Analysis

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Overview of industrial R&D spending intentions

Businesses in Canada anticipated spending just over $15.6 billion on industrial research and development (R&D) in 2011, a 5.0% increase from 2010. In 2007 industrial R&D spending peaked at $16.8 billion, with a previous peak in 2001 of $14.3 billion.

Following the 2001 peak, the decline in industrial R&D spending was centred in the manufacturing sector. A period of recovery in industrial R&D spending, emanating primarily from the services sector, occurred between 2003 to a peak in 2007. The more recent decline occurred, to varying extents and over three years, across almost all industrial sectors. This has resulted in a longer road to recovery. It appears that businesses may be weighing the advantages of investing in R&D against other business strategies in a difficult global economy (table 1-1 and CANSIM 358-0024).

Industrial distribution of R&D spending

Businesses performing R&D are classified based on the North America Industry Classification System (see text box: Industrial shifts in R&D data) into 46 industrial groupings intended to provide a detailed representation of the Canadian industrial distribution of R&D spending.

Between 2010 and 2011, industrial R&D spending in the manufacturing sector is anticipated to increase by 8.0% from $7.1 billion in 2010 to $7.7 billion in 2011. For the services sector, an increase of 3.1% is anticipated, from $6.6 billion in 2010 to $6.8 billion in 2011 (table 1-1).

Historically, industrial R&D has been centred in the manufacturing sector, whose share in recent years peaked in 2000 at 68% ($8.5 billion) of total industrial R&D ($12.4 billion). Its share dropped steadily through to 2008, when it accounted for 47% ($7.6 billion). Since 2008, its share has remained fairly stable at just under 50% (table 1-1 and CANSIM 358-0024).

Within the manufacturing sector the two leading industrial groupings performing over a billion dollars of R&D are: aerospace products and parts ($1.4 billion) and communications equipment ($1.4 billion) (table 1-1).

Meanwhile, the share of industrial R&D spending in the services sector has been increasing. The services sector accounted for 28% of total industrial R&D performed by Canadian industry from 1998 through 2000. Beginning in 2001 and continuing through the decade, however, a shift towards the services sector occurred, as its share of R&D spending increased, while industrial R&D spending decreased in the manufacturing sector. By 2008, the services sector accounted for 45% ($7.4 billion) of total industrial R&D ($16.4 billion), almost equal to the share of the manufacturing sector (table 1-1 and CANSIM 358-0024).

Of the six industrial groupings that spent more than $1 billion on R&D, the following four are driving the shift towards the services sector: scientific research and development services ($1.7 billion); wholesale trade ($1.3 billion); information and cultural industries ($1.2 billion); and computer system design and related services ($1.1 billion). In 2011, these four services sector industrial groupings continue to represent one-third (34%) of total intramural industrial R&D performance (table 1-1).

The share of industrial R&D of the other sectors of Canadian industry (consisting of agriculture, forestry, fishing, mining, oil and gas extraction, utilities and construction) has increased slowly and steadily from less than 4% in 2001 to almost 9% in 2009 and 8% in 2010 and 2011 (table 1-1 and CANSIM 358-0024).

Total intramural expenditures by type of expenditure

In 2011, total intramural R&D spending is anticipated to reach $15.6 billion, an increase of 5% from the previous year. Total intramural expenditures are composed of current intramural expenditures and capital expenditures, such as machinery, equipment, lands and buildings. Current intramural expenditures comprise wages and salaries and other current costs, such as spending on supplies, materials, utilities, and supporting services. Current intramural expenditures of $14.8 billion are anticipated to continue to represent 94% of total industrial spending in 2011. The share of current intramural expenditures reached 92% in 2002 and has remained at or above this level through to 2011. Conversely the share of capital expenditures has been around 8% over the same period (CANSIM 358-0024).

Wages and salaries are anticipated to reach $9.5 billion in 2011, a 6.9% increase from 2010. Prior to 2002, wages and salaries accounted for about half of total R&D spending.In 2002, this share increased to 53% (or $7.2 billion) and by 2006, wages and salaries reached 60% ($9.9 billion) of total R&D spending ($16.5 billion). Since 2007, this share ranged between 57% and 61% (CANSIM 358-0024). Unlike capital expenditures and other current costs which can be temporarily delayed in times of economic difficulties, wages and salaries must remain competitive in order to retain highly skilled R&D personnel.

