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A model of industrial R&D spending in Canada

Tom Brzustowski

RBC Professor

FPTT 2009 National Meeting, Ottawa, June 18, 2009

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Industrial R&D is very important - but it’s thin in Canada

Total number of businesses in Canada in 2003:                       1,018,900

Sources:     The first two numbers are from Statistics Canada, 2006, “Business Dynamics in Canada”, cat. no. 61-534-XWE2006001. The second number omits some sectors where there may also be some R&D: construction, professional, scientific and technical services.The third number is also from StatCan, but included in Ron Freedman’s paper “Understanding Trends in Industrial Research Performance in Canada”, published by the Impact Group, February 2008The last number is taken directly from the “Canadian Corporate R&D Directory Data Base” published by Re$earch Inforsource, Inc. in 2007.

The number of companies listed as R&D spenders in the “Canadian Corporate R&D Directory Data Base” for the year 2003 – responsible for about 80% of BERD 663

The number of successful applicants to the SR&ED tax credit program in 2003:          15,729

Of those, the total number in sectors where we might expect most R&D (agriculture, forestry, mining, oil and gas extraction, utilities, manufacturing):              125,600

Here are some telling numbers for 2003:

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A model of industrial R&D spending in Canada

Group label steady changing

Size many large and medium, many small, with annual R&D with annual R&D spending spending of a few $ million

>$100 million

Examples manufacturers with established research-based start-upsproduct lines in many sectors emerging from universities,

government labs; technology spin-offs from large companies

Business model do R&D to stay in business are in business to do R&D

R&D funding sales revenues and raised capital, tax creditssource some tax credits and support programs,

some sales revenues

R&D intensity a few up to 20%, most below most near 100% or above, 10%, some far below many much higher

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A model of industrial R&D spending in Canada…cont’d

Goal of R&D improved or new products new products, with regulatory and processes; more approval if necessary; new sustaining than disruptive markets; more disruptive than innovation sustaining innovation

Rhythm of business steady or quasi-steady fluctuating: involved in frequentas indicated by RDI and rapid change; big swings in RDI often driven by swings in revenues

Leading indicator RDI decreasing moderately RDI greatly decreasing with time -of commercial with time when revenues grow from RDI >100% down to thesuccess faster than R&D spending mainstream value for the sector when revenues grow much

faster than R&D spending

Implications for policies must recognize long policies must recognize that these support policies time scales and the need for companies are short of both cash and programs big investments, steady model and time; programs must be

of program delivery suitable responsive with quick decisions – need the attention of an "account executive"

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RDI, % in Biotech/pharma 1999 - 2006

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10

100

1,000

10,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55

companies in order of increasing RDI range

2006 2005 2004 2003 2002 2001 2000 1999

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