Analysis
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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 (table 1).
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 5-1 and CANSIM 358-0024).
Over the past decade, the concentration of R&D spending has shifted somewhat from the largest firms, measured by employment and revenue size, towards small and mid-sized firms. This trend is also noticeable in the concentration of R&D spending in the top 100 R&D performing firms. In 2011, about one-half of all industrial R&D performance was concentrated in the top 100 firms, down from around two-thirds in the early 2000s (table 4).
In 2009, expenditures made for intellectual property amounted to $435 million, of which patents represented 31% at $133 million. Payments received for intellectual property in 2009 stood at $741 million, with patents accounting for almost three quarters of the inflow of funds (table 12).
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 5-1).
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 5-1 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 5-1).
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 5-1 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 5-1).
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 5-1 and CANSIM 358-0024).
Industrial shifts in R&D data
Research and Development in Canadian Industry (RDCI) surveys enterprises. An enterprise is defined as a business unit that directs and controls the allocation of resources relating to its operations, and for which consolidated financial and balance sheet accounts are maintained. 1 The activity with the most economic weight or importance determines the NAICS code that Statistics Canada assigns to the enterprise.
The economic importance of activities undertaken by enterprises can vary from year to year due to changes in market conditions, for instance, in the relative importance of wholesaling, manufacturing and scientific research and development services undertaken by the enterprise. Industries illustrating movements between NAICS codes due to changes in the influence of activities include pharmaceuticals. From year to year, the most important economic activity of these enterprises can move among pharmaceutical and pharmacy supplies wholesaler-distributors (NAICS 414510), pharmaceutical and medicine manufacturing (NAICS 325410) and scientific research and development services in the physical, engineering and life sciences (NAICS 541710). Enterprises can shift between natural resources and manufacturing industries.
Those enterprises with economic activities related to fossil fuels, specifically oil and gas and their refined products also often show movement between NAICS codes. For example, enterprises performing R&D can move between oil and gas extraction (NAICS 2111) and petroleum and coal product manufacturing (NAICS 3241).
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 5-8).
Distribution of industrial R&D expenditures by province, 2 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. 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 5-4 and CANSIM 358-0161).
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. This represents a small shift from 2005, when manufacturing accounted for 54% and services 42% (table 5-4 and CANSIM 358-0161).
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. 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 5-4 and CANSIM 358-0161).
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 5-4 and CANSIM 358-0161).
Industrial R&D concentration by firm size measures
In 2011, about one-half of all industrial R&D performance was concentrated in the top 100 firms ranked by intramural R&D spending, down from around two thirds in the mid-1980s. In contrast, about one-half of the industrial R&D was performed by the top 25 firms in the mid-1980s; this concentration dropped to about 30% by 2006 where it has remained. This indicates that industrial R&D performance has dispersed across a greater number of performers over the past three decades. The drop-off in concentration in the top 100 R&D performing firms coincides with the decline of the information and communication technology industries (table 4).
When viewed by employment size groups, industrial R&D expenditures were concentrated in large firms (2,000 or more employees). Three-tenths of all industrial R&D spending occurred in firms of this size in 2009, the most recently available reference year for these data (table 5-12).
In 2009, small firms (1 to 49 employees) accounted for one-fifth of total industrial investment in R&D performance. These proportions have changed considerably in the past decade. In 1999, for example, small firms accounted for only about one-tenth of total industrial investment in R&D performance, while the largest firms accounted for over four-tenths (43%) (table 5-12).
When examined by revenue size groups, industrial R&D spending remained concentrated in the largest revenue size group (revenues of $400 million or greater), accounting for just over two-fifths of all industrial R&D performance in 2009. On the other end of the scale, small firms (revenues of less than $1 million) accounted for less than one-tenth of industrial R&D spending. Mid-sized firms performing R&D, with revenues between $1 million and $49.9 million in 2009, comprised almost one-third of total industrial R&D spending. Firms with revenues between $50 million and $399.9 million comprised about one-fifth (table 5-11).
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 8-2).
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 8-3).
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.
Professional personnel engaged in R&D
In 2009, 6,460 FTEs with doctorates (PhDs) performed R&D activities, while 13,567 FTEs held masters degrees. The largest number of FTEs performing R&D activities had bachelor's degrees (54,131 FTEs), while 8,461 FTEs had college diplomas (table 9).
Industrial R&D personnel estimates
There are two sources of data for the industrial R&D personnel estimates: questionnaire estimates for firms covered by the Research and Development in Canadian Industry (RDCI) survey; and administrative data taken from final approved Scientific Research and Experimental Development (SR&ED) tax incentive program claims. Where data are available from both sources, respondent data from the questionnaire are used.
Users are advised that there are differences in the data collected from the two sources of industrial R&D personnel data. The two most important differences are outlined below.
