Over the past two years, the traditional leaders of R&D—the U.S., Europe, and Japan—have struggled to maintain the basic essentials of their economies and, despite strong government stimulus programs, have seen their overall R&D programs slide in relation those of emerging economies. Since the 2008-09 recession was global in nature, the big emerging nations—China, India, and Brazil—were not immune. But these nations saw only flat or reduced economic growth, not outright reductions, and they continued to grow their support for R&D.
From mid- to late-2009, most countries saw renewed growth in their economies, albeit slow growth. The European Com-mission (EC) has forecast the overall GDP for the 16 nations using the euro (“euro zone”) to expand 0.7% in 2010 and 1.5% in 2011. The overall GDP for the 30 member countries of the European Union (EU) is also expected to expand 0.7% in 2010 and 1.6% in 2011.
Editor’s Note: Twenty of the 27 EU members are part of the 40 countries whose R&D spending is measured in this report. Twenty-nine of the 30 OECD (Organization for Economic Cooperation and Development) member countries are also part of this index.
European R&D growth stalls
The EU continues to fall behind the emerging nations of Asia and the U.S. in terms of the amount of overall R&D spending. From 2008 to 2010, the EU lost nearly two percentage points of the global R&D share, falling from 24.9% to 23.2%. As a combined group of 20 countries, overall spending on R&D is only expected to increase from $267.1 billion in 2009 to $268.5 billion in 2010, a net increase of just 0.5%.
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Much of the European R&D spending decline in 2009 was linked to the region’s drop in GDP output. The Eurozone’s GDP declined by slightly more than 4% for 2009, while its R&D spending dropped by about 4.2% or $11.7 billion.
This overall trend of small increases in GDP growth and R&D spending growth is expected to continue in the foreseeable future, as emerging Asian countries continue to grow their economies and R&D investments by more than a factor of 10 over their European counterparts. The established infrastructure in Europe, with its strong longstanding academic institutions, will continue to support its overall R&D investments. But, this, too, is likely to slowly erode as the infrastructures of the emerging nations improve and those nations continue to post dramatic increases in their intellectual property output.
Much of the monetary growth (51%) in the EU will be contributed by Germany ($0.22 billion), France ($0.38 billion), and the UK ($0.33). However, that only leaves an average of $41 million increase each for the other 17 EU members of this index.
There is a four-tiered R&D structure within Europe, with Germany, France, and the UK accounting for about 55% ($148 billion) of all the R&D monies spent and intellectual property output. A second tier of R&D spending and producing countries includes Italy, Spain, Sweden, and the Netherlands, with individual spending from $11 billion to $19 billion each and accounting for about 22% of the overall total ($59 billion).
A third tier includes Austria, Belgium, Switzerland, Turkey, Finland, Denmark, and Norway, with a combined 15% of the overall European spending ($44 billion). The range of individual R&D investments by each of these countries ranges from $4 billion to $8 billion.
The fourth tier in the European R&D structure includes the smaller Ireland and Portugal spenders, along with the relatively new R&D spenders from Eastern Europe that include the Czech Republic, Poland, Greece, Hungary, Romania, Slovenia, the Slovak Republic, and Iceland. These ten countries account for about 8% ($21 billion) of the total R&D spending and performance in Europe, with individual country spending ranging from $4 billion to less than $1 billion.
Slowing growth in European support of R&D has also allowed South Korea to move ahead of France in the overall spending rankings, from sixth overall to fifth. Korea is likely to hold onto this position for some time, as it continues to invest about 3.1% of its GDP in research and grow its overall number of researchers (223,000 versus 211,000 in France). Korea’s GDP is also expected to expand about 3.6% in 2010, to $1,369 billion, compared with just 0.9% for France (to $2,069 billion).
Just after the start of the new millennium, EU leaders established a goal of spending 3.0% of its overall GDP on R&D by 2010, a goal that was renewed earlier this year. This goal obviously will not be met, with R&D as a share of GDP likely to be slightly less than 1.7%.
