Globally, spending on research and development (R&D) is increasing rapidly. In industrialized nations, R&D investment has risen from an average of about 1.5 percent of Gross Domestic Product (GDP) in 1980 to more than 2.2 percent today, according to Plunkett Research.

Worldwide R&D spending and performance exceeded $1 trillion in 2006 alone, and it continues to expand at a substantially higher rate than most countries' inflation rates. The latest Global R&D Report, a collaboration between Battelle and R&D Magazine, forecasts that global R&D spending will reach $1,210 billion this year, 7.6 percent higher than in 2007. Much of this growth continues to be fueled by a rapid expansion of R&D in China. Its spending is expected to grow by nearly 24 percent in 2008 to $216.8 billion — about 18 percent of global spending, up from 14 percent two years ago.

In recent decades, R&D has principally been performed and funded in North America, Europe and Asia by the 30 developed member nations of the Organization for Economic Cooperation and Development (OECD). The United States and Japan provided close to 60 percent of the estimated $772 billion OECD total in 2005, little changed from 61 percent of the $480 billion OECD total in 1995.

But this picture is changing. The combined share of the U.S. and Japan — the two largest R&D-performing countries, according to last month's Science and Engineering Indicators 2008 report from the National Science Board (NSB) — declined from 56 percent of the total in 1995 to 48 percent in 2005.

The Battelle-R&D Magazine report explains that although R&D will continue to take place in the U.S., much more will be done in Europe and Asia — "dominated by China and India."

For nearly a decade, R&D expenditures are estimated to have risen rapidly in selected Asian and Latin American economies and elsewhere, according to the NSB's recent report.

India's government, according to its Ministry of Science and Technology, invested about $4.9 billion in R&D during the fiscal year ending in March 2005, up about 9.7 percent over the previous year.

Between 1995 and 2005, China's expansion of R&D by far has been the most rapid and sustained. According to OECD figures, it had the fourth largest expenditures on R&D in 2000 ($45 billion), which increased in 2005 to an estimated $115 billion, moving it further up in rank.

Not only is China's research budget one of the fastest-growing in the world, the country is also pouring huge sums of money into science. The government's goal is to invest 2.5 percent of GDP annually in research by 2020. In 2005 alone, China's government invested $29.4 billion in R&D (about 1.3 percent of GDP), not including R&D expenses at labs owned by foreign companies, according to Plunkett. Its spending on R&D has more than doubled in the past five years, according to New Scientist.

Companies today know they must invest in R&D to stay competitive. In many cases, their R&D strategies are evolving.

Says Plunkett:

One change is the way this funding is allocated. Strategies are shifting to include more alliances and joint ventures with other companies; more subsidiary spin-offs based on established technologies; more contracts and cooperative efforts with federal labs and agencies; and higher grants and projects of greater scope at the university level.

While government research dollars continue to feed projects at universities, increasingly more American R&D dollars are going to company-owned or outsourced labs overseas. "The outsourcing and offshoring of research and engineering projects are skyrocketing to say the least," as Plunkett points out. This is due to low costs, large talent pools, speed and quality of innovation in Eastern Europe, China and India in particular.

Therefore, companies are also looking for ways to leverage their R&D investments.

Although the U.S. continues to lead the world in terms of total investment in R&D, Plunkett notes, the U.S. ranks second in terms of R&D as a percent of GDP (at 2.6 percent) behind Japan (3.2 percent). The U.S. federal government's total 2005 investment in R&D was about $110 billion. The proposed budget for 2007 was $129.7 billion, including $77.8 billion for defense and $28.9 billion for health.

The U.S. spent about $340 billion in R&D in 2006, a record high. Yet federal support for basic and applied research has been on a multiyear decline, according to the NSB's recent Science and Engineering Indicators 2008 report, which presents a complicated assessment of the state of science and engineering in the U.S., including much examination of R&D.

The report's gloomy conclusions echo those reached by other observers. In December, the Association for Computing Machinery addressed federal spending for research this year. It concluded that Congress is approving increases that do not match the inflation rate, and including earmarks for construction projects that are outside of its basic research funding mission. It charged that Congress has "abandoned its commitment to basic research," never mind to lead in science and technology.

"The apostles of denial have failed to recognize the negative economic impact caused by the loss of high tech supply chains and chronic under investment in R&D," Manufacturing & Technology contends.

Energy costs, materials costs and cheaper labor elsewhere have hindered U.S. industry's ability to thrive or even survive. The playing field may even out eventually. In any case, though, focusing on R&D and innovation may be the best way — or only way — of maintaining an edge.

Resources

Science and Engineering Indicators 2008
National Science Board, January 2008

Engineering & Research Trends
Plunkett Research, Ltd.

2008 Global R&D Report
Battelle-R&D Magazine, January 2008

Annual Research and Development (R&D) Report Reveals Growing Equalization
Battelle-R&D Magazine, January 2008

Congress Abandons Commitment to Basic Research; Puts NIST in the Construction Business
Association for Computing Machinery, December 2007

Tracking R&D Funding
U.S. House of Representatives- Committee of Science and Technology, March 16, 2007

NIST Senior Economist Gregory Tassey: U.S. Economic Prosperity Is Being Hijacked By 'Apostles of Denial'
by Richard McCormack
Manufacturing & Technology News, Feb. 12, 2008