Nortel and GlaxoSmithKline.

Among the top R&D spenders (those over $100 million), TELUS registered the most spectacular growth, increasing outlays 147% to $210 million. In contrast, BCE Inc — another major player in the telecom services industry — maintained its status as the second largest R&D spender in Canada although expenditures tumbled nearly 22% to $985 million. The data were compiled by Research Infosource, a sister company to RESEARCH MONEY.

Communications and telecom firms accounted for the largest sector ranked by R&D spending, with 11 firms racking up expenditures of $2.7 billion for a 27% share of the Top 100. Pharmaceuticals and biotechnology companies ranked second with $1.9 billion in overall spending for a 19% share. Telecommunications services (Bell, TELUS, Rogers and Bell Alliant) spent a cumulative $1 3 billion for a 13% share.

Middle-tier performers that showed strong growth in 2008 include Cangene Corp (up 104.7% to $62.2 million), Aastra Technologies Ltd (up 91.3% to $105.5 million), Mitel Networks (up 48.9% to $66.7 million) and Zarlink Semiconductor Inc (up 44.7% to $50.8 million).

The inability or unwillingness of corporate Canada to collectively embrace innovation and R&D as a more powerful driver for growth and prosperity has worried policy makers for years. Recent reports by the Council of Canadian Academies and the Science, Technology and Innovation Council have blamed weak private sector R&D for lackluster productivity and competitiveness.

But for report author Ron Freedman, the system is "operating in a steady state" and any dramatic upswing in corporate R&D spending in the years ahead is unlikely.

"If changes do occur, we'll have to do something different. Different results, different system," says Freedman., Research Infosource CEO and co-publisher of RE$EARCH MONEY. "Hectoring business won't make any difference. The real issue is, are each of our industry sectors globally competitive. No one has done that analysis."

According to Freedman, changes to the system that could affect significant change include shifting $500 million in benefits accrued through the Scientific Research and Experimental Development tax incentive program to the Industrial Research Assistance Program, developing a national software strategy and adopting flow-through tax credits for R&D.

The wild card in the near term is the impact of the financial crisis. Data for 2008 provide a snapshot of corporate R&D performance as the impact of the recession began to take hold, raising concern that R&D could tumble further in 2009.

FMI: www.researchinfosource.com.

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