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Stimulus effects
Fully 23 of the 40 countries we study passed government-funded economic stimulus packages in 2009 (similar to the U.S.’s ARRA) for a total amount of $1,923 billion. A total of 71% of these stimulus packages was spent by the U.S. ($787 billion) and China ($586 billion), combined. About $315 billion, or 16.4%, was spent by European countries.
Growth in the European and U.S. economies is expected to face a “soft patch” in early-2010 as these stimulus measures are withdrawn. In addition, there will be European efforts to expand exports, which will be hindered by a strong euro that limits export growth, according to a report by the EC.
Conclusion of the stimulus measures will have an effect on both the general economy and R&D, as many stimulus programs included R&D support. The dramatic size of the stimulus measures in the U.S. are expected to produce traumatic responses to research organizations when the funding expires in 2010 and 2011.
The European Central Bank is likely to continue to support the ‘extraordinary’ measures it implemented in 2008, which include unlimited lending at low rates to banks to promote lending to the private sector. These programs are important to maintaining the stability of many small startup research companies, such as those in the biotech sector, as venture capital sources have disappeared over the past two years. Inflationary pressures that normally would be present with these low lending rate programs are not currently seen as a threat.
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Global Research Strengths
• Includes articles published from January 1, 2008 to October 15, 2009, which are in the Thomson Reuters Web of Knowledge database that are coded by Thomson Reuters into subject fields.
• Twenty-two science and technology subject fields are included in the “5% thresh-old”—a subject field is included in the table if it constitutes 5% or more of any one country’s research articles.
• Four subject fields—chemistry, engineering, materials science, and physics—are the common global research thread.• Four countries—the U.S., China, India, and Japan— exceed 25,000 articles in at least one subject field.• Four countries—the U.S., China, Germany, and France— have at least 10,000 articles in every included subject field.
• Four subject fields are included due to their importance to one country. Plant Science and Zoology are included by meeting the 5% threshold for South Africa; Astro-physics is included by meeting the 5% threshold for Chile; and Genetics is included by meeting the 5% threshold for Iceland.
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The Asian effect
The eight Asian countries listed on page 29 account for just over $400 billion, or 35% of the total global R&D spending, with an average growth rate from 2009 to 2010 of 7.5%. GDP is expected to grow by about 6.2% for the group, with China’s 9.0% expected growth rate dominating all the others. As noted elsewhere, these countries were marginally affected by the global recession and saw reduced, but still positive, GDP and R&D spending growth from 2008 to 2009; GDP for the combined group of countries grew by about 3.2% from 2008 to 2009, and R&D spending grew by about 3.7%.
Demographics are driving much of this growth. According to the EC, 61% of the world’s population of 8 billion will be in Asia by 2025. The population of India will approach that of China by 2025. China’s, according to current plans will have started to decrease by then. More than a third of the world’s wealth will be based in Asia by 2025, compared to 20% now.
The U.S., Japan, and Europe have dominated R&D for the past 50 years. What we’re starting to see in Asia is a change in that structure, with the biggest loser being Europe, as its demographics continue to slide against those of Asia and the U.S.
Asian countries increased their share of the world’s researcher community from 35.7% in 2002 to 41.4% in 2007, according to a report by UNESCO. China alone increased its share from 14.0% to 20.1% over the same period. Europe, the U.S., and Japan all lost share during this period, by 2.5%, 2.9%, and 1.2%, respectively. The overall number of researchers (measured in full-time equivalents) increased from an estimated 5.8 million worldwide in 2002 to 7.1 million in 2007.
Among Asian countries, Japan has the highest density of researchers per million inhabitants, with 5,548. India has the lowest, with only 136 researchers per million inhabitants. China has 1,071, while the U.S. has 4,707.
Given their established infrastructures, investments, strong economies, and (most importantly) strategic long-term goals, China, India, and South Korea have the lead on science and technology over other Asian countries.
