Support : eNewsletters : Eye on Innovation : Issue 7, October 2010

"To raise new questions, new possibilities, to regard old problems from a new angle, requires creative imagination and marks real advance in science." — Albert Einstein

R&D: Innovation in the Making

Did your firm's strategic R&D plans change during the recession? Has your company enhanced its R&D recently? What countries are promoting R&D? Where is the most R&D spending taking place globally? Dialog finds the answers to these questions and more.

Despite the struggling economy, Dialog continues to spot quite a bit of activity in the venture capital industry, underscoring the importance of VC in promoting innovation. In this issue of Eye of Innovation we'll:

• explore business and industry literature, news and market research to identify the state of R&D worldwide following the economic slowdown;
• review patent statistics to identify the latest R&D players globally; and
• check scientific literature for latest trends.

And, oh yes, read the update on who venture capitalists might target as the next generation of entrepreneurs, an extension of the topic in the last issue of Eye on Innovation.

The good, the bad and the ugly: results of the economic downturn

When the economic slowdown turned from mild to severe, many firms were forced to cut their R&D budgets. For example, total U.S. industrial R&D dropped by 3.77%, or nearly $10 billion overall, in 2009 from what was spent in 2008.

Yet it is encouraging to see that despite current economic problems, many major companies throughout the world continue to invest, recognizing R&D is the source of innovation from which economic growth and prosperity develop. Companies realize investing now, despite these disappointing economic times, not only fosters economic recovery it also positions them for future success while helping solve major global challenges.

A Wall Street Journal investigation showed a large number of technology companies—with few exceptions—made relatively few cuts to their most recent quarterly R&D budgets while a survey undertaken by the Minneapolis/St. Paul Business Journal revealed "the economic downturn has Minnesota companies trimming their budgets, but many are leaving one line item intact: R&D spending."

Let the good times roll
The performance of R&D is intertwined with our global economy. Although the United States, Japan and Europe have dominated R&D for the past 50 years, the landscape is changing. On the positive side, eight Asian countries including China, India, South Korea and Japan account for just over $400 billion or 35% of the total global R&D spending, with an average growth rate from 2009 to 2010 of 7.5%. Negatively, European R&D increases have stalled. The EU continues to fall behind the emerging nations of Asia and the U.S. in the amount of overall R&D spending.

Share of Total R&D Spending
Generally for 2010, predictions indicate global R&D will increase 4.0% to $1,156.5 billion from $1,112.5 billion spent in 2009. Increasing growth in China fuels recovery and is not likely to diminish anytime soon. Improved forecasts in the U.S. R&D environment have begun this year, with total R&D spending predicted to surpass the $400 billion level for the first time.

Source: TableBase®: R&D Magazine

Shake that money tree
Federal governments, industry, academia and non-profit organizations (primarily research institutes and the like) lead the list of funding sources. Federally-funded research and development centers (FFRDCs), large research centers and complexes funded by various agencies within the federal government, are managed by industry, university, or non-profit operators and also share the wealth.

In the United States, for example, the largest percentage of all R&D is performed by industry while in China and India, the government provides the lion's share. During the recession in 2009 government-funded economic stimulus packages (e.g., U.S.'s ARRA) sustained R&D in the United States, China and European countries. Unfortunately, the programs dramatically increased the debt of those countries, and paying resulting interest leaves less for R&D investments in the future.

Although dollars are a significant marker to show R&D growth, many countries, especially developing nations in Asia, are discovering the value of intellectual property potential and innovation. Some examples from the World International Patent Organization (WIPO) illustrate the latest trends in 2010:

• Chinese companies, which had previously focused on duplicating foreign products, now attach more importance to technology, innovation and creativity. China is expected to grow its patent applications by 8.5 percent overtaking Japan as second in the number of patent applications for 2010.
• 72 percent of small to medium-sized enterprises in the U.S. plan to maintain or increase foreign patent filings, including in BRIC countries (Brazil, Russia, India and China).
• The Republic of South Korea continues to increase its filings. Korea ranked fourth in the world in international patents.
• India's filings have decreased by approximately 6 percent because Indian corporate houses are not spending their budgets for R&D. Funds that are spent are focused on chemical, computer and drug patents.
• European patent filings are down due to the economic crisis; however, Germany continues to lead, followed by France. Several European states have increased filings significantly, including Greece, Portugal and the Czech Republic.

