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Research and development driving services

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Chances are, when most Canadians think about investment in research and development (R&D), advances in medicine, manufacturing or agriculture come to mind first.

But R&D is also vital to service industries such as computer software, business services and logistics. Indeed, as services have grown in economic importance, the service industries have become major supporters of research and development, responsible for 28.5% of all R&D expenditures in 2002.

A key development in the services sector over the past decade has been the sharp growth of technology-intensive services such as logistics and information and communications technology. Growth in this area has been transforming business services, as firms strive to outperform the competition by employing the latest computer and communications systems.

The largest growth in R&D spending among the service industries has been in business services, increasing 51% from 1994 to 2000. Moreover, business services accounted for over 60% of the service sector’s total R&D expenditures in 2002.

Quebec has emerged as the R&D leader in services. From 1994 to 2000, total business services R&D spending in Quebec more than doubled, from $385 million to $786 million. Quebec was also home to 38% of the employees working on business services R&D in Canada in 2000.

Though nearly one-third of total R&D spending in Canada comes from foreign sources, foreign funding in the services sector remains relatively weak. Manufacturing industries receive 89% of the total foreign R&D funding, whereas services receive only 10%.

Since technology is constantly changing, R&D investment remains essential for creating and improving products and services, and for keeping Canadian businesses competitive internationally.