The Scottish Government

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2 - Where we are now

17. The recently published International Framework makes clear that Scottish Government's international engagement is driven by the Government Economic Strategy and the need to place Scotland as a responsible nation and partner on the world stage. It confirms that international activities will contribute to the Government's purpose of increasing sustainable economic growth by:

• Creating the conditions for talented people to live, learn, visit, work and remain in Scotland;
• Bringing a sharp economic growth focus to the promotion of Scotland abroad - so that the Scottish GDP growth rate matches the UK's by 2011; and
• Managing Scotland's reputation as a distinctive global identity, an independent minded and responsible nation at home and abroad and confident of its place in the world.

18. Science, engineering and technology in Scotland contributes substantively to all three by dint of the quality of research undertaken in the Scottish science base, the flow of students and researchers to Scotland and the related draw for foreign direct investment ( FDI) by companies wishing to access highly skilled staff or research communities. In addition 70% Scottish exports are dependent on science and engineering.

19. The International Lifelong Learning Strategy was launched in March 2007. It aimed to position Scotland as a world-leader in international post-school education. It included supplementary aims concerned with, for example, attracting talent to Scotland and fostering international partnerships and strategic alliances.

20. It provides good data on student and staff numbers and their economic contribution. students who come to Scotland to study, and about the economic contribution they make. Scotland had over 36,000 international students in 2006/07, of which around 24,000 were from outwith the EU (15,000 were at postgraduate and 9,000 at undergraduate level). There has been a 50% increase in EU students in last 5 years and a 118% increase in students from outside the EU. In terms of staff, Universities Scotland ( US) estimate that approximately 20% of the teaching staff in Scottish universities is from outside the UK. One of the most obvious benefits these students and staff bring is an economic one - Universities Scotland estimate that an average overseas student taking a four year degree course invests up to £50,000.

21. In May 2008 a new £1.5 million fund to support the development of Scotland's ILL strategy was launched. The funding - £500,000 a year over three years - is intended to promote collaborative working to:

• enhance Scotland's profile in key international markets; increase college and university engagement in international education;
• support post-graduate employment of international students; and
• improve the quality of the international student experience; and
• increase opportunities for students and academics to gain overseas experience.

22. The UK is the largest recipient of FDI in Europe, and the 2nd largest globally (after the USA). Although "services" dominates FDI between developed countries, in 2006 there was a 'significant increase' in FDI in R&D intensive industries, especially in the pharmaceutical and auto industries. Of the £313m worth of inward investment in Scotland recorded by SDI in 2006/07, £95m came from the Americas, £179m from Europe, the Middle East and Africa ( EMEA), and £39m from Asia-Pacific, and creating or safeguarding 7,507 jobs. An SDI analysis of FDI prospects by key sectors is set our below:

23. The Group also reviewed material setting out the science strategies of a host of other nations (see in particular Paper 2 which describes the relevant policies of the Arc of Prosperity countries), and recognised that a major consequence of globalisation is that scientific research and knowledge production is increasingly distributed across the world. The share of the EU in worldwide R&D expenditure has declined from 29% in 1995 to 25% in 2005. The shares of the US and Japan have also declined over the same period. Gains are mainly found in China, South Korea and other emerging Asian countries. For example, China's R&D expenditure has been growing at close to 20% a year since 1999 with plans for it to rise to 2.5% of GDP by 2020. In Korea current R&D spend is close to 3%. India plans to raise its R&D spend from around 0.8% of GDP in 1996 to 2% by 2012. ⁵ Governments around the world have recognised the key role that scientific research plays in successful economies and are developing strategies designed to increase their research intensity and in particular the intensity of business R&D.

24. The OECD report " The Sources of Economic Growth in the OECD Countries" states "indicators of the "intensity" of R&D within each country support previous evidence, suggesting a significant effect of R&D activity on the growth process. Furthermore, regressions including separate variables for business-performed R&D and that performed by other institutions (mainly public research institutes) suggest that it is the former that drives the positive association between total R&D intensity and output growth."

