The Scottish Government

« Previous | Contents | Next »

Listen

Section 4 - Knowledge Generation in the SIS - R&D Performing Organisations

4.1 Introduction

This section focuses on those organisations, institutions and companies which generate and disseminate the scientific and other knowledge on which innovative activity in Scotland is based. The nature, extent and density of the links between these organisations and their links with Scotland's commercial base are also considered. Clearly, not all of the knowledge which underpins innovative activity is generated from within Scotland: indeed, the ability to identify, absorb and use world-class knowledge generated elsewhere can be an important attribute for a relatively small, open economy. However, the key focus of this section is on Scotland's internal ability to generate, disseminate and use scientific knowledge.

4.2 Key Actors Engaged in Knowledge Generation

Section 3 of this report highlighted the fact that, compared both to the UK and other countries, public R&D expenditure in Scotland is relatively high and business R&D expenditure relatively low. This is illustrated in Table 4.1 which indicates that public expenditure on R&D (government establishments and HEIs) accounts for approximately 60% of total R&D expenditure in Scotland, with business R&D accounting for approximately 40%.

Table 4.1: Gross expenditure on R&D in Scotland, 2000-2002

Source: Scottish Executive (2003), Overview of Higher Education in Scotland - Baseline Report Part V

Each of the three segments above is outlined briefly in turn.

4.2.1 Business R&D in Scotland¹¹

As indicated in Table 4.1 above, business enterprise R&D ( BERD) in Scotland accounts for a less than proportionate amount of UKBERD, although the gap with the UK has narrowed since 2000. The value of BERD undertaken in Scotland in 2002 was £640 million, 4.9% of the UK total. R&D expenditure in Scotland nearly doubled in real terms between 1997 and 2002, compared to a real terms increase of 22% in the UK. In 2002 Business R&D expenditure was equivalent to 0.77% of GDP in Scotland, compared with 1.24% of GDP in the UK.

Figure 4.1: Business expenditure on R&D by sector, 1994-2002

Source: Scottish Executive (2004), Business Enterprise Research and Development in Scotland 2002.

Figure 4.1 shows Scottish business R&D expenditure for selected products between 1994 and 2002. Nearly two thirds of Scottish BERD takes place in just three product groups: pharmaceuticals, electrical machinery and precision instruments. These are the only sectors which have a significantly higher than average share ( i.e. higher than 4.9%) of UK business R&D. R&D expenditure on pharmaceuticals increased nine fold in real terms between 1997 and 2002: about half of the total increase in Scottish R&D spending during the period 1994-2002 is accounted for by the increase in the pharmaceuticals sector. By contrast, Scotland's share of BERD is particularly low in: Food Products, Beverages and Tobacco products (2.1%); Computer and related activities (2.0%); Other Transport Equipment & Aerospace (excluding motor vehicles) (0.8%); Agriculture, hunting and forestry: Fishing (0.4%); Motor vehicles and parts (0.2%). Scotland's share of UK R&D expenditure is low in the services sector at 2.6% of the UK total.

Table 4.2: Business expenditure on R&D by business sizeband, 2002

Source: Scottish Executive (2004), Business Enterprise Research and Development in Scotland 2002.

Table 4.2 shows that, while large businesses perform most R&D, there are significant differences between Scotland and the UK. In particular a higher proportion of R&D in Scotland is done by small and medium sized enterprises ( SMEs). The difference is much larger for services products: more than two thirds of R&D in 2002 was undertaken by small firms (a quarter in the UK). This issue relates to the issue of indigenous absorptive capacity among SMEs discussed later

Table 4.3: Business expenditure on R&D by country of ownership, 2002

Source: Scottish Executive (2004), Business Enterprise Research and Development in Scotland 2002

Table 4.3 shows that one quarter of business R&D in Scotland is undertaken by Scottish-owned enterprises. Over half of R&D in Scotland is undertaken by firms headquartered in the USA, and almost 70% by foreign-owned enterprises. This, of course, reflects the ownership pattern of the large R&D expenditure industries highlighted earlier, coupled with the fact that foreign-owned establishments tend to be larger than their Scottish-owned counterparts.

4.2.2 Research Performed in Government Establishments

Much of the research carried out by government establishments in Scotland is in the field of agricultural and biological research funded by the Scottish Executive Environment and Rural Affairs Department ( SEERAD). A large proportion of the research (more than 85% by value) supported by SEERAD is carried out within its eight main research providers (see Box 4.1).

The main research providers receive core funding from SEERAD Science and Research Group to support identified research activities. Capital funding is also made available to them by SEERAD Science and Research Group. They also compete for funding from other sources in the public and private sectors.

There are two other research institutes which receive significant amounts of public money for research in Scotland. The Roslin Institute is a major UK centre for animal bioscience. However, it is funded principally by the Biotechnology and Biological Sciences Research Council ( BBSRC) and receives minimal funding from the Scottish Executive or other Scottish sources. The Scottish Association for Marine Science ( SAMS) carries out research and education in marine science. It is a Collaborative Centre of the Natural Environment Research Council, and an academic partner in the UHI Millennium Institute.

