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Research expenditure by top innovators, compared to Spain

This post reviews the R&D investment among the top-10 most innovative economies in the world according the Global Innovation Index or GII (Cornell University, INSEAD, & WIPO, 2017), in comparison to Spain. For the purpose of visualising the innovation index for each country, the GII ranking has been included alongside each country´s name in all the figures.

First, a review on the gross domestic expenditure in R&D (GERD) based on the most recent data available (UNESCO, 2015) has been prepared in the Figure below.

Gross Domestic Expenditure in R&D for the most innovative economies in the world in comparison to Spain. Prepared by Francisco Velasco (www.fvelasco.com). Source: UNESCO (2015).

It is observed a group of greater investors in R&D, formed by Sweden, Denmark, Finland, Germany and USA (2.8 – 3.3% GDP expenditure in R&D last year), followed by a second group formed by Singapore (2,2% GDP) and Netherlands (2-2.2% GDP) and a third group of average expenditure ranking 1.22%-1,7% GDP formed by UK, Ireland and Spain. There is no linear correlation between the ranking in the GII and the spending in R&D, which is a predictable output considering that GII is built from a compendium of indicators including GERD.

Second, an analysis on the expenditure by top-global corporations for the same sample of countries has been made by looking at the  on the average R&D expenditure by the top-3 global companies in each country, using data from the Joint Research Council (JRC, 2016), and is shown in the Figure below.

Average Expenditure in R&D by the top 3-global companies in the most innovative countries in the world in comparison to Spain. Prepared by Francisco Velasco (www.fvelasco.com). Source: JRC (2015).

It can be observed a considerable difference in comparison to the gross domestic data earlier. USA is the listed country with greatest average expenditure in R&D by their 3-top global companies (totalling $11,775 million), followed by Germany ($8,987 million) and Switzerland (totalling $6,880 million). Spain ranked relatively high in terms of average expenditure by its top-3 global companies, with a total of $1,118 million and higher than Singapore, Denmark or Finland.

The data reviewed shows interesting insights about the role that top global corporations may have in the national R&D investment landscape in many countries. Spain, while ranking the 22nd position in terms of global innovation and having a relatively low gross domestic expenditure in R&D (1,22% GDP), shows a comparatively high average investment by global companies ($1,118 million), being the 13th greatest investor in the world in terms of average R&D investment among its top-3 global corporations. This is due to the high intensity of R&D activity by companies such as Santander Bank, Telefonica and Amadeus, and highlights a clear gap in comparison to the country´s R&D intensity.

 

REFERENCES

Cornell University, INSEAD, & WIPO. (2017). The Global Innovation Index 2017. (S. Dutta, B. Lanvin, & S. Wunsch-Vincent, Eds.) (10th ed.). Retrieved from https://www.globalinnovationindex.org/gii-2017-report

JRC. (2016). EU JRC Industrial R&D Investment Scoreboard 2016.

UNESCO. (2015). United Nations Educational, Scientific and Cultural Organization. Retrieved from http://uis.unesco.org/

R&D Public Policy Strategies: A simplified model

Public policies on R&D and innovation have proved to make a considerable impact on economy in most countries. The range of strategies adopted by governments is so wide and complex that it is difficult to establish a comparison among them, or to make a forecast on the potential outcomes from adopting one or other strategies. Thus, to ease the policy design process there is a need to outline a model that allows visualising the possible strategies and instruments available.

The model presented here (see figure below) provides a generic overview of strategies that may be adopted when making R&D policy, attending to two key parameters: the degree of interventionism, and the level of risk assumed by the managing government. As a results, there are four type of strategies that may be adopted:

Figure showing a model to define R&D and Innovation Public Policy Strategies, designed by Francisco Velasco and licensed under CC BY-NCSA 4.0. Blog de Francisco Velasco: www.fvelasco.com

An attempt has been made to map some of the most common instruments (Di Comite & Kancs, 2015) in the proposed matrix as shown below. This mapped model is yet to be developed further and there is a likely misreading of some of the instruments. I will be happy to listen your views!

Figure showing a model mapping instruments of R&D Public Innovation Policies, prepared by Francisco Velasco and licensed under CC BY-NCSA 4.0. Blog de Francisco Velasco: www.fvelasco.com

An explanation both figures above is provided:

  • Enabling Strategy. Is characterised by low government interventionism and high-risk aversion (understood primarily as financial risk). This strategy is characteristic from economies based on primary industry and with a reduced and unsophisticated innovation ecosystem. Some typical instruments implemented under this strategy are: training programmes to raise the innovation profile of professional staff, promotion and marketing actions to raise public awareness on innovation, or the launch “innovation voucher” programmes that provide a small financial contribution for SMEs to hire external consultants to develop new products, conducting market research, or improving internal processes.
  • Dynamic Strategy. This strategy requires governments to take an innovation facilitator roll and take actions towards fostering R&D collaboration; the most typical instrument in this case is the implementation of funding programmes to R&D projects. The level of risk taken is variable and depends on the level of funding committed to such purposes; and the degree of government interventionism is relatively low, because policies focus on rewarding R&D activity, and not on influencing how such activity shall be conducted.
  • Regulated Strategy is characterised by a high interventionism to define the “game rules”, that is, regulation and legislation that obliges meeting certain standards concerning R&D directly or indirectly. Public Administrations taking this approach assumes relatively low risks, since no great sophistication is required on the design of specific instruments; however, a relatively high investment is required in the preparation of regulatory and tax-related measures. Some common instruments adopted with the regulated strategy are the introduction of corporate tax discounts on R&D, the implementation of ISO standards related to R&D management practice, or the application of green-related normative (such as CO2 emissions requirements, which pushes companies developing novel technological solutions)
  • Open Systemic Strategy. This strategy assumes innovation as an intrinsic part in the way government manages office (the government innovates itself). Such approach implies a high interventionism under the premise of having a good understanding on innovation and R&D strategy, and places the government as a key stakeholder in the country´s innovation agenda. Government thus assumes a high level of risk in the design of new instruments that usually involve participative and co-creative processes with the private sector. This model requires highly qualified personnel with world-class knowledge on innovation and R&D processes, and takes place in the most advanced economies in the world. Some of the usual instruments adopted with this strategy are the public procurement of innovation, technology foresights, or the long-term transformation of the educational system itself to ensure the creation of an innovative culture.

The proposed model is subject to discussion and has no scientific grounds. However, it is based on fieldwork observation and provides the advantage of being simple and building on two solid parameters (interventionism and risk). The model may aid the strategy design process because allows understanding some underlying implications of adopting specific strategies, and designing the appropriate instrument policy mix for each country. I am intending to refine and improve some of the assumptions, and I will be happy to hear your comments!

 

REFERENCES

Di Comite, F., & Kancs, D. (2015). Macro-Economic Models for R&D and Innovation Policies.