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Chapter 4. R&D: National Trends and International Comparisons

U.S. Business R&D

Businesses engage in R&D with a variety of objectives and partners on a global basis. Most business R&D is aimed at developing new and improved goods, services, and processes; maintaining or increasing market share; and improving operating efficiency. Such activities reflect firms' perceptions of the market's demand and expectations about the profitability of new or newly applied technology.

Businesses located in the United States, both domestic- and foreign-owned, performed $290.7 billion in R&D in the United States in 2008 (table 4-6).[9] Among these, companies that owned firms outside the United States performed an additional $61.5 billion abroad (appendix table 4-14). This section will also cover details on funding sources (appendix table 4-15).

Domestic R&D Performance and Funding Sources

U.S. business R&D performance can be paid with funds from company-owned units, other businesses not owned by the company, and other external sources. Internal and external funders may be located in the United States or abroad.

U.S. business R&D performance totaled $290.7 billion in 2008, including $232.5 billion (80%) from businesses' own funds and $58.2 billion (20%) paid for by others not owned by the company, regardless of the location of funders (table 4-6).

Companies in manufacturing industries performed $203.8 billion of R&D domestically representing 70% of all business R&D performed in the United States in 2008; nonmanufacturing industries performed $86.9 billion. The split between own company funds and funding by others for manufacturing and nonmanufacturing industries was similar to the split for overall business R&D (about 80% and 20%).

Businesses vary in R&D intensity—how much R&D they do relative to production, value added, or sales—across industry and size. In this section, business R&D intensity is the ratio of domestic R&D performed and paid for by the company to domestic net sales. In 2008, the ratio across all businesses within scope of the Business R&D and Innovation Survey (BRDIS) was 3.0%; 3.5% for manufacturers and 2.2% for companies in nonmanufacturing industries (appendix table 4-16). Some industries have considerably higher R&D intensities, such as the computer and electronic products, chemicals, and information industries (figure 4-7).

Domestic R&D Performance Funded by Others

Of the $58.2 billion (20% of $290.7 billion) in funding by others outside of individual companies, the U.S. federal government accounted for $36.4 billion, independent domestic firms $12.2 billion, and $8.9 billion was funded by companies located outside of the United States (both independent companies and foreign parents). Other nonfederal sources accounted for less than $1 billion.

Federal R&D funding figures prominently in two defense-related industries. The aerospace products and parts industry performed $25.8 billion in federally funded R&D, almost 70% of their $36.9 billion in domestically performed R&D in 2008. The navigational, measuring, electromedical, and control instruments industry performed $3.6 billion in federally funded R&D, almost a quarter of its $15.5 billion of domestic R&D performance (table 4-7 and appendix table 4-15).

Domestic R&D Performance by Size of Company

Small companies, those with 5–499 domestic employees, performed $58.1 billion (20%) of $290.7 billion in U.S. business R&D performance; 80% ($46.4 billion) of the domestic R&D performance by small companies was paid for with their own funds, the remainder by other business or organizations, regardless of location (table 4-6). The largest companies, those with 25,000 or more domestic employees, performed $100.8 billion (35%) of U.S. business R&D, with 73% of that amount ($74.0 billion) paid for with their own funds.

The domestic operations of small companies were more R&D intensive (6.3%) than the domestic operations of the largest companies (2.3%) in 2008 (appendix table 4-16).[10]

Largest Domestic R&D-Performing Industries

Business R&D intensity is generally greater in the manufacturing sector (3.5% overall) than in nonmanufacturing (2.2%). Nonetheless, R&D plays a large role in some service industries and R&D intensity in some manufacturing sectors is relatively low (appendix table 4-16).

Six industry groups—four in manufacturing (chemicals, computer and electronic products, aerospace and defense manufacturing, and automotive manufacturing) and two in services (software and computer-related products, and R&D services)—accounted for three-quarters of both 2008 total business R&D performed in the United States ($225.8 billion) and company-funded/company-performed R&D ($173.3 billion) in the United States. They also accounted for 96% ($34.8 billion) of federally funded U.S. business R&D in 2008 (table 4-8).[11]

Chemicals (Including Pharmaceuticals)

The chemical industries accounted for the largest share of business R&D performed in the United States—20% or $58.2 billion of $290.7 billion in 2008 (figure 4-8). Within the chemicals industry, the largest subsector is pharmaceuticals and medicines. In 2008, pharmaceutical companies performed $45.2 billion of company-funded R&D in the United States and $10.9 billion abroad (appendix table 4-14).

Software and Computer-Related Services

Software and computer-related services industries—software publishing, computer systems design and Internet service providers, web search portals and data processing services industries—performed $46.9 billion of domestic R&D in 2008, making it the second largest industry group for domestic R&D performance, and $8.5 billion abroad. The R&D of these industries, 16% of business R&D performance in the United States, combined with that of the computer and electronic product manufacturers (below), accounted for 32% of all business R&D performed in the United States in 2008 (table 4-8). As computing, information technology, and Internet-linked activity has become more integrated with every sector of the economy, the demand for services associated with these technologies has increased.