Table 4.4: Research Income at Scottish Research Institutes ¹

¹ Time period varies from 2001 to 2003.
Source: Various

4.2.3 Research Performed in HEIs in Scotland

Scotland's 21 HEIs comprise 14 universities (including the Open University in Scotland), two arts colleges, one university college, one college of FE, one conservatoire, the University of Highlands and Islands Millennium Institute ( UHIMI) and the Scottish Agricultural College. All are funded by The Scottish Higher Education Funding Council ( SHEFC), with the exception of the Scottish Agricultural College which is funded by SEERAD.

Research income in HEIs accounts for c.40% of total R&D expenditure in Scotland (see Table 4.1) and is generated from two main sources. SHEFC allocates quality research funding ( QR) based on Research Assessment Exercise outturns, and HEIs receive research grants and contracts from a variety of other sources, mainly on a competitive basis. In 2002-03 Scottish HEIs received 11.4% of total UKHEI funding, and 13.4% of all UK research income. Since Scotland has 8.5% of UK population and 11.6% of HEIs, this indicates considerable strength in attracting research income; in 2001-02 Scottish HEIs attracted 50% more research council funding per head of population than English HEIs.

Table 4.5 shows the amount of research income generated in each HEI. The eight pre-1992 universities account for 95% of total research funding, and just two universities, Edinburgh and Glasgow, account for over 50%.

Table 4.5 Research income at Scottish HEIs, 2001-02

1 Excludes Bell College, UHIMI, OU, SAC
2 Includes technology transfer funds
Source: Scottish Executive The Competitiveness of Higher Education in Scotland (2004)

However, research income is only one measure of knowledge generation. Some indication of the quality of research activity can be obtained from the results of the 2001 Research Assessment Exercise ( RAE), which graded subject areas on a 7 point scale in terms of their research output and other research activity. Analysis of the 2001 RAE¹² suggests areas of particular strength and some areas of weakness:

• Several areas of research are particularly strong in Scotland, including Biological Sciences, Veterinary Science, Computer Science, History, Applied Mathematics and Middle Eastern and African studies;
• Almost one quarter of all submitted Scottish staff full-time equivalents ( FTEs), some 1,300 researchers, are in the 11 subject areas that have an average RAE rating of 5 or above. Five of these subject areas are generically Biological or Medical Science based (Hospital-based Clinical subjects, Biological Sciences, Clinical Laboratory Sciences, Pharmacy and Veterinary Sciences. Two of these - Hospital-based Clinical subjects and Biological Sciences, representing 650 staff FTEs - performed significantly better in Scotland than the UK average;
• The Biological Sciences submissions from Scottish HEIs account for 16.2 per cent of the UK total. They are significantly more highly rated than the UK average (on the seven-point scale);
• The subject areas which performed below the UK average constitute 46 per cent of the research active staff located in Scottish institutions. These subject areas include: Social Policy and Administration; Food Science and Technology; Economics and Econometrics; Chemical Engineering; Business and Management Studies; Other Studies and Professions Allied to Medicine; Environmental Sciences; and Nursing.

4.3 The Efficiency of Knowledge Generation

There are two aspects to the efficiency of knowledge generation activities within any innovation system: the ability of the business sector to turn R&D expenditure into innovative outputs, and the knowledge transfer and commercialisation performance of the publicly-funded research providers ( HEIs and research institutes).

The first of these was briefly dealt with in Section 3. Data from a variety of sources pointed to a modest performance in terms of innovation performance in Scotland, particularly in terms of a key output metric, the proportion of new-to-the-firm products in manufacturing.

The second area - knowledge transfer and commercialisation - involves the dissemination and exploitation of knowledge developed by the public research base (see Box 4.2). Information on this activity was gained both from official sources ¹³ and from interviews with commercialisation and IP directors at two of Scotland's largest HEIs and a major research institute.

In terms of knowledge transfer and its contribution to economic development in Scotland, there is evidence of some difference in attitude and behaviour between Scottish and UKHEIs (Figure 4.2). In 2002-03 Scottish HEIs put more emphasis on technology transfer generally than their other UK counterparts, but put much less emphasis on supporting SMEs than other UKHEIs. Since SMEs largely represent the indigenously-owned sector in Scotland, this is a potentially important issue. HEI and research institute interviewees repeatedly stressed that the reason they did not have more interaction with local SMEs was because of a lack of demand from the commercial sector. A very consistent picture was drawn of the relative thinness of the SME sector in Scotland in terms of its scientific and managerial competence, and the lack of absorptive capacity in the sector to make use of the (often world-class) research being carried out in Scottish universities.