China’s dominance
From an R&D standpoint, it’s very difficult to find fault or weaknesses in any of the policies China is pursuing. The Chinese continue to grow their R&D investments at double-digit rates every year and have strategic goals for increasing their R&D investments as a share of their fast growing GDP. View detailed profile of outlook for China.
Chinese researchers continue to pursue the well-established policy of publishing technical papers and are the leading source of new chemical research in the world. When they see a potential weakness in the S&T endeavors, they rush to form scientific collaborations with established foreign organizations in the U.S. and Europe.
In the creation of practical IP, they leverage existing technologies with their quick response manufacturing capabilities to build and grow an industry. For example, they’ve become the leading manufacturer of alternative energy wind turbines for use within China and now are beginning to build an export capability.
The differences, of course, between the Chinese pursuit of S&T and that of the U.S. and Europe lies in the political structure of their respective economies. Nearly 70% of the performance (and funding) of China’s R&D comes from the government, with about 21% coming from industry. In the U.S., that relationship is mostly reversed; 70% of all R&D is performed by industry and just 11% is performed by the government. The remaining 19% is performed by academia and non-profit research organizations. About 65% of all R&D funds come from industrial sources, and 28% comes from the government.
Success in each of these programs is thus measured differently, with the profit and loss and return on investment (ROI) criteria dominating the U.S. version and political goals outlined in Five-Year Plans dominating the Chinese version.
Not to be outdone, China is modifying its structure by allowing industrial companies to work mostly independently. Privately held Huawei Technologies Co. Ltd., for example, is the largest networking and telecom supplier in China, with revenues of nearly $30 billion and nearly 90,000 employees. The company has established R&D centers throughout China and in Sweden, India, Ireland, the U.S., Russia, Indonesia, the Netherlands, South Africa, and Nairobi. Huawei has joint ventures with IBM, Siemens, Symantec, Motorola, and others. The company is also the fourth largest patent applicant, after Japan’s Matsushita, Philips Electronics, and Siemens.
The Chinese government is supporting the establishment and development of an internal air transport manufacturing capability that it hopes will challenge Airbus and Boeing in the future. Airbus and Boeing have already established manufacturing facilities within China, with the first aircraft built at the Airbus facility.
China is also in the process of changing its research infrastructure. Over the past ten years, it has reduced and consolidated the number of government-supported research institutes within the country, from nearly 6,000 in 1999 to now less than 4,000. In the same vein, China is increasing the number of higher education institutions from about 1,000 in 1999 to nearly 2,000 now.
India’s resurgence
Similar to China, the Indian R&D infrastructure is mostly government-funded and mandated with about 75% of all research funds coming from the government and only 20% from industry. India’s research spending is about a quarter that of its neighbor, China, and currently is growing at an accelerated rate. View a detailed profile of India's outlook .
Not to be ignored is the $13 billion spent on R&D in India by foreign companies. This is nearly 40% of the indicated R&D spending by the government. Although India has historically spent less than 1% of its GDP on R&D, its government has claimed it plans to increase R&D spending to 2% by 2012 under the 11th Five-Year Plan (2007 to 2012). A specific scientific focus is Agri-biotech research.
Within India’s industrial sector, five industries (pharmaceutical, automotive, electrical and electronics, chemicals, and defense) account for about two-thirds of the total industrial R&D. Among these various industries, the pharmaceutical industry alone accounts for about 20% of the total R&D expenditures. India’s national system of innovation is dominated by the sectoral system of innovation of the pharmaceutical industry. A second leading sector is the automotive industry, which is comprised of both the vehicle manufacturers and the auto parts sub sectors. Both of these industries are also characterized by competitive structures, with a number of foreign and domestic manufacturers coexisting and competing with each other.
In research publications, India has seen a substantial growth in its annual output of scientific publications, from 16,500 in 1998 to nearly 30,000 in 2007, an increase of 80%. This research portfolio is markedly balanced between the life sciences and physical sciences. South Korea has increased its percentage of scientific papers as well by collaborating with Indian authors in what is generally a doubling in volume of Indian collaborative output, with Asian partners. This may signal the emergence of a clearer regional research network.
