1. Business R&D

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SMEs undertake 35% of business R&D on average but receive almost 60% of government R&D funding to businesses.

Businesses undertake the largest share of R&D in most economies and more than 60% of OECD R&D expenditure. This share remained fairly stable from 2005 to 2015 across the OECD area, the EU, and the United States but increased markedly in China and Turkey, while falling in Mexico, the Russian Federation, and South Africa; several EU states also show sizeable changes.

R&D activity is typically concentrated in a relatively small portion of the business population, especially in large firms. In some countries, small and medium-sized enterprises (SMEs) account for a significant share of business expenditure on R&D (BERD), averaging 35% and ranging from over two-thirds in Iceland, Latvia, and New Zealand, to less than 15% in Germany, Japan, and the United States. The government sector is generally a relatively minor R&D performer but a major funder of R&D in the higher education and business sectors. SMEs typically receive a relatively large share of this funding, 60% on average and reaching 100% in Estonia and Latvia.

R&D intensity varies between industries and countries. Industries relating to digital technologies, such as “ICT equipment” and “information services”, are among the most R&D-intensive; ICT equipment (i.e. manufacture of computer, electronic, and optical equipment) is the most R&D-intensive industry (24.7%), after pharmaceuticals (25.1%). The average R&D intensity across all industries is 5%. R&D in areas such as vehicle efficiency and automation has made the automotive industry one of the top 10 most R&D intensive in the OECD area, with R&D intensity reaching 17% in Germany and 19% in Sweden.

Definitions

Gross domestic expenditure on R&D is reported for sectors performing R&D. Business enterprise expenditure on R&D (BERD) records the gross expenditures on R&D performed by all firms, organisations and institutions (public and private), whose primary activity is the production of goods and services (other than higher education) for sale to the general public at an economically significant price, and any private, non-profit institutions mainly serving them.

Government-funded business R&D is the component of R&D performed by business enterprises that they attribute to direct government funding. It includes grants and payments for R&D contracts for procurement, but not R&D tax incentives, repayable loans or equity investments.

R&D intensity is the R&D expenditure expressed as a share of value added for a unit, industry, sector or country.

Small and medium-sized enterprises (SMEs) are businesses with up to 249 persons employed.

Measurability

BERD is typically measured through official surveys on the volume and nature of businesses’ R&D expenditures including the sources of funding used. The surveys, or related sources such as business registers, also provide relevant contextual information such as the number of persons employed and the main productive activity undertaken (i.e. main source of value added). This is the primary way in which R&D activities are classified by industries, as recommended in the OECD Frascati Manual 2015 (http://oe.cd/frascati). However, in practice, several countries also undertake an element of redistribution based upon more detailed information about the type of product(ion) to which the R&D relates (i.e. R&D broken down by “industry orientation”). Countries where the disaggregation level for R&D is too low and where there is no comparable SNA data on value added by industry have been excluded.

Data on government funding of BERD only covers direct support. Indirect support (e.g. foregone revenue from R&D tax credits) is also important. Data on public support by firm size do not distinguish between SMEs that form part of a larger group and those that are independent.