Figure 4.2: Main areas in which HEIs see themselves making the greatest contribution to economic development - 2002-03

Note: The bars are mis-labelled - Scottish HEIs are the first (blue) bars
Source: Higher Education Business and Community Interaction Survey 2002-03

This was reinforced in the interviews with regard to the commercialisation side of HEI activity. HEIs in Scotland do not regard local SMEs as being good vehicles for licensing activity, which is a major part of the commercialisation of the public Scottish research base. Much of the world-class research done in Scotland ( e.g. in biosciences) lends itself naturally either to the creation of spin-off companies or to licensing with major companies, often international in scope, which have the capacity and expertise to maximise royalty revenues. By contrast, the most likely links with Scottish SMEs are in consultancy work linked to specific projects and problems raised by companies. Broadly speaking, while the universities welcome this activity and do charge for it, consultancy is often regarded more as quasi-public good, knowledge transfer activity rather than commercial activity per se. The larger research-oriented universities in particular claim to find it difficult to inform SMEs of the relevant research activity which is being undertaken within HEIs, and to interest them in it (see Box 4.3 with regard to the SRIS initiative).

It should be noted that there is little evidence that Scottish HEIs under-perform in commercialisation activity generally. According to HEBCIS figures for the last three academic years (2000-01 to 2003-04), in all the major areas of commercial activity (consultancy, income from collaborative research, disclosures and patents, licenses, spin-offs) Scottish HEIs performed roughly on a par with the UK sector as a whole, and tended to outperform UK institutions in terms of patenting. The other publicly-funded research institutes also appear to perform on a par with their UK counterparts in this form of activity ¹⁴. There is also some evidence that Scottish HEIs may perform commercially as well as US institutions. Analysis by the Director of Research Services at Edinburgh University suggests that, per dollar of research income, the eight pre-1992 universities in Scotland perform as well as the top 11 USHEIs in terms of disclosures, patents, licenses, patents and spinouts, and have done so for at least the last decade. The key difference between Scotland and the US, according to this analysis, is not quality of commercialisation and knowledge transfer, but scale of operation.

The available data suggest that the perception that there is a 'problem' of a lack of knowledge transfer and commercialisation among Scottish HEIs is probably unfounded. There is, however, a disconnect between the high-quality research being carried out in Scotland and the indigenous SME sector. Much of the research activity in Scotland's HEIs is geared towards a highly sophisticated worldwide community of science users, relatively few of which are to be found among indigenous enterprises in Scotland. The earlier discussion of business R&D in Scotland also points to a lack of absorptive capacity, especially among SMEs. Tables 4.2 and 4.3 above show that only 30% of Scotland's already limited level of business R&D is carried out in Scottish-owned companies, and that a relatively high proportion of R&D in Scotland is done by small and medium-sized firms. Obviously these points are related; Scottish-owned firms tend to be smaller that foreign-owned enterprises. It therefore seems likely that both the amount and standard of domestic R&D carried out by Scottish business is low: the picture is of a domestic business sector which lacks the indigenous research capacity to absorb much of the research output of an internationally successful HEI research community.

Box 4.3 lists the current policy initiatives to help exploit the knowledge base of publicly-funded research in Scotland. Interviews with representatives of HEIs and research institutes suggested that two of these initiatives, the Knowledge Transfer Grant and Proof of Concept funding, were very highly regarded and greatly welcomed as addressing a perceived gap in the knowledge transfer system. More sceptical opinions were expressed about other initiatives, however. For reasons outlined above, initiatives to enhance the links between Scottish SMEs and HEIs or to improve the rate of commercial spinouts were thought unlikely to succeed until the relatively poor absorptive capacity of the existing indigenous commercial base had been addressed.

4.4 Key Results and Mapping

A number of key points emerge from our evaluation of knowledge generation activity within the SIS:

• Business R&D expenditure in Scotland is low (especially in services), concentrated in a few sectors, and performed mainly by foreign-owned enterprises.
• Scottish HEIs are highly research-active, perform above the UK average in terms of research grant income, and have a worldwide reputation in certain key areas such as biosciences.
• Scottish HEIs and research institutes perform well with respect to knowledge transfer and commercialisation. However, there is a disconnect between their top-quality research and the requirements and absorptive capacity of a scientifically weak indigenous SME sector. This is offset somewhat by Scottish Enterprise initiatives such as the ITIs and incubators and Scottish Executive schemes such as SCORE and SEEKIT.
• Some public policy initiatives such as Proof of Concept have helped close identified gaps in the exploitation of publicly-funded knowledge generation, but the fundamental mismatch between the research capability of the top HEIs and the absorptive capacity of Scottish SMEs is unlikely to be solved by simple policy initiatives.

Figure 4.3 summarises our assessment of the strength of the main linkages within the knowledge-generating elements of the SIS based on our informant interviews and our review of existing studies. The figure highlights the relatively strong linkages between HEIs and research institutes and their funding bodies, and their relatively good performance in terms of spin-outs and related activity. The major weakness evident in this part of the system relates to the interaction between HEIs and the indigenous commercial base. In many respects Scottish HEIs have stronger links with externally-owned and other UK-owned firms than with indigenous SMEs, because the former are more able to absorb the knowledge generated at Scottish HEIs and maximise the economic returns from it. Scottish Executive initiatives such as SCORE and SEEKIT are welcome attempts to overcome this disconnect but influence a relatively small proportion of firms.

« Previous | Contents | Next »