This collaborative relationship doesn’t stop with research publications; it continues in industry as well. Korean-based Hyundai Motors, for example, recently opened a new R&D center near its Chennai manufacturing plant in Hyderabad. Hyundai also has R&D centers in the U.S., Germany, and Japan, along with one near its headquarters in South Korea.
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Japan’s trauma
Japan is, and has been for many years, the world’s second largest investor in R&D, behind the U.S. This is likely to change within the next year, as China continues to accelerate its R&D investments, while Japan struggles with its economy. Japan’s public debt is approaching 200% of its GDP—the highest of any nation within the OECD. Investors are concerned that Japan’s fiscal position is unsustainable. The problem behind this increasing public debt is that the fiscal accounts have run a deficit every year since 1993. Adding to these problems is the stagnation of the nominal GDP, resulting in a deflationary cycle and further increasing the burden of the country’s debt.
Offsetting some of these concerns about the public debt is the relatively low interest payments on the debt. They account for only 1.2% of GDP over the past 20 years, much less than the OECD average. Additionally, Japan’s trade balance has resulted in a $1 trillion cash reserve, the second largest holding in the world.
Therefore, despite its concerns about its overall economy, Japan’s intent to support R&D investments remains strong at about 3.41% of GDP. That’s on top of a $110 billion stimulus that included support for research in advanced technologies, along with reduction of taxes on eco-friendly cars. Japan’s stimulus funds also supported creation of jobs related to the protection of the environment.
Korean excitement
South Korea’s economic stimulus package, which included tax cuts, government investment, and transfers to households and businesses, was the second largest stimulus (just behind the U.S.) in terms of a percent of 2008 GDP (5%), according to a report by the OECD.
Korea continues to invest in its R&D, increasing its spending for 2010 by about 3.6% over what it spent in 2009. Korea’s 2009 GDP was affected by the global recession, with its GDP falling by a little less than 1%, along with a resultant drop in R&D by about 0.9%. The recovery of its GDP, along with reinstatement of its R&D growth, allowed it to move up in the rankings of top R&D spenders, passing France, with its lower growth R&D investments, and moving into fifth place behind the U.S., Japan, China, and Germany.
Korea also has been moving up in the number of published scientific papers. Korea rose from 53rd place in the world in 1981 in the number of papers published, to 12th in 2007. It also ranked fourth in the world in international patents, and fourth in the number of patents in the U.S. in 2007.
In Korea, industry accounts for about 74% of all R&D spending, a level similar to that in the U.S. Most Korean researchers with PhDs wind up teaching at universities, and as a result, most of the Korean R&D spending is allocated to developing applied technologies rather than on basic research.
Korea’s research environment, however is basically a closed system, where foreign direct investment (FDI) accounts for only 0.3% of Korea’s R&D spending. Along with Japan, this is the lowest FDI among the OECD member nations. In addition, a very low number of foreign researchers are allowed to participate in research projects in Korea.
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BRIC-works
Brazil, Russia, India, and China (BRIC) are expected to provide a significant share of the world’s economic growth in the future. Brazil, in particular, is an interesting country to consider, as scientific growth is in the beginning stages and offers tremendous future potential.
Of the four BRIC nations, Brazil has logged the highest overall impact (combined citations-per-scientific paper in all fields, compared to the world average) with a ranking of 0.65, compared to 0.60 for China, 0.55 for India, and 0.50 for Russia, according to a report by Thomson Reuters. These values could change in the future, as China’s and India’s trend lines are increasing and Brazil’s is flattening. Brazil’s overall share of the world’s technical publications increased from about 0.5%, or 6,000 papers/yr in 1989, to about 2.0%, or 20,000 papers/yr in 2007.
