INSIGHT: Global R&D to rise in 2012, with China gaining on US

05 January 2012 20:31  [Source: ICIS news]

By Joe Kamalick

WASHINGTON (ICIS)--Global spending on research and development (R&D) will grow by more than 5% this year to $1,400bn (€1,078bn), a key annual survey shows, with the US holding its lead as overall R&D funding leader but with China again in second place with an increasing commitment to research.

In its annual report on R&D spending worldwide, the Battelle Memorial Institute (BMI) noted that the 5.2% increase in global research and development spending forecast for this year is somewhat less than the 6.5% growth seen in 2011.

However, last year’s stronger increase in R&D spending should be considered in the context of a post-recession surge in 2011 following two years of subdued activity, during the recession.

BMI noted that most of the 2012 growth in worldwide R&D spending will be due to increased expenditures in Asian countries, which are expected to boost research and development funding by nearly 9% this year compared with 2011.

European R&D spending will grow by 3.5% this year, the study says, and will include increased funding even by economically stressed nations such as Italy, Ireland and Portugal. Among the EU nations, only Greece, teetering on the edge of default and undergoing severe cutbacks in government spending, will fail to boost R&D spending this year.

In dollar terms, the US lead in R&D spending will again be far out front this year, expanding to $436bn from the $427.2bn in research and development expenditures seen in 2011.

The figures for US R&D expenditures and those of other nations include both government and private sector outlays.

China maintains its second-place ranking with 2012 R&D expenditures forecast to be $198.9bn.

Japan and Germany also hold on to their third- and fourth-place standings in R&D outlays, with spending this year of $157.6bn and $90.6bn respectively.

As a measure of the still dominant US role in R&D funding, the expected US outlay of $436bn this year is nearly equal to the combined expenditures of the next three nations. China, Japan and Germany will spend a combined $447bn in research and development this year, according to BMI.

However, if R&D spending is viewed as a portion of each nation’s gross domestic product (GDP), Japan and South Korea are among those making the largest commitments to new science research and product development, with each allocating nearly 3.5% of their respective GDP to R&D.

The US and Germany are committing about 2.85% of their respective GDP to R&D funding. However, with its much larger $15,305bn GDP, the US R&D share of overall production generates a total ($436bn) that is nearly five times larger than Germany’s, whose 2012 GDP is forecast at $3,158bn.

And while China holds second place in overall R&D spending with 2012 outlays expected to total $198.9bn, that amount represents a comparatively modest 1.6% of the nation’s $12,434bn GDP in 2012.

This suggests that if China were to commit a higher percentage of its GDP to research and development work in the near future, it might well narrow the gap between it and the US still further. 

For example, if China were to match the US 2.85% of GDP in research and development spending, its outlays this year would be $354bn. That would still be more than $80bn shy of the US total, but China clearly is in position to challenge the US for the top spot in R&D outlays in years ahead if it were to make the effort.

Ironically, some of the increases in China’s R&D spending this year may be attributed to investments made by US companies in the Middle Kingdom.

BMI said that part of the 2012 increase in US private sector R&D investments can be attributed to “steadily increasing investments by US companies in their offshore research facilities”.

“The overall percentage of such R&D investments is still reasonably small,” BMI said, “but many companies are leveraging the economic and collaborative benefits of globalization.”  That means that some US companies are making R&D investments in nations, such as China, where they have shifted some of their manufacturing capacity.

The role of US private-sector industrial R&D investments is becoming increasingly important, the BMI study shows.

While, as noted, overall US R&D spending is to grow by 2.85% this year to $436bn, that increase comes despite a year-on-year decline in US government funding, according to the study.

“Federal government spending on R&D in 2012 is forecast to decline by about 1.6% to $125.7bn,” BMI said, “while US industrial spending is forecast to increase by 3.8% to $279.7bn, and academic spending is projected to increase 2.85% to $12.3bn.”

“This continues a trend of complementary shifts that has helped sustain growth in total US R&D spending” over the past decade or so, BMI said.

“For example, in 2003 and 2004, flat industrial R&D investment was offset by record federal R&D spending, while in 2005 and 2006 industry spending increased and federal government spending decreased,” the study noted.

But that complementary back-and-forth shifting of industrial and government R&D spending might not continue. Amid the general mood of budget-cutting and deficit reduction that now dominates US politics, a new surge in federal R&D spending might not develop in the foreseeable future.

Among increases in industrial R&D, the US chemical sector will play a significant role.

According to BMI, US producers of chemicals and advanced materials will boost their research and development spending this year by 11% compared with 2011, bumping the total chemicals and materials R&D outlay to $9.28bn in 2012 from the $8.33bn seen last year.

That 11% increase in US chemical sector R&D spending is all the more significant when compared with worldwide R&D spending in chemicals and advanced materials, which is forecast by BMI to climb by a more modest 3.8% this year compared with 2011.

Among the top R&D spenders in US chemicals are familiar names, with Dow Chemical, DuPont and 3M leading the pack, but with Honeywell, Huntsman, Eastman Chemical and Air Products & Chemicals also making sizable commitments.

The BMI R&D survey also identified what Battelle chief executive Jeffrey Wadsworth termed “some interesting trends”.

Among them, he said, “is the increasing importance of R&D collaboration at all scales”.

“From new mechanisms for open innovation in life science, to multinational collaborations like the ITER [International Thermonuclear Experimental Reactor] fusion energy experiment, it is clear that collaboration has become a preferred strategy for major science and technology projects,” Wadsworth said.

In addition to or as part of multinational collaborative R&D, Wadsworth said that “globalisation trends remain strong, with investment, research capabilities and commercialisation migrating to optimal locations, and new countries entering the mix of those committed to R&D as a national strategy”.

“China’s profile as the second-largest sponsor of global R&D continues to increase, whether measured in terms of funding or generation of intellectual capital,” Wadsworth said.

However, he noted too that “with over $400bn in annual R&D funding from both public and private sectors, the US continues its historic and world-leading commitment to innovation as an essential catalyst for prosperity and growth”.

($1 = €0.77)

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy
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By: Joe Kamalick
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