R&D Stagnation Seen Posing Major Threat to E.U.'s Knowledge-based Economy

Private-sector investment in Europe slows as research euros go elsewhere

Private-sector investment in Europe slows as research euros go elsewhere

Brussels — August 8, 2005 — Investment in research and development is close to stagnating in Europe, posing a major threat to the European Union's knowledge-based economy, according to European Commission figures publicized recently by an E.U. R&D initiative.

Figures published by the commission in mid-July show that growth of R&D investment as a percentage of gross domestic product (GDP) has been slowing since 2000 in Europe, according to a statement from the E.U.'s Eureka initiative, which aims to strengthen European competitiveness by promoting cross-border, market-oriented, collaborative R&D.

Research and development investment in Europe increased just 0.2 percent between 2002 and 2003, the figures show. In general, Europe devotes a much lower share of its wealth to R&D than does the United States or Japan: 1.93 percent of GDP in the E.U. in 2003, versus 2.59 percent in the United States and 3.15 percent in Japan, according to Eureka.

Slowdown in Private R&D

A key reason for the lower level of investment in Europe has been a slowdown in business R&D funding. In 2002, business financed 55.6 percent of domestic R&D expenditure in the European Union, compared with 63.1 percent in the United States and 73.9 percent in Japan, and this share is decreasing. If the trend is not reversed, the E.U. will miss its overall target of two-thirds of R&D expenditure financed by the private sector in 2010.

The problem, according to Eureka, appears to be that Europe is becoming a less attractive place to carry out research. Data show, for example, that between 1997 and 2002, R&D expenditure by E.U. companies in the United States increased much faster than R&D expenditure by U.S. firms in the EU (by 54 percent compared with 38 percent).

The net imbalance in favor of the United States increased fivefold between 1997 and 2002, from about 300 million euro ($371 million) in 1997 to almost 2 billion euro ($2.5 billion) in 2002.

Call for Research Support

The Eureka statement states that a recent Commission impact assessment showed investment in R&D at E.U. level has a positive effect on productivity and economic growth. The study also showed funds spent at E.U. level mobilized additional business spending.

"If Europe is to become an integrated research area, able to attract investment from all over the world, there must be a substantial and wide-ranging E.U.-level program," Eureka argues. "Enterprises will continue to relocate research and innovation activities to other continents offering attractive public support and larger research, innovation and commercial markets."

The Eureka initiative is intended to enable industry and research institutes from 35 member countries and the E.U. to collaborate in a bottom-up approach to developing and exploiting innovative technologies. Eureka is marking its 20-year anniversary this year.

More information on R&D investment in the United States and Europe is available on the Web site of the E.U.'s Community Research & Development Information Service (CORDIS) at www.cordis.lu/indicators.

Additional Articles of Interest

— To go the distance in business you need to take a disciplined approach. Supply & Demand Chain Executive offers key best practices for making your supply chain hum in the article "7 Habits of Highly Efficient Supply & Demand Chains," the cover story in the April/May 2005 issue of the magazine, featuring an interview with supply chain guru Jim Tompkins of Tompkins Associates.

— Words of wisdom from one university professor go a long way to help business students excel in supply chain management. Read "Interview with Dr. John T. Mentzer: Teaching Supply Chain" in the June/July 2005 issue of Supply & Demand Chain Executive.

— How are outsourcing and supply chain tasks such as purchasing and inventory management tied to "network-centric operations?" What is a network-centric operation? Read the SDCExec.com article "The Future of Supply Chain Management: Network-centric Operations and the Supply Chain" to find out.