Executive summary

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Research and development (R&D), as a formal undertaking, has been part of industrial activity for over a century in developed economies. It was the foundation for growth of the chemical industry, particularly pharmaceuticals, the early electrical communications technologies and transportation industries. R&D services as a separate industry is, by comparison, a very recent phenomenon.

The purpose of the paper is to attempt to define the nature of firms classified as R&D services firms. This paper will begin with an examination of the definition of "R&D services" and the two industries that make up this industry group under the currently applied statistical industry classification system. Section 2 consists of background information on professional services, including value-added, employment and R&D performance. Section 3 provides an overview of theories on the roles of professional services businesses in the flow of knowledge through the economy as well as the phenomenon of "venture firms". Section 4 highlights data from the Survey of Innovation 2003 to provide an understanding of what makes R&D services firms distinctive and what characteristics they share with other knowledge intensive services industries, particularly with those aspects related to knowledge. This is followed by summary of the findings. Finally, an appendix identifies what was not available from the Survey of Innovation 2003, with proposals for new work and suggested indicators that could be developed to further understanding of this industry group and address the questions raised by the available data.