25. "The future of Science and Technology in Europe - setting the Lisbon agenda on track" (2007) describes the policies and progress of countries including Denmark, Ireland, and Norway towards the EU goal of increasing research expenditure to 3% of GDP. It records a lack of visible progress between 2002 and 2005 and suggests that "this is largely due to the fact that business research expenditure depends on the structure of industry, which evolves slowly".

26. Scotland scientific research base invested the equivalent of 1.61 per cent of GDP in R&D, which below the UK level (1.76 per cent) and also below the EU and OECD averages. Although we are only lagging slightly behind the R&D expenditure of the UK and EU, the composition of Scottish R&D expenditure is distinctive. Compared to the UK, EU25 and OECD averages, Scotland is ahead in terms of government R&D and far ahead in terms of HE R&D expenditure. On the other hand, a relatively small proportion of Scotland's R&D is carried out by businesses.

27. Government support for scientific research in Scotland's universities is set in the context of a UK-wide dual support system:

• a research quality assessment system, shared by the four UK funding bodies which informs individual funding bodies' Quality Research ( QR) grant allocations for infrastructure towards university facilities and academic staff;
• a UK-wide Research Councils system which provides project funding for research staff and specific pieces of equipment and apparatus, to which UKHEIs and RC-owned research institutes bid competitively; and,
• the umbrella organisation, RCUK, which provides coordination across the UK and mechanisms for engagement with the funding agencies of other European States and the EC.

28. Scotland's science base as a whole has achieved a high proportion of the UK investment in SET. This is particularly evident in the proportion of UK funding achieved from the UK Research Councils, where in every year over the past 8 years to 2005-06 the proportion has been 11 or 12%, compared with a population share of just under 9%. This amounted to £222m in 2006-07, compared with the SFC's £176m ⁶ Main Quality Research Grant (which funds the infrastructure which underpins those competitive UK allocations).

29. Scotland also achieves high levels of research funding from UK charities and other UK funders of research. For instance, the Wellcome Trust spends around 15-20% of its research funding in Scotland - around £35m in 2006. Other leading research charities include Cancer Research UK (£14m in 2006) and the British Heart Foundation (£5m in 2006), and in total the Association of Medical Research Charities estimate that their members spent around £61m in Scotland in 2006, 14% of the UK total.

30. Much of this success is the result of the dual support system which ensures that the science base infrastructure remains competitive with the UK's. However, there is also evidence that the quality of SET in Scotland is highly competitive in world terms notably the recent Evidence report which indicates that Scotland is first in the world in terms of citations per GDP and second in terms of the impact of our science.

31. The 2001 Research Assessment Exercise ( RAE) signalled that Scotland had inadequate critical mass and scope for further collaborations. In deciding what to do in support of the research base it was concluded that the English proposal of research concentration in specific HEIs was not a solution for Scotland. Instead, it was concluded that the model should support excellence wherever it is - led by the highest quality leadership. The policy options would be to restructure (support or redeploy); build upon strengths, with rationalisations; and nurture sustainable areas. Out of this thinking has come the Strategic Research Development Grant ( SRDG) and related subsequent funding innovations. SRDG is a mechanism of strategic investment used to accelerate significant strategic investments in research infrastructure. The SRDG aims to bring together existing research strengths to further improve capability and quality, and to build capacity in areas of strategic importance to Scotland. These are often partnerships between SFC and other funders. The Scottish School of Primary Care might be regarded as an early pilot. It brought together the expertise of all four departments of academic general practice/primary care to create a more effective critical mass better able to develop and support capacity and capability in this important field of healthcare. That said, a distinctive feature of Scottish research structure in the past four years has been the enthusiasm of the HEI sector for large scale collaborations - sharing of sovereignty over an area - referred to as 'research pooling'. To date, pools have been created in Physics, Chemistry, Geoscience, Economics, Engineering, Biological Science and Brain Imaging with a total SFC investment exceeding £100 million and a total investment over all partners exceeding £300 million. New investments, such as that for Informatics and Computer Science, will bring the total number of 'pools' and similar pan-Scottish collaborations up to fifteen, involving more than 50 per cent of the Scottish research base. Proposals are still coming forward, e.g. for Marine Sciences. These structures offer further opportunities for cultural, policy and economic development. The Research Assessment Exercise ( RAE) 2008 will report in December and the Scottish Funding Council will use it to inform funding decisions from 2009-10 until further notice ⁷.

