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Business Enterprise Research and Development in Scotland 2002

3 Analysis by Product Group and Sector

Introduction

3.1 Most economic statistics are broken down using the Standard Industrial Classification (SIC), which categorises each firm on the basis of the product which contributes the largest share to the firm's added value.

3.2 In contrast R&D activity is generally tabulated by the final product that benefits from R&D. This is the practice adopted in this report. In the following analysis R&D expenditure by product group is compared with total (R&D, administrative and production) employment in the sector that mainly produces the product in question. The aim is to provide a comparative measure for the importance of R&D in Scotland and the UK in each industry. Caveats apply to these comparisons: firms are classified by their main product but may produce other supplementary products. An examination of the Scottish input/output tables shows that in manufacturing a high percentage of each sector's output is their main product. In the services sector this is the case to a lesser degree. The R&D services sector SIC 73 of course undertakes a large amount of work for manufactured products.

3.3 The following introductory table (Table 8) documents the sectoral composition of the Scottish and UK economies for research intensive sectors. Generally Scotland's share of manufacturing employment is 10% lower than the UK share, and between 25% and 50% lower in the key sectors of chemicals, transport equipment and aerospace and computer and related services. This illustrates a possible link between total employment in research intensive industries and R&D. Although not all R&D is undertaken close to production plants some of it clearly is, particularly experimental development work, where Scotland is weak (see Chapter 5).

Table 8: Percentage employed in selected sectors Scotland and UK 2002

Source: ABI employment and ONS/SE

Changes over time

3.4 Chart D shows Scottish R&D expenditure for selected products between 1994 and 2002. The major spenders are the product groups: pharmaceuticals, electrical machinery (which contains electrical machinery and apparatus, office machinery and computers and radio, TV and communications equipment) and precision instruments. R&D expenditure on pharmaceuticals has increased nine fold in real terms between 1997 and 2002 and in fact about half of the total increase in Scottish R&D spending during that period is accounted for by the increase in the pharmaceuticals sector. Electrical machinery products have attracted substantial R&D spending for a number of years. Precision instruments entered the group of R&D intensive products in Scotland for the first time in 2001. This category includes the manufacture of medical and surgical tools, measuring, testing and navigational aids, process control equipment, optical and photographic equipment.

Sector performance

3.5 The following Chart E compares, for each sector, Scotland's share of UK R&D spending with the average of 4.9% (red line). For three products: pharmaceuticals, radio, TV and communications equipment and precision instruments, substantially more than 4.9% of UK R&D is performed in Scotland. These are shown to the right of the red line. This is principally the same position as in 2001, with radio, TV and communications equipment (which includes electronic components) replacing the (related) electrical machinery and apparatus category. For other major R&D spenders in the UK, such as aerospace and other transport equipment, motor vehicles and parts, and computer related services Scotland's share is low. In general comparatively little R&D for service sector products is undertaken in Scotland. Note that for this chart expenditure on electrical machinery has been broken down into the three constituent parts of that sector: electrical machinery and apparatus, office machinery and computers, and radio, TV and communications equipment.

Note: Sectors to the right of the line spend more than 4.9% of their UK R&D expenditure in Scotland, sectors left of the line spend less than that percentage.

3.6 Scottish expenditure on R&D was above 10 million for the following detailed product groups:

Products shown in italics: these spent less than 10 million in 2001

3.7 The share of UK BERD is particularly high (above 10% i.e. twice the overall Scottish percentage) for the following major product groups (each spending over 100 million per annum on R&D in the UK):

3.8 Extractive industries spend the largest share of their UK expenditure in Scotland: 15 million out of 55 million. For pharmaceuticals 6.6% of the UK budget was spent in Scotland.

3.9 The Scottish share of R&D expenditure is particularly low, less than 2.5%, for the following major product groups (each spending over 100 million per annum on R&D in the UK):

3.10 Scotland's share of UK R&D expenditure is still generally low in the services sector at 2.6% of the UK total, an increase from 1.8% in 2001. This includes important areas such as post and telecommunications services (spending over 700 million in the UK) for which a separate Scottish figure is not available.

R&D Expenditure per Employee

3.11 Further analysis can be undertaken on the basis of the research intensity of a product - shown here as R&D expenditure on the product divided by all employees of the sector mainly producing it. This calculation is undertaken for the UK and for Scotland. The UK expenditure per employee can then be seen as a benchmark: if for a sector the R&D expenditure per employee is lower in Scotland then Scotland's role can be seen as focused on routine production or assembly work. For some industries the expenditure per employee is higher in Scotland: Scotland is leading in R&D for that industry within the UK.

Table 9: R&D Expenditure on Selected Products 2002

Source: ONS/SE Analysis Table 2 and ABI
1. Excluding public administration, education and health(SIC 75, 80, 85)
2. UK employment data calculated using ABI employment data for GB + Northern Ireland COE employment
3 At current prices

Note: The table compares R&D expenditure on a product with employment in the sector mainly producing that product. As explained in the text this comparison works well for manufacturing, but less well for services.

R&D as a Percentage of Turnover

3.12 The extent to which the sectoral composition of the industry influences R&D spending is shown clearly by the research intensity for manufactured products, measured as R&D relative to sales. In 2002 in the UK, 3.20 out of every 100 of manufactured products sold was invested in R&D. However for pharmaceuticals, medical chemicals and botanical products the R&D content was over 10 times as much, 36.30 out of every 100 of sales revenue, and the spend for aerospace was 11.70 per 100 of sales revenue.

3.13 For Scotland the above data are not available. Research intensity for products can alternatively be measured by comparing the turnover of each industry with the research expenditure on its major product. As noted above this comparison is not exact, as not all products are made by the same industry sector, but in manufacturing the overlap is high, around 90%. Data for 2002 on turnover are not yet available for Scotland: Table 10 relates to 2001.

Table 10: Research Intensity: R&D Spending as a Percentage of Turnover, Selected Industries 2001

Note: ABI Turnover data are not available for 2002

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