Statistics Explained

Archive:R & D expenditure in business enterprises

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Data from January 2010. Most recent data: Further Eurostat information, Main tables and Database.

Research and development (R & D) expenditure in European Union (EU) business enterprises enables the production of knowledge, making ideas and creativity concrete. This, for example, results in new patents. In certain sectors, R & D investments are a requisite for the improvement of production methods and the generation of new products. While generally contributing to the increased comparative advantage of the sector in which it is performed, R & D expenditure provides business enterprises with the capability of gaining new and greater market shares.

Figure 1: Gross domestic R & D expenditure (EUR), by Sector of performance, 2008 (% GDP)

Main statistical findings

Figure 2: R & D expenditure, (EUR), by business-enterprise size-class, EU-27*, 2007
Figure 3: Business enterprise R & D expenditure, by main type of cost, 2007, percentage
Figure 4: Business enterprise R & D expenditure, PPS AAGR, by main sector, 2003 to 2007 (%)
Figure 5: R & D expenditure in Manufacturing, by technological intensity, 2007 (%)
Figure 6: R & D expenditure, by seclected subsections of Manufacturing and Services, 2007 (%)

R & D expenditure in EU business enterprises amounted to EUR 151.4 billion in 2008. This represented the largest among the four main institutional sectors of performance of R & D expenditure, accounting for 63.9 % of total EU R & D expenditure. Business enterprises thus came close to fulfilling the Barcelona objective of 2/3[1]. The sector was followed by Higher education and Government, with shares of 22.4 % and 12.7 % respectively. Below the 3 % Lisbon target [2], EU R & D expenditure reached 1.90 % of GDP in 2008, (Figure 1).

In 2007, in the EU partners Japan (77.9 %), the United States (71.9 %), China (72.3 %) and Russia (62.9 %, 2008), the share of R & D expenditure accounted for by the business enterprise sector was similar to or greater than that of the Union. Within the EU, in 2008, this share ranged from 25 % or less in Cyprus, Lithuania and Latvia to 74 % or more in Sweden, Finland and Luxembourg.

Financing R & D expenditure may bear increased risk and, for example, takes the form of venture capital. While 55.0 % of total EU R & D expenditure were funded by the business enterprise sector in 2008, 33.5 % were funded by the government sector. 82.0 % of R & D expenditure in the business enterprise sector were funded by the business enterprise sector itself. The latter share appears to have described cycles from 1997 to 2008, peaking at 83.1 % in 2000 and reaching a trough of 81.3 % in 2003.

R & D expenditure by size class

Large enterprises, with 500 or more employees, accounted for an estimated 71.8 % of R & D expenditure in the EU-27 business enterprise sector in 2007 (Figure 2). The enterprises in that size-class accounted for the largest share of business enterprise R & D in each Member State except in Estonia, Cyprus and Slovakia. The share of business enterprise R & D expenditure made in enterprises with 500 or more employees was greatest in Germany (84.1 %), France (73.8 %), Sweden (73.4 %) and the United Kingdom. (72.8 %).

An enterprise's size in part depends on the economic sector it is active in. In manufacturing, enterprises tend to be larger on average in the sectors which are found to be particularly R & D-intensive (see below): Chemicals (NACE DG), Transport equipment (DM), and Electrical & optical equipment (DL).

Costs forming the object of R & D expenditure

Following product and financial market opportunities, yet not guaranteeing immediate returns, R & D expenditure can form a costly exercise for business enterprises. Expenditure is, for example, financed by venture capital or by the reinvestment of funds which are generated by a succession of innovative products.

On average in the EU-27, reflecting the importance of often highly qualified researchers in R & D, in 2007, the main types of costs making the object of R & D expenditure are estimated to have been Labour costs (55.1 %) and Other current expenditure (36.6 %) (Figure 3).

