Globalization Of R&D

THE AMOUNT of time and money spent on scientific research and innovation around the world is growing. Nations are fine-tuning their science and technology policies to enhance innovation, and industry is adapting to doing research on a global scale.

The kaleidoscope of national innovation policies and the myriad inputs and outputs of international R&D provide the data for the latest report on global research trends produced by the Organization for Economic Cooperation & Development. The study, prepared by OECD's Directorate for Science, Technology & Industry, is a detailed look at both public and private activities around the world. Although the Paris-based OECD comprises 30 of the world's more prosperous nations, the report also includes information on the research trends of rising economic powers such as China, Brazil, South Africa, and India, which are not part of OECD.

A major thread throughout the report is how much competition has intensified in recent years. "Intensified global competition has forced companies to innovate more quickly and develop commercially viable products and services more rapidly," says Dirk Pilat, head of OECD's Science & Technology Policy Division, which produced the report and released it in late October. "As relevant knowledge has become increasingly multidisciplinary and global in scope, innovation has become more expensive and riskier. This implies that firms increasingly require knowledge from a wide range of often global sources in order to succeed."

One consequence of this global competitiveness is a steady increase in spending by companies and nations on R&D. OECD nations spent $818 billion on R&D activities in 2006, up from just $468 billion in 1996, the study states. The growth in spending in these nations, however, has slowed in the past few years. According to the report, the annual rate of funding from 1996 to 2001 grew by 4.6%, but this growth dropped to 2.5% for the period from 2001 to 2006.

In contrast, R&D spending has been accelerating in non-OECD countries such as South Africa, Russia, India, and, most notably, in China, where R&D spending has risen 19% annually since 2001. These four non-OECD nations accounted for more than 18% of global R&D spending in 2005, up from 11% just 10 years earlier.

According to the study, the majority of R&D in most OECD countries is funded by industry. But this industrial support is not limited to domestic efforts. In fact, the report points out that an increasing share of corporate research is being done by foreign affiliates, particularly in China and India. "Multinational firms increasingly undertake R&D in these countries as they need to develop products and services for these markets," Pilat tells C&EN. "But they also require skilled people. Cost considerations often seem to be only a minor factor."

As a result of this international investment, the percentage of the R&D performed beyond national borders for some countries is significant. For example, in 2005, the U.K. had 39% of its research done overseas, and Italy had 26%. That percentage is lower for other OECD countries like the U.S., where out-of-country research investment amounted to 15% of total R&D. The lowest figure among OECD nations was for Japan, which had just 5% of its R&D enterprise performed by foreign affiliates.

THE LEVEL of industrial R&D support is important because, as the report points out, economic studies consistently show that private R&D investments provide strong economic returns and that the presence of spillover effects of research generates substantial economic benefits. This contrasts with public R&D spending, where there is little evidence that it improves productivity growth. But government spending still tends to increase the well-being of citizens, the report finds, in areas such as health care, environmental protection, and national security.

"The difficulty with public investment in R&D, in particular basic research, is that the benefits and impacts of those investments may take a long time to become apparent," Pilat says. He adds that OECD is working on finding better ways to measure those impacts.

The report finds that most nations are also looking for such metrics and are setting more long-term objectives for their R&D efforts. They are also developing research priorities for the work they support, which is typically done by universities or at nationally supported laboratories. For instance, while manufacturing areas such as nanotechnology and the production of energy are being publicly supported, social issues such as the environment and higher education are now gaining increased attention, the OECD report states.

The idea of setting specific national priority areas is also gaining ground. In the Netherlands, for example, these areas include the chemical industry, water, flowers, and food. Energy, security, health, and agriculture are among Poland's nine priorities. The report includes a listing of revised or new national plans for science and technology policy for OECD and some non-OECD countries to show the scope of national efforts. Countries are also establishing a number of advisory councils to help coordinate and implement these plans, as well as new ministries, departments, and other institutions devoted to innovation policy.

TO REACH their goals, OECD nations have consistently increased public research funding despite persistent budget restraints and reductions in overall government spending. Specifically, the report states that the governmental R&D budgets for OECD countries grew by just over 6% from 2001 to 2006.

In its comments on public support of research, the study notes that the U.S. is unique in that it has made a very high commitment to defense R&D. Measured as a percentage of its gross domestic product, the U.S. spent 0.6% on defense R&D in 2007—more than double the 0.3% average spent by the other OECD countries. And because the GDP of the U.S. is much larger than that of other nations, the U.S. accounted for 86% of overall OECD spending on defense R&D, six times the total defense outlays for the 27 nations in the European Union.

Governments also support industrial R&D, although usually not directly, the study notes. "Competitive and merit-based grant programs are the main mechanisms by which countries support business innovation. However, fiscal incentives such as tax credits and support for firm creation and start-ups are rapidly gaining ground," the report says. According to the study, 21 nations currently offer tax relief for business R&D and most have tended to make it more generous over time. This more indirect funding of corporate research can include various tax incentives to do research, as well as support for the creation of industrial research alliances and programs that enhance cooperation between university and industry researchers.

But successful R&D programs are not just dependent on money; they also require human capital to carry them out. And countries are concerned about where such capital will come from. "The human resources issue is a crucial one," Pilat says, citing the U.S. as an example. "The U.S. has benefited tremendously from large inflows of mostly Asian scientists and engineers that have helped to fill gaps that might otherwise have occurred." The report states that in 2003, 26% of U.S. college-educated workers in science and engineering occupations were foreign born, as were 40% of science and engineering doctorate holders.

"A big question is whether this will continue to be possible as many countries have ambitious goals to strengthen their own investments in R&D, which require researchers as well," Pilat says. "Countries will need to strengthen their own national efforts to increase human resources for science and innovation as the competition for international talent might well make it more difficult to attract researchers from abroad."

ONE WAY nations are trying to deal with having adequate human resources and to attract foreign researchers is to facilitate the international mobility of scientists and engineers. Policies in this area include establishing new professorships for both young foreign researchers and internationally recognized scientists, and creating special welcoming programs to attract foreign scientists. Some nations are introducing fast-track immigration procedures to attract foreign students and researchers and to facilitate their access to the labor market, the report finds.

The report does not mention U.S. programs among its examples of immigration programs, but it does note that the percentage of foreign students studying at U.S. universities has dropped in recent years. Since the terrorist attacks of Sept. 11, 2001, the U.S. has implemented tighter controls on foreign visas.

Because this report was compiled using data before the recent worldwide economic problem, the impact of this crisis on R&D was not addressed. Pilat notes, however, that business spending on R&D is normally financed from cash flows and that firms typically cut down on research when cash dries up. "The question is how firms and governments will react to the current financial crisis and how their actions will affect spending on innovation activities," Pilat says. He adds that many firms are making spending on innovation a higher priority than in previous years, making it very difficult to predict the long-term impact on R&D.

"Governments often cut discretionary spending on R&D in times of crisis," Pilat notes. However, some countries have taken an alternative approach and strengthened R&D spending during bad economic times. He cites Finland, after its recession in the 1990s, as a nation that had a boom in private and public investment in research that led to a resurgence in that country's economy. "It remains to be seen how governments will react to the current fiscal situation and what long-term investments will be made to kick-start an economic recovery," Pilat says.