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Although global spending on research and development (R&D) is forecast to increase in 2012, R&D spending in the United States is likely to lag behind prior years, largely due to a still-sluggish economy and cutbacks in federal funding for R&D. As in 2011 and 2010, the U.S. will remain the overwhelming leader in R&D expenditure this year, but reports suggest that major Asian economies are increasingly driving growth in research investment.
Global R&D spending is expected to increase 5.2 percent in 2012 to a total of $1.4 trillion, up from $1.33 trillion in 2011, according to the 2012 Global R&D Funding Forecast from independent research firm Battelle and R&D Magazine. This gain is slightly less than the 6.5 percent growth from the prior year, but R&D spending as a percentage of gross domestic product (GDP) will remain roughly the same as in 2010 and 2011, standing at a global average of 2 percent.
The report, published in December, forecast that North American R&D spending will increase 2.8 percent in 2012, while European R&D expenditure will rise 3.5 percent and Asian R&D spending will surge 9 percent. These regions account for a combined total of nearly 92 percent of global R&D funding.
The U.S. alone is expected to spend $436 billion on R&D this year, 2.1 percent more than in 2011. While the U.S. will spend the most by far in terms of absolute currency, accelerating expenditure among foreign economies, particularly emerging markets, is forecast to reduce the U.S. share of global funding to around 31 percent. Against an estimated 2 percent inflation rate in 2012, R&D investment in the U.S. is poised to remain relatively flat over the coming year.
Part of the decline may be attributed to cuts in federal R&D funding, as the U.S. government's expenditure is expected to drop to $125.6 billion in 2012, a 1.16 percent decrease from 2011. However, private industry will spend the largest amount on R&D this year, with projected growth of 3.75 percent to $279.6 billion, while academic research spending will rise 2.85 percent to $12 billion and non-profit R&D will climb 2.7 percent to $14.5 billion.
"Significant government budget reductions are responsible for the drop in federal R&D spending, although R&D is likely to decline proportionally less than the overall federal budget," Battelle explains. "R&D sponsored by the U.S. Department of Defense (DOD) will see one of the biggest declines (down $2.5 billion to $75 billion forecast for 2012) for the third consecutive year."
Another major trend emerging in 2012 is that stakeholders are increasingly expecting to see positive commercial returns and financial gains from R&D investments. According to Battelle, only 10 percent of companies evaluated the return-on-investment (ROI) for their R&D spending several years ago, whereas 40 percent do so now. Most rely on improvements in product quality, competitiveness and sales as key indicators for the success of R&D.
"The pharmaceutical industry illustrates this trend best as it faces increased scrutiny of R&D spending versus limited productivity and weak pipelines for blockbuster drugs," Martin Grueber, Battelle Research Leader and co-author of the report, said in an announcement of the findings. "However, industry isn't the only sector under the ROI microscope. There also are increasing demands that public sector R&D investments show real economic and policy outcomes."
Other countries are also ramping up their innovation efforts, but the U.S. dominates the list of top R&D economies, with $436 billion in spending projected for 2012, followed by: China ($198.9 billion); Japan ($157.6 billion); Germany ($90.6 billion); and South Korea ($56.4 billion).
China is especially focused on increasing its R&D efforts. On average, China's economy has grown between 9 percent and 10 percent over the past several years, while its R&D spending has increased an average of 12 percent annually. Battelle estimates that if forecasting criteria are maintained, China's R&D spending will match and surpass that of the U.S. by 2023.
"Chinese authorities view innovation as critical both to the domestic economy's long-term health and to the global competitiveness of Chinese companies. China has already created the seeds of 22 Silicon Valley-like innovation hubs within the life sciences and biotech industries. In semiconductors, the government has been consolidating innovation clusters to create centers of manufacturing excellence," according to a report this month from McKinsey Quarterly. "But progress isn't uniform across industries, and innovation capabilities vary significantly: several basic skills are at best nascent within a typical Chinese enterprise."
The report notes that China still faces numerous obstacles to having a successful innovation culture, including a lack of incentive for Chinese businesses to develop innovative products to sell in foreign markets; the difficulty of Chinese companies in cultivating a deeper understanding of their customers' problems and needs; and a social preference for avoiding risk-taking. Despite these hurdles, many U.S. firms are expanding their research efforts in China and other rapidly growing markets.
"Global, U.S.-based companies such as 3M Co., Caterpillar Inc. and General Electric Co. have spent billions of dollars in recent years to expand their overseas research labs," the Wall Street Journal reports. "Such companies aim to tap a broader pool of scientific talent, tailor products to overseas markets and curry favor with foreign governments by doing more research abroad."
2012 Global R&D Funding Forecast
by Martin Grueber and Tim Studt
Battelle and R&D Magazine, Dec. 16, 2011
...R&D Spending Growth Will Continue While Globalization Accelerates
Battelle, Dec. 16, 2011
A CEO's Guide to Innovation in China
by Gordon Orr and Erik Roth
McKinsey Quarterly, February 2012
U.S. Loses High-Tech Jobs as R&D Shifts Toward Asia
by James R. Hagerty
The Wall Street Journal, Jan. 18, 2012