Industrial R&D to remain flat as market woes continue to plague telecom and other sectors

Guest Contributor
August 8, 2003

Continuing difficulties in the telecommunications sector will likely keep Canadian corporate R&D spending depressed for 2003, with only a slight improvement on the dismal estimates for 2002. The latest data from Statistics Canada show total projected industrial R&D expenditures of $12.1 billion this year, up minimally from $12.0 billion in 2002. That’s a far cry from 2001 when the overheated telecommunications and other high-tech sectors boosted overall spending to $13.2 billion.

Since those heady days, the downward plunge in the fortunes of Nortel Networks Corp, JDS Uniphase Corp, and Ericsson Canada Inc have devastated R&D spending in the telecom sector, marking the first time in 40 years that overall R&D spending in Canada declined. The latest figures show that not all sectors have experienced serious declines. R&D spending is down only slightly in key high-tech sectors such as aerospace and automotive, while pharmaceuticals, scientific R&D services and finance, insurance and real estate expenditures continue to grow.

But without Canada’s big R&D guns contributing to growth, the objective of moving from 15th to 5th in global R&D performance appears increasingly unattainable. That 10-year target was set nearly three years ago and R&D spending has actually shrunk during that period, posing a serious challenge to the architects of the new innovation strategy.

When examined by company size, it’s evident that the R&D spending of larger firms has declined the most since 2001. For firms with 5,000 or more employees, R&D spending dropped from $4.5 billion in 2001 to $3.4 billion in 2003, while firms with 2,000 to 4,999 employees declined from $1 billion to $977 million in the same timeframe. Of the six other categories ranging from 1-49 to 1,000-1,999 employees, two experienced declines over the two-year period. Similar results are obtained when examining firms by revenue size.

“There is a small recovery but we’re a long way from where we were in 2001,” says Antoine Rose, head of StatCan’s life sciences and industrial R&D surveys. “It’s not just the big companies. Lots of smaller companies have slowed down (R&D spending) as well.”

The spending intentions of industry this year, if accurate, demonstrate the growing R&D muscle of the pharmaceutical and medicine manufacturing industry. With 2003 spending of more than $1 billion, it places second overall behind communications equipment and ahead of aerospace products and parts, the former second-place holder . StatsCan has also extracted pharmaceutical R&D from two other categories – wholesale trade and science R&D services – for an even more impressive total of $1.5 billion or 12.6% of all R&D spending for 2003. The same exercise for 2001 – the last year for which actual R&D spending data are available – the total is $1.3 billion or 10% of that year’s total.

The StatsCan bulletin is based on its last full industrial R&D survey, conducted in 2001. This is the most recent year for which actual data are available, and therefore the most recent year for which detailed breakdowns are provided.

When examined by source of funds, businesses provide the bulk of R&D funding, accounting for $9.5 billion or 71.8% of the $13.2-billion total. An astounding 97% of business-financed expenditures occurred in the manufacturing and services sectors.

The second largest source of funds are foreign, contributing $2.7 billion or 21% and concentrated in the above two sectors. That’s down significantly from $3.5 billion and a 29% share in 2000. Foreign funds were particularly strong in the communications equipment, semiconductor and pharmaceutical industries.

Other Canadian sources account for $561 million while the federal government ranks fourth with the curiously low amount of $361 million. Technology Partnerships Canada and the Industrial Research Assistance Program alone inject more into business annually. Perhaps some of that activity — and other federal business assistance programs — are captured in data from the Canadian Customs and Revenue Agency, which is slower coming in and accounts for firms with less than $1 million in R&D outlays.

Not surprisingly, the vast majority (84.9%) of R&D activity occurred in the industrial heartland of Ontario and Quebec, with 55.4% and 29.6% respectively. The 2001 survey was taken after the high-tech crash but before firms began to cut back. Next year’s survey will almost certainly see Ontario’s share shrink significantly, as it is home to most telecommunications R&D



($ millions)
Industry Sector19992000200120022003
Communications Equipment2,2783,1603,1882,0352,035
Pharmaceuticals & Medicine5767658819711,051
Computer System Design & Related Services563731936926946
Aerospace Products & Parts1,129887933875872
Semiconductor & Other Electrical Components581817878753791
Scientific Research & Development Services264390592615639
Wholesale Trade607735584515525
Architectural, Engineering & Related412406495537508
Navigational, Measuring, Medical &
Control Instruments309424443430388
Information & Cultural Industries310352643629628
Motor Vehicle & Parts303359306305286
Health Care & Social Assistance319306317346351
Other Chemicals307266258237243
Computer & Peripheral Equipment181198178175176
Primary Metal (non-ferrous)140140154162156
All Other Services233178161162162
Mining, Oil & Gas Extraction134176188180177
Finance, Insurance & Real Estate109138153203208
Total (all 46 industry classifications)10,39412,17513,17911,98510,060
Source: Statistics Canada Service Bulletin Vol.27, No. 5

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