FEDERAL TRIANGLE: A Healthy Core
Two months ago, this column addressed shifts in value and valuation of industrial intellectual property (IP). This month, we examine research and development structures, the birthplace of IP, and look at trends in an increasingly technology-based economy. In spite of the annoying fact that technology sectors were besmirched by dot.com hype in the late 1990s, cast into that mode by incompetent financiers and businessmen and abetted by a gullible investing public, R&D is the major engine of progress. Over the last score of years, industry has realized that structural and operational change by a business is not the only route to profitability and is driven by R&D.
The top 20 American companies in 2002 will spend $75.139 billion for R&D led by Ford and General Motors who will invest $13.18 billion, a 4.42% increase over 2001, a year that saw 4.68% growth over 2000. This growth is lower than expected, but is a healthy rise; a National Science Foundation survey had predicted a 3.2% growth. The decline in growth rate is attributed to the general recession (ripple effects throughout industry as bubbles deflated after last September events), but is balanced by eased cost-of-money. This points to a slower and sustainable growth for the total industrial economy that may not be entrenched until mid-2003.
Total industrial R&D support in 2002 is forecast at $195 billion with an added $75.5 billion of federal funding, an increase of 4.7% over 2001, plus $15.4 billion from universities and non-profits, an increase of 3% over the prior year. Amount and growth in R&D spending is very dependent on the industrial sector. On a worldwide basis, sectors of probable interest to readers, R&D spending by year, R&D as percentage of sales and annual growth are shown in Table I.
On an international basis and summarized by sector, distribution of R&D spending is allocated as a portion of the total to Information Technology (IT) hardware (27.3%), automotive (17.7%), electronics and electrical (9.6%), aerospace (3.9%), and oil and gas (1.4%). Viewed in another aspect, a full 41% of companies surveyed expected increased spending this year and only 13% see a decrease. This is an outstandingly good, general picture for industrial upturn.
When all federally budgeted contract R&D and facilities are counted, government spending will total $98.01 billion, an 11.6% increase over 2001. The two largest elements of this spending are the 13.9% increase to $48.7 billion at Department of Defense and a 15.8% rise to $22.8 billion at National Institute of Health. While improvements in counter-terror technology are a component of the budget increases, 76% of industrial firms in a survey see no effect from terrorist attacks on R&D budgets or spending, and only 7% associate an increase with those events. In fact, there is widespread sentiment that different types of tools are needed in low-tech or no-tech battles, such as the nation confronts with stateless and faceless entities, and sophisticated R&D is not needed or appropriate. Forecasts based on surveys indicate that 2002 R&D staff needs will not change for 53% of respondents and will increase for 34% of industry. Salaries are still 40% of R&D budgets, supported by overhead (19%) and capital equipment (13%). A surprising number of industrial R&D activity (36.7% of spending) is done via outsourcing, distributed among other companies (9.5%), commercial laboratories (6.9%), federal laboratories (4.9%), universities (9.5%), non-profits (3.1%) and foreign firms (2.8%).
Most of this data was abstracted from "R&D/Battelle Research Funding Forecast" and is great news. Thanks to them and God Bless America.