Brazil’s GDP declined in 2009 by 0.7%, with an equal drop in its R&D investment for that year. Its GDP and R&D are both expected to increase in 2010 by about 3.5%, to $2,048 billion and $18.637 billion respectively, from its 2009 levels. Brazil’s R&D as a share of its GDP is about 0.91%.
Brazil’s share of the world’s 7.1 million researchers increased from 1.2% in 2002 to 1.7% in 2007. According to UNESCO, Brazil has about 625 researchers for every million citizens of Brazil.
So Brazil has great potential in growing the number of scientific papers its researchers publish, but is starting from a relatively low base.
The Russian Federation research community is a completely different story. In Russia, there are about 3,292 researchers for every million inhabitants—five times that of Brazil. Russia also saw its share of the global researcher community fall from 8.5% in 2002 to 6.6% in 2007, but it still held onto the ranking of the fourth largest researcher community in the world, behind the U.S., China, and Japan.
Russian researchers have a very high level of tertiary education, with the share of science and engineering doctorates in all new doctoral degrees above the OECD average. Compared to the other BRIC nations, Russian output of scientific articles has declined from 3.3% in 1995 to 2.0% in 2005.
The transition from a socialist state to a market economy has not markedly changed its R&D environment. Most Russian research continues to be performed by its former research institutes, and links to the domestic business sector are weak. The recent change in the legal status of nonprofit organizations in Russia however, makes academies autonomous in terms of managing their activities. That, in turn, could change this situation. Researchers’ salaries have also been increased, and universities are now better funded, so there is hope for increasing scientific output in the future.
New government programs have also been established to support R&D in priority industries, including space and aviation, nanotechnology, biotechnology, and software.
Non-U.S. Technology Leaders and Challengers
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| Technology Area |
Rank ( 1 = Best )
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1
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2
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3
|
4
|
5
|
| Energy and Environment |
Germany |
China |
Japan |
France |
UK |
| Health and Bioscience |
UK |
Germany |
Japan |
China |
France |
| Defense and Security |
China |
Israel |
UK |
Russia |
Germany |
| Information and Communications |
Japan |
China |
India |
UK |
Germany |
| Composite, Nanotech and Advanced Materials |
Japan |
China |
Germany |
UK |
India |
| Source: Battelle |
Global technology drivers
As mentioned elsewhere in this report, a number of technologies are likely to drive future R&D efforts, perhaps more strongly than existing technology drivers. Energy, healthcare/medical, climate change, and defense are all likely to be technology focus areas for many global organizations.
Energy is one of the most wide-open research areas, with numerous countries having active technology research programs. Wind turbine research is a very global business, with a changing landscape. The U.S. is one of the strongest purchasers of these systems, yet is not one of the main players in technology development, other than General Electric. China’s low cost, rapid production capabilities are allowing it to become a major market player with substantial infrastructure capabilities. Photovoltaic, or solar cell technologies are once again employed by a number of U.S. organizations, but the actual product development and production is performed outside the U.S. Surprisingly, much of the basic research successes seen in this area have been developed in U.S. labs. Nuclear powergeneration is also a very global “affair,” with France and Japan two of the bigger players in technology development.
Healthcare/medical technology development is being driven at this point by U.S. and European-based organizations. The U.S. infrastructure is likely to drive U.S. dominance in this area for at least the next decade.
Climate change research is also wideopen at this point, with no real technologies or countries holding or taking a leading position. From a research standpoint, there are still substantial disagreements as to the causes, technology solutions, and outcomes. The only major program, other than relatively minor minimization of greenhouse gas efforts, is carbon dioxide sequestration. The U.S. has initiated small demonstration programs, and there have been considerable joint discussions between the U.S. and China on future research strategies.
Defense research is often overlooked in discussions of S&T forecasts. However, this sector is often the largest single government research budget item, as it is in the U.S., where more than half of the government’s budget supports programs run by the Dept. of Defense. DOD programs have been technology drivers for U.S. industry for more than 50 years. Computer technologies, robotics, healthcare, basic physics, and more have been developed within industry and government labs that have few parallels anywhere else in the world.