Business enterprise R&D international comparisons

Industrial R&D expenditures are known internationally as business enterprise expenditures on R&D (BERD). The BERD ratio, a measure of total business enterprise R&D expenditures divided by gross domestic product (GDP) enables countries to be compared without reference to exchange rates and other comparative valuations of currency such as purchasing power parity (PPP) dollars. The measure can also be used across time without concern for calculations of constant value versus current value dollars.

Canada's BERD/GDP of 1.0 in 2009 is down from the peak of 1.3 in 2001. For Canada, this ratio continues to lag the average for all OECD member countries. In 2009, the most recent year available, the leading countries in the BERD/GDP ratio in ranked order were Israel (3.4), Finland (2.8), Sweden, Japan and Korea (2.5) (OECD 2011). In 2009, Canada ranked nineteenth. ² 

For the United States, the most recent BERD/GDP ratio is for 2008, at 2.0 up from 1.7 recorded for 1994. While the American BERD/GDP ratio has risen since 1994 (OECD 2011), the Canadian BERD/GDP has returned to its 1994 level of 1.0.

Sources of funds for industrial R&D spending in 2009

Funds for performing industrial R&D come from a variety of sources: from within the firm; from the federal government; from foreign sources (which includes intra-corporate transfer by multi-national corporations); and from other Canadian sources which include funds from related companies, contracted R&D performed for other firms, provincial and territorial governments, higher education institutions, and private non-profit organizations.

The established pattern of financing for industrial R&D continued in 2009, the most recent year for which data are available. R&D performers still finance the majority (79%) of their own industrial R&D. Industrial R&D performers received (13%) of their funding from foreign sources. Funds from the federal government accounted for 2% while the remainder came from other Canadian sources (table 2).

Distribution of industrial R&D expenditures by province, ³ 2009

Similar to the sources of funds for industrial R&D spending data, the most recent year for which industrial R&D expenditures by province data are available is 2009.

R&D spending in Ontario amounted to $7.0 billion in 2009, falling 10.0% from the previous year (table 1-2). Most of this decline was due to declining spending by the services sector (-16.3%). In Ontario, industrial R&D performance was dominated by the manufacturing sector (58%), while the services sector comprised most of the remaining share (40%) (table 1-6).

In 2009, R&D spending in Quebec fell 4.5% to $4.6 billion, due to a decline in the services sector. In Quebec, manufacturing R&D represented one-half (49%) and services 46% of industrial R&D spending (table 1-5). This represents a small shift from 2005, when manufacturing accounted for 54% and services 42%.

In 2009, R&D spending in British Columbia decreased by 8.6%, following a 1.0% increase in 2008. In British Columbia, the majority (55%) of industrial R&D spending occurred in the services sector (table 1-10). In the mining and oil and gas extraction sector, industrial R&D spending has increased significantly from $21 million in 2005 to $303 million in 2009 (table 1-10).

In Alberta, R&D spending decreased by 9.5% in 2009. Industrial R&D performance in Alberta was fairly evenly distributed across the mining, oil and gas extraction sector (35%), the manufacturing sector (32%), and the services sector (31%) (table 1-9).

Industrial R&D personnel in 2009

R&D activities provided employment to 149,923 full-time equivalent (FTE) positions in 2009, the most recent year for which the R&D employment data are available. Professionals such as scientists, engineers and senior R&D administrators comprised 58% (or 86,964 FTE) of these highly qualified personnel (table 3).

Skilled technicians and technologists, certified by provincial, national or professional scientific or engineering associations or educational bodies, comprised a further 32% or 47,358 FTE dedicated to R&D activities (table 3).

The final category of R&D personnel by occupation includes administrative support staff such as accountants and office workers engaged in the administrative support of R&D projects and machinists and electricians involved in the construction of prototypes.

Counts of industrial R&D performers

The number of industrial R&D performers in Canada continues to increase annually, reaching 24,203 firms in 2008, the most recent year for which these statistics are available. In 1997, when this time series began, there were 9,648 industrial R&D performers. This 151% increase in industrial R&D performers indicates that the adoption of R&D performance as a business strategy is spreading.

R&D performers can undertake their R&D in multiple locations and therefore can be counted in more than one province. For 2008, the count of R&D performers including those making R&D expenditures in more than one province was 25,735. Based on location of the R&D performance, the majority of R&D performers are located in the two central provinces: Ontario with 10,348 (40%) and Quebec with 8,984 (35%). There were 1,037 (4%) R&D performers in the Atlantic Provinces; 500 (2%) in Manitoba; 343 (1%) in Saskatchewan; 1,700 (7%) in Alberta; and 2,823 (11%) in British Columbia and the Territories.