Nutrimento & nutriMENTE

R&D spending strategy: the view from Europe's largest and smallest companies

By Redazione

With policy-makers eager to ensure high levels of research and development (R&D) investment without putting a strain on the public purse, discussions over how to encourage private sector
investment have intensified over recent years. Ultimately, only corporate leaders themselves are in a position to know what may influence their spending priorities. Three such leaders gave an
insight into the factors affecting corporate R&D strategies at a scientific conference in Seville, Spain, on 9 October.

The conference, entitled ‘Knowledge for Growth: Role and Dynamics of Corporate R&D’, attracted around 140 participants, many of whom work in academia and are studying different aspects of
corporate investment and education. The event was organised by the Institute for Prospective Technological Studies (IPTS) of the European Commission’s Joint Research Centre (JRC).

The three speakers opening the second day of proceedings in Seville gave an overview of the priorities in their own fields, in turn calling for more public funding for demonstration projects,
extolling the virtues of the open innovation approach, and making the case for more EU funding for research-intensive small and medium-sized enterprises (SMEs).

Private sector investment in R&D currently stands at around 1.2% of Europe’s GDP, compared to 1.9% in the US and more than 2% in Japan.

José Antonio Moreno Delgado is the Engineering Vice President of the Spanish energy company Abengoa. He quoted Nobel prize-winner Robert Solow, who once noted that around 80% of
long-term growth in the US economy can be attributed to technological progress. The remaining 20% is based on the investment of capital.

Abengoa was no doubt hoping that some truth lies behind this estimation when it decided to invest ?70 million in R&D in 2007. This outlay has already led to Abengoa becoming the world
leader in R&D and innovation in bioethanol, with nine plants worldwide.

Abengoa has received R&D grants from several sources, including the US Department of Energy and various national initiatives, and has also applied for funding from the EU’s new Competitive
and Innovation Framework Programme (CIP). But the company would like to see further support for demonstration projects, both in the form of tax incentives and grants. Such incentives are
complementary to private sector investment, and do not replace it, he said.

‘Abengoa believes that the demonstration project is the key instrument that enables the execution of innovation policy focused on developing new products for the market. It gives operational
validation of the project,’ said Mr Moreno. ‘R&D in the EU aims mainly at new scientific knowledge. There are scarce resources for innovation. The EU must focus R&D&I [R&D and
innovation] effort to gain global leadership in climate change mitigation technologies,’ he added.

Mr Moreno cautioned against policy-makers seeking to set R&D investment priorities for the private sector, saying that the company will always know better where the investment is needed.
Where policy-makers can be more helpful is in improving the legal security of companies conducting R&D, he suggested.

John van den Elst is the Digital Systems Department Manager at Philips Applied Technologies in the Netherlands. Philips was founded in 1891 and is now worth ?27 billion. The company’s
investment of ?1.7 billion, or 6.2% of its turnover, in R&D is already impressive. But seven years ago this figure was higher than 8%.

Since then a process of ‘de-verticalisation’ has taken place. The company sold off its semiconductor development and component departments. ‘The turnover is now less, but the focus is on the
right side of the value chain,’ said Mr van den Elst.

Philips’ strategy is to conduct market-focused R&D, to control the risks inherent in research, to share knowledge in technology partnerships, and to make full use of Philips’ research

Philips conducts research in-house, following analyses of global trends in consumer behaviour. The company focuses on the cross-over between pleasure and wellness. An idea for a new product
must fit with this target area and be compatible with the Philips brand. The company will also assess whether or not there is a market for this new product, and whether Philips will have a
competitive advantage if it goes ahead with the idea. As Mr van den Elst made clear, ‘R&D expenditure is based on market knowledge’.

At the same time, a number of research groups are working on other new ideas. Depending on how successful the idea is, Philips has the option to ‘spin up’ the technology to Philips, to ‘spin
out’ the technology, selling it on to someone else, or to ‘spin off’ the technology, creating a new company in its own right.

Ullrich Schröder took a step back from the intricacies of R&D prioritisation in his presentation that focused on the importance of SMEs to
Europe’s economic competitiveness. Mr Schröder is an R&D advisor at UEAPME, the European Association of Craft, Small and Medium-Sized

Pointing to a decrease in the overall percentage of EU funds allocated to corporate R&D with each of the EU’s framework programmes for R&D, Mr
Schröder claimed that SMEs have been hit particularly hard. The long duration of projects funded under the EU framework programmes, the
inclusion of several partners, the focus on high technology and the large budgets involved make it difficult for many SMEs to participate, said Mr
Schröder. ‘Without increasing SME R&D spending the Barcelona target [of increasing R&D investment to 3% of GDP] will never be met.
Never,’ he claimed.

The solution is to create a business environment in which SMEs can survive, innovate and develop an entrepreneurial spirit and to introduce programmes to support technological development at
all levels, said Mr Schröder.

The EU’s CRAFT programme, designed specifically for SMEs, was very successful, and demand high. UEAPME would advocate other such programmes at EU as well as national level, as well as support
for the contracting out of research to SMEs within other programmes.

Mr Schröder concluded by echoing earlier demands for a follow-up conference. ‘We need to focus more on corporate R&D and to learn from each
other,’ he said.

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