Analysis

Research and development (R&D) performing firms anticipate that their spending (in current dollars) on R&D will be $16.1 billion in 2009 (table 1-1), essentially unchanged over the previous two years. The data collection of R&D spending intentions for 2008 and 2009 began in August 2008, prior to the onset of the current global financial downturn, and continued until March 2009. It is anticipated that firms will adjust their R&D spending according to their individual responses to the global financial crisis.

In constant dollars, industrial R&D spending has yet to recover from the technology downturn of the start of the millennium which became more apparent with the 2002 industrial R&D spending.

Information and cultural industries became the most important industrial group performing R&D in Canada in 2005 taking over from communications equipment. The main components of information and cultural industries are software publishing including computer games, motion picture and sound recording, broadcasting, telecommunications including voice over Internet protocol, Internet access, publishing, broadcasting and web search portals and data processing.

Over the past decade, the share of industrial R&D performed by the manufacturing sector has declined from 68% in 2000 to 52% in 2009. Between 2000 and 2002, the R&D performance by the manufacturing sector fell from 68% to 61% of total industrial R&D performance. Since 2004 when the manufacturing sector’s share of industrial R&D performance was 54%, the rate of loss of share has slowed (table 1-1 and CANSIM table 358-0024).

The information communications technology (ICT) sector continues as an important contributor to R&D performance. This sector spans industries in both the manufacturing and service sectors and includes representation from the leading R&D industrial performers. R&D expenditures by the ICT sector are expected to reach $6.2 billion or 38.5% of total industrial R&D spending intentions in 2009 (table 2).

When viewed by firm size measures such as employment and revenues, industrial R&D expenditures are concentrated in the largest firms, those with 2,000 or more employees or revenues exceeding $400 million. Small firms with between 1 and 49 employees account for almost one-fifth of total industrial investment in R&D performance; however this share of industrial R&D spending has remained steady while the share for the largest firms by employment size continues at about one-third (table 1-13). On the other hand, when viewed by revenue size group, firms with revenues of at least $400 million continue to account for two-fifths of industrial R&D expenditures while firms with less than $1 million in revenues remain at less than one-tenth (table 1-12).

When R&D concentration is measured by the spending intentions of the top 100 R&D performing firms, these R&D performers represent just over half of all industrial R&D performance down from around four-fifths recorded in the 1970s and early 1980s.

Capital expenditures related to industrial intramural R&D expenditures generally represent about 7% of total expenditures; however extraordinary situations including starting or completing construction of new research and development facilities or test plants will impact the share of capital expenditures over total expenditures (table 2 and CANSIM table 358-0024).

Current intramural expenditures for industrial R&D include wages and salaries and other current expenditures. In recent years, on average wages and salaries represent 60% of current intramural industrial R&D expenditures (CANSIM table 358-0024).

Other current expenditures include supplies and materials consumed in the process of conducting R&D as well as contracts for services to carry out R&D such as drilling needed for heavy oil R&D. For example, in 2009 wages and salaries comprise one-quarter or less of current intramural expenditures in two industries: pharmaceutical and medicine manufacturing and mining and oil and gas extraction indicating the importance of other current expenditures to these industries. Contracts related to conducting R&D are part of extramural R&D payments and are not included in current intramural expenditures (CANSIM table 358-0024).

In 2007, the most recent year for which counts of R&D personnel are available, 147,599 full-time equivalents were performing tasks related to industrial R&D, a 14% increase in research effort over 2003 (127, 205) (table 4).

Professionals, researchers and managers with university degrees continue to represent six out of every ten full-time equivalent performing R&D while technicians account for three out of every ten and support staff the remaining full-time equivalent (table 4).

Distribution of industrial R&D expenditures by province is available to 2007.

Industrial R&D expenditures (in current dollars) remain concentrated in Canada’s most populous provinces: Ontario ($7.6 billion), Quebec ($4.7 billion), British Columbia ($1.7 billion) and Alberta ($1.1 billion). Together the firms performing R&D in the four Atlantic provinces spent $310 million or 2% of the national industrial R&D expenditures in current dollars (table 1-3).