32. Business investment in SET is best approximated by Business Expenditure in Research and Development ( BERD). The value of business enterprise research and development ( BERD) undertaken in Scotland in 2006 was £579 million, 4% of the UK total and 0.56% of GDP. Expenditure decreased from £586 million in the previous year (a 4% decrease in real terms), mainly due to a decrease in expenditure on services R&D. This follows a large increase in overall expenditure in 2005. Almost two thirds of Scottish BERD supported just three product groups: 'pharmaceuticals' (42%), 'precision instruments' (19%), and 'machinery and equipment' (9%). Scottish business R&D provided employment for 7,325 people in 2006, most of which is made of up scientists and engineers. The majority of Scottish BERD is funded from businesses own funds.

33. Business participation in collaborative EU research programmes is also low relative to other European nations, despite the fact that the funding covers significant elements of the cost of participation (and the risk of participation are further lowered where business collaborate but do not lead) and provide a range of potential benefits:

• sharing the cost and risk of product, process or service development;
• developing existing or emerging fields and markets;
• nurturing business relationships and encourage pan-European networking; and
• accessing leading-edge technology and share expertise.

34. In addition, the Scottish Proposal Assistance Fund which is available through SE and HIE provides assistance to businesses, in the form of a discretionary grant. This helps business develop quality project proposals for submission to the Cooperation, People and Capacities programmes of the European Commission's Seventh Framework Programme for Research and Technological Development

35. GES highlights how the low level of BERD drags down the overall level of gross expenditure on Research and Development ( GERD) as a proportion of GDP:

" While the rate of expenditure on R&D in Higher Education is in the top quartile of OECD economies and government R&D spend is above the average EU 25 and OECD rates, business expenditure on R&D in Scotland is less than half the UK rate. Scotland's business R&D statistics, however, do not take into account all of the innovative activity undertaken in the Financial Services sector. Moreover, R&D statistics provide only a partial view of Scotland's performance on innovation as the focus is on 'technical R&D' rather than a wider concept of innovative activity that would include process and service design innovation. Scotland ranks in the second quartile of EU members in the Community Innovation Survey, which reported that the majority of Scottish firms (56 per cent) were engaged in some form of innovation activity during 2002-2004, broadly in line with the UK average."

36. It should be remembered that BERD incorporates a significant level of spend in 'Development' as distinct from 'Research' so it is likely to overstate the level of business driven science.

37. The report, " Metrics for the Scottish Research Base" shows that investment in our research base has produced very positive results in terms of quality and impact. It confirms Scotland's world-leading position on the overall rate of citation, and our almost world-leading position of the impact of our research. The report provides information on the performance of Scotland's research base relative to that of the 26 comparator countries which are responsible for around 95 per cent of the world's top research. It contains information on research carried out in universities, research institutes, the NHS and by industry. It assesses Scotland's performance relative to the UK, G7, EU25 and similar sized EU economies such as Belgium, Denmark, and Finland, and confirms that:

• We are first in the world in terms of the rate our research papers are cited, relative to our GDP. Scotland captures 1% of world citations.
• We are ranked second in the world behind only Switzerland and ahead of the USA in terms of impact of the research we produce. Impact is measured as the average number of citations per paper, and this has been increasing progressively over the last ten years.
• Our best performing research fields, in terms of impact, are clinical sciences (2nd in the world), health and related sciences (1st), and biological sciences (3rd). Other strongly performing subjects are physical sciences and mathematics.

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