While influenced by sectoral specialisation, a country's distribution of R & D expenditure by cost type also reflects the relative prices of the main cost types. In some older EU Member States as well as in Norway, Malta and Cyprus, Labour costs represented a larger share of R & D expenditure. Partly reflecting lower relative costs of labour, that share was lower in most of the new Member States of the 2004 and 2007 enlargements. In some of these Member States, together with possibly more capital-intensive R & D activity, higher shares of capital expenditure may also point at the purchase of relatively more expensive equipment and large infrastructures.

Business enterprise R & D expenditure growth

From 1997 to 2008, EU-27 business enterprise R & D expenditure rose from EUR 87.7 billion to EUR 151.4 billion, at an implicit average annual growth rate (AAGR) of 5.1 %. Growth was strongest in 1999-2000 and in 2006, and weaker yet positive in 2003. Over the period, more than 60 % of EU-27 R & D growth was accounted for by Germany, the United Kingdom, France and Spain.

Figure 4 presents the AAGR in real R & D business enterprise expenditure, based on Purchasing Power Standard (PPS) figures at constant (2000) prices in order to ensure comparability. In these terms, over the shorter period 2003 to 2007, the expenditure of EU-27 business enterprises grew at a rate of 3.4 %. Eight of the new Member States of the 2004 and 2007 enlargements displayed real growth rates of above 10 % in R & D expenditure together with Portugal. While the AAGR in Japan (4.6 %) and the United States (4.0 %) stood above that of the EU-27, partners Turkey, China and the Republic of Korea displayed high real rates of growth.

Strong growth rates were recorded in real R & D business enterprise expenditure in EU-27 Manufacturing, in Latvia, Lithuania and Malta, while, in Services, expenditure grew most in Malta, Estonia and Portugal.

R & D expenditure by technological intensity of enterprises

Figure 5 focuses on the distribution of Manufacturing R & D expenditure by technological intensity of activities. The bulk of R & D expenditure in business enterprises was accounted for by enterprises active in high and medium-high technology manufacturing in 2007. An estimated 32.1 % of EU-27 R & D expenditure in Manufacturing was made in high-technology activities while 57.9 % of R & D expenditure was carried out in medium-high technology activities.

Country specificities are revealed and, for example, more than half of Manufacturing R & D expenditure was made in the high-technology sectors of Iceland (76 %), Ireland (73 %), Malta (72 %), Finland (67 %), Hungary (61 %), Slovenia (60 %), the Republic of Korea (59 %), Sweden (54 %) and Cyprus (53%).

R & D-intensive sectors

Figure 6 compares the cumulative shares of the three largest Manufacturing activities and the three largest Services activities, in terms of R & D expenditure in 2007. The six NACE Rev. 1.1 subsections detailed accounted for close to 75 % of EU-27 business enterprise R & D expenditure in 2007. They made up more than 65 % of domestic business enterprise R & D expenditure in 15 of the 20 Member States for which complete data are available. High shares of total domestic R & D expenditure in these activities appear to reveal country specialisations.

Most business enterprise R & D expenditure proportionally was spent on Chemicals and other chemical products (NACE DG) in Slovenia (41 %), Hungary (36 %) and Belgium (35 %). Electrical and optical equipment (DL) received the largest share of R & D expenditure in Finland (57 %), Malta (33 %) and Ireland (30 %).

Transport equipment (DM) was attributed the largest proportions of domestic business enterprise R & D expenditure in Germany (36 %), the Czech Republic (28 %) and France (26 %).

In Services, Computer and related activities (K72) received the largest proportion of national business enterprise R & D expenditure in Cyprus (37 %), Ireland (29 %) and Estonia (28 %). Research and development (K73) received most domestic business enterprise R & D expenditure in Latvia (43 %), Slovakia (36 %) and Poland (34 %). Other business activities (K74) received proportionally most R & D expenditure in Cyprus (15 %), Portugal (14 %) and Greece (13 %).

One notes that the overall make-up of sectoral R & D expenditure has changed. The share of EU-27 R & D expenditure accounted for by Services rose from 2003 (15.8 %) to 2007 (17.9 %) while the share of R & D expenditure in Manufacturing fell from 81.3 % to 78.8 %.