In constant dollars, industrial R&D performance in Ontario declined by 8.9% between 2003 and 2007 while Quebec saw negligible growth over the same period. Due to the importance of the two central provinces to national industrial R&D performance, the strong positive growth in industrial R&D experienced in the other provinces and territories did not offset their influence on national R&D performance which when measured in constant dollars was practically unchanged between 2003 and 2007 (table 1-3).

Provinces varied with respect to the types of industries performing R&D.

In 2007, Alberta and British Columbia were the only provinces in which industrial R&D performance in the services sector exceeded the R&D performance of the manufacturing firms. The majority of industrial R&D in British Columbia (62%) was performed by the service sector in 2007. In Alberta the service sector represented one-third (33%) of industrial R&D performance just edging out mining and oil and gas extraction (30%) and manufacturing (29%) as the most important provincial industrial R&D performing sector (tables 1-10 and 1-11).

The distribution of industrial R&D by performing sector in the Atlantic provinces, Ontario and Manitoba were similar in 2007. In Ontario, manufacturing represented 61% of the industrial R&D effort while services accounted for 37% (table 1-7). In Manitoba manufacturing represented two-thirds (65%) with services one-third (33%) of industrial R&D performance (table 1-8). For Atlantic Canada the shares of industrial R&D performance were 57% manufacturing sector and 35% services sector (table 1-5).

In Quebec, the manufacturing sector represented 49% of industrial R&D performance closely followed by the services sector at 46% (table 1-6).

Sources of funds for industrial R&D spending are now available for 2007.

Funds for performing industrial R&D can 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 “other” which includes funds from provincial governments, higher education organizations and private non-profit organizations.

In 2007, the majority (77%) of funding for industrial R&D came from within Canadian firms. Industrial R&D performers received 16% of their funding from foreign sources. Funds from the federal government accounted for 2% of R&D financing while the remainder came from “other” sources (table 3).

Industrial sectors rely in varying degrees upon different sources of funds for financing their R&D performance. Firms performing R&D in utilities (89%), and mining and oil and gas extraction (88%) depend heavily upon self-financing for their R&D performance (table 3).

While manufacturing (79%) and services (73%) self-finance the majority of their R&D performance, foreign sources are the second most important source of funds for these sectors (table 3).

The nature of research and development activities for 2007 are now available.

Research and development, as defined by the Frascati Manual (OECD, 2002), is executed as one of three main activities: basic research, applied research and experimental development. Basic research is focused on discoveries of new knowledge of underlying phenomena, without consideration of how this knowledge could be used in practice. Applied research, as the name implies, is research that is more focused on a specific practical purpose or application. Experimental development is typically “closest to the market”, that is, work that is focused on adapting scientific discoveries to a very particular application, typically a new or significantly improved product or process.

Emphasis on the nature of the R&D activity will vary according to the sector performing the R&D. Typically, universities and affiliated institutions such as teaching hospitals, and non-profit organizations focus on basic or applied research. Businesses tend to concentrate on more experimental development activities. In 2007, the majority of current intramural industrial R&D expenditures continued to be directed towards experimental development activities such as new product development or improvement (62%) (table 5).

The proportion of basic research was 5% with applied research representing 13% of current intramural industrial R&D expenditures in 2007 (table 5).

The counts of R&D performers are available until 2006.

The number of firms performing R&D continues to post annual increases, reaching 20,154 in 2006 up by 3.2% from 19,515 in 2005 and more than double the count of 9,648 for 1997. Measured in constant dollars, the average R&D expenditure by performing firm declined from $977 thousand in 1997 to $704 thousand in 2006.

R&D firms may choose to perform their R&D activities in multiple locations and therefore performance may be counted in more than one province. For 2006, the count of R&D performers including those making expenditures in more than one province was 20,489. Based on location of the R&D performance, the majority of R&D performers are located in the two central provinces, Quebec, 8,078 (39%) and Ontario, 8,057 (39%). There were 680 (3%) R&D performers in the Atlantic Canada; 375 (2%) in Manitoba; 199 (1%) in Saskatchewan; 1,188 (6%) in Alberta; and 1,912 (9%) in British Columbia and the Territories.