First, the SR&ED tax incentive program claims for R&D personnel are not revised through the review cycle of the claims. Therefore, the final approved claims, which may have had projects denied, will contain the estimated number of R&D personnel from the original claim. Statistics Canada performs data coherence exercises on the supplied SR&ED R&D personnel data using relationships between wages and salaries to estimated number of R&D personnel, reviewing other current costs combined with wages and salaries to estimated number of R&D personnel and relationship of number of R&D personnel to total employment of the claimant.
Second, the SR&ED tax incentive program claims do not collect R&D personnel by level of education. Therefore, for the total universe data are imputed based upon response to the RDCI survey. The data quality for imputation of industrial R&D personnel by level of education for all industries is acceptable. Users are cautioned that industrial R&D personnel data by level of education, by industrial detail, and/or by provincial distribution are subject to suppression for quality reasons.
Canadian technological balance of payments
Intellectual property is a form of creative endeavour that can be protected through a patent, trademark, copyright, industrial design or integrated circuit topography.
Expenditures made for intellectual property in 2009 amounted to $435 million, of which patents represented 31% at $133 million. Payments received for intellectual property in 2009 amounted to $741 million and patents accounted for almost three quarters of the inflow of funds (table 12).
Also, expenditures can be made and payments received for informal technology such as technical assistance, industrial processes and know-how intended to support the application of the results of previously performed R&D. These expenditures are often for knowledge which has not been codified.
In 2009, $245 million was spent seeking technical services and informal knowledge to support the implementation of the results of R&D. Meanwhile, firms received $203 million to provide informal technological support for outcomes of previously performed R&D (table 12).
Canadian technological balance of payments
For Canadian technological balance of payments (TBP), the estimates are taken only from firms that respond to the Research and Development in Canadian Industry survey. The statistics are not taken from balance of payments surveys and are not available from Scientific Research and Experimental Development tax incentive program data.
In 2009, the RDCI questionnaire introduced new questions related to expenditures and payments for technology. These data are only available from survey responses and do not include imputation for administrative data files. The additional questions ask for details on payments and receipts for patents, trademarks, copyrights, industrial design and integrated circuit topography designs, and other (technical assistance, industrial processes and know-how, etc.).
Intellectual property rights related to previously performed R&D are included in these technology expenditures and payments. These statistics are not intended to represent all trade in intellectual property rights or informal technology assistance services. For instance, the Research and Development in Canadian Industry survey may not include all firms dedicated to the licensing, buying or selling of patents or firms deriving some of their revenues from these activities which have never previously performed or funded R&D.
Energy research and development
In 2009, Canadian firms performing R&D dedicated $1.3 billion to energy R&D with a particular emphasis on fossil fuels ($928 million). Within the fossil fuels, the leading expenditures on energy R&D were related to oil sands and heavy crude oil technologies for surface and sub-surface production and separation of bitumen and tailings management at $478 million with crude oils and natural gas exploration, production and storage following, at $388 million (table 13).
At $91 million, expenditures on renewable energy resources R&D such as solar, wind, bio-energy, hydro and other renewable energy including ocean and geothermal energy, were about one-tenth of the R&D effort directed towards fossil fuels. However, this area of energy R&D technology was the second most important Canadian energy R&D activity. In 2009, R&D spending on renewable energy resources was concentrated primarily in hydro ($33 million) and bio-energy ($31 million) (table 13).
At $81 million, expenditures related to electric power were the third most important Canadian energy R&D activity in 2009 (this area of technology includes retrofitting, life extensions and upgrading of power plants, super-conductivity, air and thermal pollution reduction or avoidance; combined heat and power in industry and buildings; and electricity transmission, distribution and storage such as solid state power electronics and load management and control systems) (table 13).
Energy R&D expenditures for hydrogen and fuel cells were $60 million in 2009 with hydrogen receiving the majority ($44 million) and fuel cells the remaining $15 million (table 13).
Two energy R&D expenditure groups, energy efficiency and other technologies, both reported expenditures on energy R&D of $68 million each in 2009. Energy efficiency R&D spending occurred mainly in transportation ($28 million) and industry ($27 million). Other energy R&D technologies are mostly dedicated to carbon capture, transportation and storage of energy related to fossil fuels, electric power and industrial end-use applications, as well as energy system analysis (table 13).
Counts of R&D performers
The number of industrial R&D performers in Canada continues to increase annually, reaching 24,203 firms in 2008 (2.5% of all enterprises with one or more employees), 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. The industries with the highest propensity to perform R&D within the manufacturing sector continued to be communications equipment, pharmaceutical and medicine, and navigational, measuring, medical and control instruments, where one in two firms is an active R&D performer (tables 14-1 and 14-3).
Firms select business strategies to position themselves advantageously relative to their competitors. The 151% increase in industrial R&D performers between 1997 and 2008 indicates that the adoption of R&D performance as a business strategy is spreading. Concerning R&D strategies, firms may choose to perform some or all R&D activities, contract-out some or all R&D activities, or purchase or licence the results of R&D from others (firms, non-profit organizations and government laboratories), merge or acquire firms for their R&D, know-how and/or intellectual property, or depend upon other strategies not related to R&D to remain competitive.
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 (table 14-2).
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