It is interesting to note that, based on structural business statistics, the three main sections of Manufacturing in terms of business enterprise R & D expenditure (Chemicals and chemical products, Electrical and optical equipment, and Transport equipment) were also the top three subsections of Manufacturing in terms of production growth from 1996 to 2006, displaying AAGR in production of between 3.7 % and 4.3 % over the period (see The main features of the EU manufacturing industry, U. Johansson, Statistics in Focus 37/2008, p.5, Fig. 4). The enterprises belonging to those three subsections also ranked between second- and fourth-last in terms of the share of small and medium enterprises, both in terms of value added and of employment in 2005, i.e. they tended to have the largest enterprises according to these criteria.[3]

In terms of NACE/CPA subsection, these three subsections of Manufacturing were major exporters in 2006 when, together, they accounted for over half of EU-27 exports of manufactured products.[4]

R & D expenditure intensity

Table 1: Business enterprise R & D expenditure intensity (R & D expenditure - Value added), by selected subsection of economic activity, 2007(%)

Based on both R & D and SBS statistics, Table 1 depicts the R & D expenditure intensity (R & D expenditure input as a proportion of value added generated) of the R & D-intensive subsections focused on in the previous section.

The R & D expenditure intensity of Manufacturing (NACE D) was highest in Sweden (11.1 %), Finland (10.0 %), France (9.3 %), Denmark (8.6 %), Germany (7.9 %) and the United Kingdom (7.8 %). The R & D intensity of Real estate, renting and business activities (K) was highest in Sweden (4.5 %), Finland (4.3 %), Austria (4.0 %), Norway (3.5 %), Denmark and the Czech Republic (both: 3.0 %).

In 2007, the R & D expenditure intensity displayed by Manufacturing was lower than that of Real estate, renting and business activities in 8 out of 12 of the new Member States of the 2004 and 2007 enlargements, as well as in Greece and Portugal. This points toward stronger growth in those Member States' services activities.

R & D expenditure intensity was, in most cases, greater in Chemicals than in Manufacturing as a whole and, among the Member States for which data are available, R & D intensity was always greater in Pharmaceuticals. The latter was found to be highest in the United Kingdom (54.8 %), Denmark (44.3 %), the Netherlands (33.8 %), and France (27.0 %). Those four Member States also ranked first in terms of R & D intensity in the manufacture of Chemicals and chemical products as a whole, in 2007.

The highest R & D expenditure intensity in the manufacture of Electrical and optical equipment was displayed by the Netherlands (28.1 %) and Finland (25.2 %). The latter Member State was also seen to allocate the greatest share of its business enterprise R & D expenditure to this activity (see Figure 6), further suggesting a certain specialisation in this subsection.

Similarly, as well as being the Member States which, together with the Czech Republic, spent the greatest proportions of R & D expenditure on the manufacture of Transport equipment, France (21.9 %) and Germany (18.5 %) displayed the highest R & D expenditure intensity in that subsection.

R & D personnel intensity

Table 2: Business enterprise R & D personnel intensity (R & D Head count - Number of persons employed), by selected subsection of economic activity, 2007 (%)

Table 2 depicts the R & D personnel intensity (R & D head count as a proportion of the total number of persons employed) in the subsections under analysis. The size of this second indicator of R & D intensity tended to be smaller, reflecting the high capital intensity of some R & D activities. In Computer and related activities (K72), this phenomenon was less pronounced, suggesting higher personnel intensity.

The greatest shares of persons employed in Manufacturing (D) were active in R & D in Finland (6.6 %), Sweden (5.4 %), Austria (5.0 %), the Netherlands (4.9 %) and Luxembourg (4.8 %). R & D personnel intensity in Real estate, renting and business activities (K) was highest in Denmark (4.8 %), Finland (4.2 %), Norway (3.5 %), Austria (3.0 %), Sweden (2.8 %) and Ireland (2.5 %). R & D personnel intensity was lower in Services than in Manufacturing in 8 of the 12 new Member States, and in Denmark and Greece.

