European Firms Set To Boost R And D Spending

by Ulrika Lomas, Tax-News.com, Brussels

29 August 2006

A recent survey of European companies' research and development investment shows that these companies expect their global investments in R and D to grow significantly over the next three years.

The European Commission survey of more than 400 companies in ten major industrial sectors found that respondents expect their global investments in R&D to grow by roughly 5% a year, contrasting sharply with growth of just 0.7% for R&D investment reported in the 2005 survey.

At that growth rate, European companies would be doing at least as well as their US counterparts in terms of R&D investment for the first time in several years, according to the EC.

The survey also gives an insight into other aspects of private companies’ decisions about their R&D activities, such as the incentives that lead companies to invest in R&D, the factors that lead to a decision as to where their R&D operations are located and the sources of finance.

The survey confirms the view that companies continue to prefer to locate R&D activities in their home country. Therefore, the top locations for R&D activity in Europe continue to be Germany, the United Kingdom and France. Outside the EU, the US remained by far the most attractive place for locating R&D activity, followed by China and India.

The survey further highlights the main drivers of R&D location worldwide as access to markets and availability of trained researchers. Labour costs of researchers, though often cited as a factor, seem to have quite low influence on such decisions.

Companies in the survey outsource an average of 18% of their R&D activity. Around two thirds of this goes to other companies and one third to public research organisations. The sector which out-sources most of its R&D is pharmaceuticals and biotechnology (25%), and the least outsourced is in IT hardware (5%).

"If we are to reach our objective of investing 3% of GDP in research and development, we need increased investment by the private sector,” said Janez Potocnik, European Commissioner for Science and Research.

“For this reason the results of this survey are encouraging. We need to maintain and reinforce our efforts at European and national level to make Europe an attractive place for companies to carry out their research," added Potocnik.

Potocnik said that the EC will be coming forward with more proposals to boost R&D expenditure later in 2006.

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