Computer and Electronic Products

Companies in the computer and electronic product manufacturing industries include producers of communications equipment, semiconductors, computers and computer peripherals, and components for such products.[12] The design and use of integrated circuits and the application of highly specialized miniaturization technologies are common elements in the production processes of the computer and electronic products sector. In 2008, companies in this industry group performed $45.0 billion of R&D, or 15% of all domestic business R&D, and $13.0 billion abroad. Funds for domestic R&D came mostly from the companies themselves ($42.4 billion) and relatively little ($2.6 billion) came from other sources. Two relatively high R&D-intensive 4-digit NAICS (North American Industry Classification System) industries are included in this group, semiconductor and communications equipment manufacturing. Their domestic R&D/domestic sales ratios were 20% and 13%, respectively (appendix table 4-16).

Aerospace and Defense Manufacturing

Although it is common to refer to the "defense industry," the NAICS system does not include such a classification. Thus, to approximate the cost of defense-related R&D, included here are data on aerospace products and parts plus federally funded R&D in the following industries: navigational, measuring, electromedical, and control instruments, as well as other transportation manufacturing industries. Companies in this "defense sector" perform the majority of the Department of Defense's (DOD's) extramural R&D (table 4-8). In 2008, these industries reported performing $40.7 billion of R&D in the United States. Federally funded R&D accounted for 73% ($29.6 billion) of the sector total and 81% of all federally funded business R&D performed in the United States. This total accounts for more than half of the $56.0 billion in DOD outlays for FY 2008 (NSF 2010d).

R&D and Related Services

The R&D and related services group includes companies that provide scientific R&D, engineering, and architectural services to other firms or for their own use.[13] Companies in this group performed $21.3 billion of R&D in the United States during 2008; $10.1 billion paid for from company funds and $11.2 billion paid for by others.[14] Of the $11.2 billion paid for by others, $3.0 billion was funded by the U.S. federal government, the highest amount outside the aerospace and defense manufacturing group (table 4-8).

Automotive Manufacturing

Companies in automotive manufacturing industries reported performing $14 billion of company-funded R&D in 2008, accounting for 5% of all such R&D performed by businesses in the United States (table 4-8). In 2008, out of the about 4,000 companies in the automobiles, bodies, trailers, and parts industries (NAICS 3361, 3362, and 3363), 13 reported domestic R&D performed by the company of $100 million or more, collectively representing 84% of R&D performed by that group of industries.

Business Activities for Domestic R&D

Industry-based data above are the result of classifying each company's R&D in only one industry. However, companies in different industries and even in the same industry perform R&D relating to a variety of different business lines of activities. For example, a company classified as a pharmaceutical company may also perform R&D in medical equipment. A feature of BRDIS is the collection of information on R&D performed by business activity—both R&D paid for by the company and paid for by others. See sidebar, "U.S. Business R&D and Innovation Survey."[15] The number of these activities is large, as indicated in appendix table 4-17, but most companies performed R&D in only one business activity area. However, some companies, especially large diversified firms, performed R&D in multiple business activity areas. In BRDIS, 92% of companies reported domestic R&D paid for by the company related to only one business activity; 4% related to two business activities, and 4% related to three or more business activities. For domestic R&D paid for by others, the percentages were 91%, 6%, and 3%, respectively.

The top 10 business activities for which companies used their own funds to perform R&D in the United States accounted for 60% of these companies' R&D funds ($140.6 billion of $232.5 billion) (table 4-9). The top 10 activities for which companies used others' funds to perform R&D accounted for 68% of the total amount of company-performed R&D paid for by others (table 4-10).


[9] The sample for the Business R&D and Innovation Survey (BRDIS) was selected to represent all for-profit non-farm companies with five or more domestic employees, publicly or privately held, that perform or fund R&D or engage in innovative activities in the United States. For worldwide expense data from this survey, see appendix table 4-13.
[10] Recall that BRDIS excludes companies with fewer than five domestic employees.
[11] Because federal R&D funding is concentrated among a few companies in a small number of industries than is R&D in general, estimates for federally funded business R&D are often suppressed. Consequently, the percentage of federally funded business R&D for these six industry groups is based on a lower bound estimate.
[12] Estimates for computer and electronic product manufacturing in this section refer to NAICS 334 except the federally funded R&D component of navigational, measuring, electromedical, and control instruments industry (NAICS 3345), which is included in aerospace and defense manufacturing.
[13] Specifically, this industry group includes domestic R&D performance for architectural, engineering, and related services (NAICS 5413) and scientific R&D services industries (NAICS 5417).
[14] Although companies in the R&D and related-services sector and their R&D activities are classified as nonmanufacturing, they serve many manufacturing industries. For example, many biotechnology companies in this sector license their technology to companies in the pharmaceutical manufacturing industry. The R&D of a research firm that is a subsidiary of a manufacturing company rather than an independent contractor would be classified as R&D in a manufacturing industry. Consequently, growth in R&D services may, in part, reflect a more general pattern of industry's increasing reliance on outsourcing and contract R&D.
[15] Data are tabulated independent of the industry classification of the company.