In the countries for which data are available, except in Ireland, Greece and Romania, the R & D personnel intensity of the manufacture of Chemicals was greater than that of Manufacturing as a whole. R & D personnel intensity was greater again in the manufacture of Pharmaceuticals. Suggesting specialisation in this field, the United Kingdom (44.5 %), the Netherlands (27.4 %) and Denmark (26.3 %) ranked first in terms of R & D personnel intensity in Pharmaceuticals, as they did in the case of R & D expenditure intensity.

R & D personnel intensities in the manufacture of Electrical and optical equipment also were consistently greater than in Manufacturing as a whole. Finland (24.8 %) stood out with the highest share of R & D personnel, as with R & D expenditure intensity. Sweden (14.5 %), France (11.6 %) and Germany (10.3 %) displayed the highest R & D personnel intensities in the manufacture of Transport equipment.

The figures presented in Tables 1 and 2 should be interpreted with care given that they make use of both R & D and SBS statistics. While, in the case in which an enterprise is active in more than one economic activity, the former classification can reflect those activities, the latter classifies activity under the NACE heading which is the enterprise's principal activity.

Data sources and availability

R & D expenditure is a basic measure that covers intramural expenditure, in other words, all expenditures for R & D that are performed within a statistical unit or sector of the economy, whatever the source of the funds. Expenditures made outside the statistical unit or sector but in support of intramural R & D (for example, purchase of supplies for R & D) are included (both for current and capital expenditures).

Gross domestic expenditure on R & D (GERD) is composed of four separate sectors of performance: business enterprises, government, higher education, and private non-profit organizations. Expenditure data consider the research spend in the national territory, regardless of the source of funds; data are usually expressed in relation to GDP, otherwise known as the R & D intensity.

Sources Eurostat - Statistics on Research and Development Eurostat - Structural Business Statistics OECD - Main Science and Technology Indicators

Context

In October 2008, the EU industrial R & D investment scoreboard was released. This presents information on the top 1,000 companies in terms of R & D investment whose registered offices are in the EU. The report shows that R & D investment by these top 1,000 companies grew in 2007 at a faster pace than for non-EU competitors from either the United States or Japan. It should be noted that there was a marked reduction in investment activity in the United States at this time. Nevertheless, the data presented show that R & D investment by EU companies grew for the fifth consecutive year. The regional distribution of companies in the top-50 R & D investors in 2007 was split: 20 in the United States, 18 in the EU and 9 in Japan. Nokia was the EU company with the highest level of R & D investment in 2007, while Volkswagen and Daimler were also among the top 10 in the world, as was Roche (Switzerland).

In January 2006 the European Commission presented to the European Council its 2006 annual report on the revised Lisbon strategy, in the form of a communication ’Time to move up a gear – the new partnership for growth and jobs’. One of the four areas for priority actions set out by the European Commission was to invest more in knowledge and innovation, and to increase the proportion of national wealth devoted to research and development through to 2010. The communication also referred to planned spending targets for R & D, stating that if these were met in the 18 countries that had set targets as part of their national plans then R & D expenditure was estimated to rise to 2.6 % of GDP by 2010. The communication also stressed that while all Member States appreciate the importance of the spread and effective use of information and communication technology and environmental technologies, the link between the identified challenges and the measures proposed to address them in national plans was not always clear.

See also

Further Eurostat information

Publications

Main tables

Research and development (t_research)
Statistics on research and development (t_rd)
Research and development expenditure, by sectors of performance (tsc00001)

Database

Research and development (research)
Statistics on research and development (rd)
R&D expenditure at national and regional level (rd_e)
EU Industrial RD Investment scoreboard (source: DG JRC) (rd_scb) (Excel files)

Dedicated section

External links

Notes

  1. ↑ Presidency Conclusions, Barcelona European Council, 15 & 16 March 2002, SN 100/1/02 REV 1
  2. ↑ Presidency Conclusions, Lisbon European Council, 23 & 24 March 2000
  3. ↑ Op. cit. Fig. 5, p.5;
  4. ↑ Op. cit. Fig. 7, p.6
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