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EU Industrial R&D Investment Scoreboard 2011 - guide

18 October 2011
by eub2 -- last modified 18 October 2011

The European Commission's 2011 "EU Industrial R&D Investment Scoreboard" shows that R&D investment by top EU companies recovered strongly in 2010, with a 6.1% rise following a 2.6% decrease in 2009. However, data for the world's top 1400 companies show EU companies as a whole lagging behind major competitors from the US and some Asian economies on R&D growth. There was a general positive trend in 2010, as global R&D investment increased by 4%, a robust up-turn after the 1.9% drop observed in 2009. The global top 50 in terms of total R&D investment includes 15 EU companies, 18 US firms and 13 from Japan. Two pharmaceutical companies occupied the top spots: Roche from Switzerland (€7.2bn) followed by Pfizer from the US (€7bn). Volkswagen (€6.3bn), in sixth place, is the biggest EU investor in R&D, followed by Nokia (11th with €4.9bn), Daimler (13th with €4.8bn) and Sanofi-Aventis (14th with €4.4bn).


What kind of data does the Scoreboard present?

The 2011 "EU Industrial R&D Investment Scoreboard" contains economic and financial data of the world's top 1 400 companies ranked by their investment in research and development (R&D). The data are drawn from the latest available company accounts, i.e. the fiscal year 2010.

The 400 EU companies in the ranking invested €132 billion in R&D in 2010, an increase of 6.1% over the previous year.

Which is the scope of the analysis?

The Scoreboard is a benchmarking tool which provides reliable up-to-date information on corporate R&D investment and other economic and financial data. It allows companies to compare themselves against competitors and provides data to analysts and policy makers on emerging investment trends and patterns in industries.

Companies listed in the Scoreboard represent about 80% of worldwide business enterprise expenditure on R&D. The data in the Scoreboard are published as a four-year time-series to allow further trend analyses to be carried out, for instance, to examine links between R&D and business performance.

Why is this data relevant to analysts and policy makers?

Scoreboard data is complementary to traditional territorial statistics, the business enterprise R&D (BERD), which focuses on R&D activity within territorial units or countries. It captures the behaviour of the companies and reflects the increasing globalisation of economic (and R&D) activities. As company financial reports are available earlier than official statistics, it provides the earliest indications of trends and trend breaks.

Evidence gathered from previous Scoreboards has allowed analysts and policy makers to understand better the nature of the EU R&D intensity gap with the US. The differences in industrial structures (rather than problems related to different behaviour by companies competing in the same sectors) explain most of the gap, as explained below.

Additional comparative analysis based on the age of companies in the EU and the US Scoreboard samples, has supplied additional evidence supporting the need to take measures – like those set out in the Commission's Innovation Union plan - to increase the dynamism and growth of young innovative companies (companies created in the last thirty years in high R&D intensity sectors like biotechnology, semiconductors or software) in Europe.

In the report this year, figures show that employment by the Scoreboard companies also recovered in 2010 and an analysis of the past eight years trends show that employment growth in high R&D intensive sectors is generally higher than in other sectors and particularly less affected by the economic downturn. However the location of employment by Scoreboard companies across regions cannot be analysed with the available company data.

How has the economic crisis affected companies' investment in R&D?

The 2010 Scoreboard showed that companies' R&D investments were significantly affected by recession in 2009 with a slight fall breaking a trend of previous years of rising expenditures. The encouraging message was that this fall was considerably less than the fall in revenue. The 2011 Scoreboard shows considerable signs of recovery. The willingness of many of the top R&D investing firms to increase R&D investment underlines the role R&D plays to enhance or maintain their competitiveness.

Has the crisis hit all industrial sectors in the same way?

Pharmaceuticals & biotechnology, technology hardware & equipment and automobiles & parts are the top three sectors constituting more than half of worldwide R&D investment. This has hardly changed since the beginning of the Scoreboard reports, back in 2004.

R&D investments of pharmaceuticals & biotechnology companies grew by 6.2% in 2010, a little more than in 2009. Technology hardware & equipment and automobiles & parts are recovering from the significant reductions observed in 2009 (from -6.4% to 3.5% and -11.6% to 0% respectively). Upswings in R&D investments were also observed for most other sectors, except for chemicals and fixed line telecommunications, as well as improved sales growth compared to 2009.

Has the crisis changed anything in terms of industrial structures in different regions?

The industrial structures of different regions as inducted by the relative strengths of their firms remains, largely unchanged. Indeed the specialisation of EU companies in the medium-high and US companies in the high R&D intensity sectors in the Scoreboard has been reinforced during the past eight years. As shown in a subsample of companies with complete data since 2002, most R&D of EU Scoreboard companies is from medium-high R&D intensity sectors, while for US companies, it is from the high R&D intensity sectors .

In both regions, the share of R&D from pharmaceuticals & biotechnology has increased considerably (from 12% to 18% in the EU and from 18% to 25% in the US). In addition, the share of the automobiles and parts sector in the US decreased from 16% to 8%, leading to a decrease of the medium-high R&D intensity share in that region. In contrast, the shares of the medium-high R&D intensity sectors of the EU companies remained relatively stable.

This picture reveals the persistence of the EU-US R&D gap and the need to increase the presence of EU companies in high-tech sectors.

How does the Scoreboard data relate to progress towards the Europe 2020 target of investing 3% of EU GDP in R&D, with two-thirds of that investment coming from the private sector?

There is no direct statistical relationship with private sector R&D investment as a proportion of GDP, for three reasons.

First, the Scoreboard does not cover all private investment in R&D, it only covers 1 400 large investors whose investment amounts to about 80% of the total global private R&D investment.

Second, the Scoreboard attributes a company’s whole R&D investment to the country in which it has its registered office, whereas the target refers to total expenditure on R&D within a territory, proportionate to its GDP.

Third, simply because the R&D to GDP ratio depends on how GDP moves. For R&D investments increases to be translated in progress towards the 3% target, R&D growth rates need to be above GDP growth rates. Moreover, R&D investments are an endogenous variable affecting GDP changes.

In other words the 3% target includes all private sector R&D which takes place in the EU, whether by EU based companies or through inward investment by companies with their head office in other countries, whereas the Scoreboard refers to how much the top 400 EU and a comparable top 1000 non-EU companies are investing worldwide, without reference to where the R&D takes place.

Only the more detailed figures on overall R&D intensity published by Eurostat, referring to where the R&D physically took place and covering all companies rather than just the top 1400 are a full and true guide to Member States' R&D performance. Those figures are more complex to gather and prepare, so 2010 figures will not be ready until December 2011. 2009 figures are available on Eurostat.

What the Scoreboard does provide is reliable data on how large private companies (many of them multinational groups) have behaved in terms of R&D investments relative to sales and profits. Evidence compiled in the EU and by the OECD shows that these multinational groups have tended to invest around 80% of R&D in the region where they are registered, so the Scoreboard figures have in the past correlated fairly closely with overall private sector R&D investment trends in each region.

Moreover, as the ultimate decision making usually happens where a company is headquartered, it is relevant to follow closely developments in R&D investment by Europe's leading players, as those companies will play a key role in progress towards Europe's R&D intensity targets. 

The 2011 EU Industrial R&D Investment Scoreboard

Source: European Commission