Industrial research and development, 2019 (actual), 2020 (preliminary) and 2021 (intentions)
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Research and development activities modestly impacted by COVID-19 pandemic
While the COVID-19 pandemic profoundly affected the Canadian economy, its impact on industrial research and development (R&D) activities has been minimal. Almost 9 in 10 businesses active in R&D reported that they did not alter their spending on R&D in 2020 from their pre-pandemic intentions; however, expenditures on in-house R&D decreased by $280 million and expenditures on outsourced R&D were down $62 million.
In response to the pandemic, 4.0% of businesses performing R&D launched new R&D projects, worth $404 million. Most pandemic-related R&D was conducted by manufacturing companies (68.9%), particularly those in machinery manufacturing industries, which accounted for more than half of all R&D expenditures related to the COVID-19 pandemic.
Looking ahead to R&D intentions for 2021, spending is expected to stay at 2020 levels ($21.0 billion).
In-house R&D expenditures reach an all-time high in 2019
In 2019, Canadian businesses spent a record high of $21.7 billion on in-house R&D, which marked a 3.8% increase over 2018 spending. This increase was mainly attributed to a rise in the salary and wages component, as the number of full-time equivalents (FTEs) of R&D personnel rose by 2,549 to reach 167,956 FTEs. The main drivers behind this increase were services-producing industries, particularly those in information and communication technology (ICT) and businesses engaged in software engineering R&D.
Preliminary estimates, which are typically conservative, show that in-house R&D expenditures decreased by 3.2% in 2020 to $21.0 billion, while they are projected to stay at $21.0 billion in 2021.
Outsourced R&D expenditures edge down for a second year in a row
In 2019, businesses outsourced $4.8 billion of R&D, a slight decrease from $5.1 billion in 2018. Underlying this decrease was the continuing decline of outsourced spending in manufacturing industries, which was down $627 million from its high of $1.8 billion in 2017.
Transportation equipment manufacturers accounted for the majority of this reduction. Since their peak in 2017 ($949 million), transportation equipment manufacturing industries have reduced their outsourced R&D expenses by $594 million. Their in-house R&D expenditures decreased by $423 million over the same period, and have declined $517 million since 2014.
Preliminary 2020 data indicate that outsourced R&D continued to decline, decreasing by 7.5% to $4.5 billion, while intentions indicate that it will hold steady at $4.5 billion into 2021.
Industrial R&D continues shift toward services-producing industries
Historically, industrial R&D spending in Canada was dominated by the manufacturing sector, but, by 2012, services-producing industries had surpassed manufacturing to become the largest performers of R&D in Canada. The share of R&D performed by services-producing industries has since continued to increase and, by 2019, accounted for 63.5% of all in-house R&D.
ICT companies drive growth in both R&D of services-producing industries and software R&D
A total of $8.9 billion of in-house R&D spending was undertaken by ICT industries in 2019, of which the largest component by far was ICT for services-producing industries ($8.2 billion). Within services-producing industries, almost two-thirds (59.4%) of all R&D was performed by businesses in the ICT sector. Starting in 2016, in-house R&D in the ICT sector has grown an average of 12.4% per year, well above the growth of all industries, which ranged from 1.7% to 9.6% over the same period.
The dominance of the ICT sector's R&D spending is reflected in its R&D intensity, or ratio of R&D spending to value added. From 2014 to 2019, Canadian businesses spent around 1.2% of their total value added (gross domestic product—GDP) on R&D. Over that same period, ICT companies spent between 7.1% and 9.4% of their GDP on R&D.
The ICT manufacturing sector is particularly R&D intensive. While it accounted for 3.8% of the ICT sector's total GDP, it was responsible for 8.0% of its R&D expenditures.
A single industry—computer systems design and related services (North American Industry Classification System [NAICS] 5415)—contributed 44.2% of ICT-sector in-house R&D spending, followed by software publishers (NAICS 5112), which accounted for 17.3%.
Businesses in both industries are major performers in software engineering R&D, which made up one-third ($7.4 billion) of total R&D spending in 2019. With a 70.2% increase in software engineering R&D from 2015 to 2019, this field has driven the growth within engineering and industrial R&D overall.
Findings from the 2019 Survey of Innovation and Business Strategy highlight the importance that software publishers and computer systems design companies place on bringing new or improved products to market. Both industries indicated intentions to prioritize this business strategy from 2020 to 2024 (26.1% and 41.6%, respectively), compared with 15.8% for all businesses in general. R&D activities are a key element in strategies to develop these new and improved products.
Canada has the highest proportion of ICT-related R&D spending of any G7 country
As far back as 2009, the percentage of industrial R&D done by the ICT sector in Canada has been consistently higher than the average across all Group of Seven (G7) nations. From 2009 to 2017, the share of Canadian industrial R&D by the ICT sector doubled, from 14.6% to 29.9%. On the back of this growth, Canada surpassed the United States to become the G7 member with the highest share of ICT R&D activities.
Sustainable development goals
On January 1, 2016, the world officially began implementing the 2030 Agenda for Sustainable Development—the United Nations' transformative plan of action that addresses urgent global challenges over the following 15 years. The plan is based on 17 specific sustainable development goals.
Data on the characteristics of research and development in Canadian industry are an example of how Statistics Canada supports the reporting on the global sustainable development goals. This release will be used to help measure the following goal:
Note to readers
These data are subject to revision.
Research and experimental development comprises creative and systematic work carried out to increase the stock of knowledge—including knowledge of humankind, culture and society—and to devise new applications from the available knowledge.
In-house research and development (R&D) expenditures refers to expenditures within Canada for R&D performed within the company by employees (permanent, temporary or casual) and self-employed individuals working on site on the company's R&D projects.
Onsite research and development (R&D) contractors are onsite personnel hired to perform specialized project-based R&D work under the supervision and direction of the contracting organizations. They are considered separate from industrial R&D employees.
Random tabular adjustment
The random tabular adjustment (RTA) technique, which aims to increase the amount of data made available to users, while protecting the confidentiality of respondents, was applied to the estimates from the Annual Survey of Research and Development in Canadian Industry.
Statistics Canada typically uses suppression techniques to protect sensitive statistical information. These techniques involve suppressing data points that can directly or indirectly reveal information about a respondent. This can often lead to the suppression of a large number of data points and significantly reduce the amount of available data.
Using RTA, Statistics Canada can identify sensitive estimates and randomly adjust their value rather than suppress them. The size of the adjustment is calculated to protect respondent confidentiality. After adjusting the value, the agency assigns a quality measure (A, B, C, D or E) to the estimate to indicate the degree of confidence that users can have in its accuracy. Quality measures account for uncertainty related to sampling, non-response and RTA, when applied.
The new interactive dashboard "Characteristics of research and development in Canadian industry" (71-607-X) is now available.
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