5. The globalisation of R&D

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The UK receives the most EU funding for higher education R&D, EUR 615 million in 2014 – or 8% of higher education R&D.

In today’s global economy, companies finance their R&D activities in various ways including using their own funds (e.g. retained earnings) and funds from domestic and international sources. The main international source is payments for R&D from companies abroad, including from enterprises with which there are ownership and control linkages. Research grants and contracts from international organisations are another key source. In many countries, funds from abroad underpin a considerable part of business R&D; more than 20% in Austria, the Czech Republic, Iceland and Ireland, and over 50% in Israel where a large share of Business R&D is performed by foreign-controlled affiliates (FCAs), and Latvia where EU funds underpin almost 40% of BERD.

In many countries, FCAs are responsible for considerable business R&D, accounting for over one-fifth in most countries and over half in Austria, Belgium, the Czech Republic, Ireland, Israel, the Slovak Republic and the United Kingdom. This trend highlights the globalisation of business R&D and its importance in multi-national enterprises. Japan ranks lowest for international funding and FCA performance of business R&D, indicating a relatively low level of integration with the international R&D environment.

Funding from international organisations – notably the European Union – underpins over 40% of business R&D in Latvia. Funds provided by the European Commission (EC) can also be especially important for R&D performed by higher education institutions and government research organisations, the largest sums of which flow to Germany and the United Kingdom. These play a more important role in the United Kingdom, underpinning 7.4% of higher education and government R&D, compared to 3.9% in Germany – a share larger than that of any other Western European country, apart from Greece or Ireland.

Definitions

The Rest of the World sector includes all institutions and individuals without a location, place of production or premises within the economic territory on which or from which the unit engages in economic activities and transactions on a significant scale. It refers to all businesses (including parts of enterprises, universities, governments, non-profits, etc.) not resident in the reference country. International organisations and supranational entities, including facilities and operations within the country’s borders, are also recorded in the Rest of the World sector.

Foreign-controlled affiliates are enterprises within the reference country that are majority-owned by foreign parent companies.

Measurability

The increasing internationalisation of R&D and other economic activities makes it challenging to accurately identify R&D-related financial flows between companies, as well as the precise nature of such flows. R&D surveys are used to collect relevant information, but they focus mainly on domestic intramural R&D performance. Therefore, in most countries, little or no information is collected on the foreign R&D activities of multinationals. Furthermore, it is very difficult to collect accurate information on the value and economic nature of cross-border R&D flows between affiliated firms, as multinationals’ practices – including R&D funding and exploitation of the resulting intellectual outputs – tend to reflect strategies to minimise tax liabilities. The measurement of R&D globalisation among governments and other non-business institutions is also at a very preliminary stage and data comparability is still limited and concentrated in a few countries. The latest edition of the Frascati Manual (OECD, 2015) includes a chapter dedicated to the measurement of various aspects of R&D globalisation, see http://oe.cd/frascati.