From the National Science Board’s 2010 Digest on Key Science and Engineering Indicators, I found the following fascinating facts:

Basic vs. Applied Research Funding Sources

In the US, unlike most other countries, industry is responsible for the bulk of R&D investment and has been since 1980. In 2008, 67% of the estimated total was sponsored by industry followed by 26% from the federal government and the remaining 7% from educational institutions and other non-profits. The majority of the industry funds (78%) are for applied research and development while basic research gets 60% of its funding from the federal government.

Volume vs. Intensity vs. Velocity

Globally, the US in sheer dollar value, spends the most on R&D estimated at $398 billion in 2008. The rapidly growing R&D expenditures of the Asia-8 economies (China, India, Japan, Malaysia, Singapore, South Korea, Taiwan, and Thailand) surpassed those of the EU-27 in 2003.


When it comes to R&D intensity – how much of a country’s economic activity (gross domestic product) it reinvests – Asia takes the lead. The Asia-8 have increased their intensity with South Korea committing 3.5% of its GDP followed closely by Japan at 3.4% of its GDP. Both the EU-27 and the US have remained steady and well below the 3% mark.

The Asia -8 economies growth rates for R&D often exceeded 10% and in China’s case, 20%, annually over the period 1996–2007. Comparable R&D growth rates for the United States and the EU-27 averaged single digits — 5%–6%. Surprisingly, only 5% of China’s R&D is in Basic Research

Why is this significant?

As noted in the Proceedings of the Sino-US Forum on Basic Science for the Next Fifteen Years, numerous economic studies have indicated that up to 50 percent of economic growth can be attributed to research and development (R&D), with basic research as the driving force. These analyses also indicate that the social rate of return on investments in basic research is twice the private rate of return, suggesting that government is more likely to invest in basic research than private industry, and also that government investments leverage substantial research investments from other sources, primarily industry. Basic research is also essential in teaching new generations of scientists and engineers about the detailed assumptions and processes of science, no matter what their ultimate career choices turn out to be. In particular, individuals who have received basic research experience at the PhD level constitute a key resource for translating scientific results into economic growth.

It’s interesting to note that Obama’s 2011 budget plans for a 3.5% decrease in applied research funds while it increases basic research by 4.1%…assuming the budget gets passed. The total amount has remained relatively stable despite multiple administrations, with the exception of the 2009 blip for the American Recovery and Reinvestment Act. This is not the way the US will remain competitive in the global economy.

Why is this important? Just look at some of the recent shifts in the GCI Index as a result of the recent economic downturn. The U.S., which has historically held the #1 position, slipped to 2nd place allowing Switzerland to take 1st place. Singapore jumped from 5th place to 3rd place. Japan moved up from #9 to #8 in 2009 while Denmark dropped from 3rd to 5th place. Are these the countries you think of when conducting your competitive analysis?

Expanding your analysis of potential competitors creates advantages for you in a couple of ways. According to the EIS report, firms that are more innovative are less likely to cut back on innovation expenditures. The report found companies that maintained their innovation strategies and spending, including the use of open innovation and user innovation, were more resilient to economic downturns. Shifts in rankings as reported by the EIS suggest that other countries are being far more effective in remaining innovative and potentially producing a competitive threat to your business.

One of the most interesting findings in the 2009 EIS report is the causality between internationalization and innovation. “The extent to which a country’s businesses, institutions and industries are linked with resources and capabilities located outside the country is likely to positively impact the innovation performance of that country. Conversely, innovation intensive firms and countries are more likely to be able to compete successfully in international locations.” Movement across borders of capital, employees and students are key drivers to a company’s success. It’s not enough for your company to monitor competitive threats in other countries; it’s critical to be in the right countries to leverage your innovation efforts.

The U.S., despite falling to 2nd place this past year behind Switzerland, has a long standing tradition of highly efficient markets, sophisticated business culture and an impressive capacity for technological innovation supported by high levels of collaboration with research universities. Yet these very factors that drive US productivity and competitiveness are the areas where other countries are making impressive gains.

The EU27 outpace the US in all areas except those related to R&D expenditures and patents. While the US leads in 11 of the 19 indicators measured, the rate of growth is slowing (1.63%) while the EU27 is growing (3.17%). Similarly, compared to Japan, the EU27 have shown greater improvements in education, research and other collaborations and exports while Japan improved its lead in R&D expenditures and PCT patents.

The BRIC countries have been lumped together for some years, however the disparities reported in the EIS study suggest a new grouping will emerge. China is surging ahead with high tech exports, while Russia has fallen behind. Russia’s key strength is its higher education but it has not been effective in converting that to innovation growth. China surprisingly is outpacing the EU27 with their improvements in patents, trademarks and knowledge intensive services.

These findings are a not so gentle reminder that we must look past our borders when evaluating the competition but also when searching for partners and R&D opportunities. Depending on your business – manufacturing based or services based – you will find different countries offer different strengths as competitive threats or prospective resources.

Vision & Execution specializes in taking a global perspective to developing strategic growth plans for your business. If you’re struggling with how to ramp your growth internationally, contact us for a 60 minute complimentary review of your current strategy.