What's hot in the R&D development pipeline
The largest number of filings with the European Patent Organization (EPO) in 2009 concerned medical technology. The sharpest declines were in applications for electrical elements, electric communication techniques and information technology. In contrast, applications for fluid-powered machines rose by double digits.

The EPO also noted patent applications for renewable energy were up in the wind, hydraulic, photovoltaic, solar thermal and biomass energy sectors. Although applications relating to water power were only a small proportion of all applications filed, their number has risen steadily over the last five years. Many companies from a wide range of countries, particularly in Europe, are active in this field. Half the applications received in 2009 came from the United Kingdom, Germany, Spain, Ireland and Norway, and Openhydro was the leading applicant. (See Eye on Innovation issue on Cleantech for more on water power activity.) Solar thermal energy increased substantially with one-third of the applications from German companies, led by Bosch. The same trend was seen for applications for photovoltaic technology with half the applications received in 2009 filed by Japanese or American companies. Leading applicants were Sanyo, Sharp, Micron Technology and Sony.

Sources: European Report, AsiaPulse News, JIJI Press America, dpa International Services in English, BusinessWire, Europe Environment

Spotlight on scholarly papers

Modest reductions in R&D investment for basic research continues in 2010 especially in the U.S. and throughout Europe while in Asia published scholarly papers are on the increase.

Research papers

• Chinese researchers continue to publish technical papers and are the leading source of new chemical research in the world. Materials science, mathematics, physics and engineering round out China's top five research areas. China also ranks first in the number of researchers.
• India has shown substantial growth in its annual output of scientific publications by about 80 percent in the last 10 years including chemistry, plant and animal science, materials science, engineering and physics.
• South Korea moved up to twelfth in the number of published scientific papers in 2007.
• Brazil has the highest combined citations-per-scientific paper in all fields, compared to the world average. According to UNESCO, Brazil has great potential in growing the number of scientific papers its researchers publish, but is starting from a relatively low base.
• Although Russia's share of the researcher global community fell, it still ranks as the fourth largest researcher community in the world, behind the U.S., China and Japan. Most Russian research continues to be performed by its former research institutes.

Innovative cooperation can be a fairly fast and efficient way for a firm to get external technological expertise and, thus, attempt to become a market leader in the field of technology. A continuing trend is the acquisition of technology from external sources through alliances and joint ventures, contracts with Federal laboratories and mergers and acquisitions.

Global research paper partnerships

• China has developed and continues to expand its extensive science and technology collaborations with Asian, European, and U.S. organizations and companies. Research paper partners include the U.S., Japan, Germany, the U.K. and Canada, along with co-authored papers with renowned universities such as the National University of Singapore, the University of Texas, the University of Tokyo, Harvard University and the University of Sydney.
• South Korea allows a very low number of foreign researchers to participate in research projects; however, it has almost doubled its volume by collaborating with Indian and other Asian partners.

Source: Business & Industry: "R&D giant ascendant" R&D Magazine

A changing landscape
The U.S. still maintains a commanding lead in the overall amount of monies invested in R&D and the quality of intellectual property produced, but over the past ten years many Asian countries have steadily increased their rates of investments in R&D, infrastructure and intellectual property. Numerous industries, once dominated by the U.S. and Europe, are under "attack" by Asian firms, including the aerospace, pharmaceutical, high-performance computing and automotive industries.

Energy, climate change, and healthcare are expected to be the top technology drivers in the future. While energy and climate change technologies are predicted to be developed on an equally strong global basis with no particular country dominating, the U.S. should be able to maintain its lead in the development of new technologies due to its existing robust infrastructure, massive R&D spending, and powerful intellectual property base. Defense research, developed within industry and government labs and often overlooked, has driven technology for over 50 years resulting in computer technologies, robotics, healthcare, basic physics and more.

A weakened economic position pervading industry in both the U.S. and throughout the world is expected to result in reduced levels of funding for research that does not lead to short-term increases in sales and margins. However, countries prepared for the future will be ones to sustain R&D investment. After all, it is the key to economic growth.

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