In 2011, foreign-owned businesses’ research and development (R&D) expenditure reached £8.8 billion – approximately half of the total business R&D expenditure in the UK (£17.4 billion). This was the highest recorded level in constant and current prices since comparable records began.1
Business R&D Expenditure 1995-2011 - Constant Prices
What is R&D?
For the purposes of National Statistics, R&D and related concepts follow internationally agreed standards established by the Organisation for Economic Co-operation and Development (OECD), and are published in the ‘Frascati’ Manual.
In this manual, R&D is defined as “creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society and the use of this stock of knowledge to devise new applications”.
Foreign-owned businesses increase R&D expenditure
Foreign-owned businesses, those where a single foreign owner has more than a 50% shareholding, have become increasingly significant contributors to the total business R&D expenditure in the UK. In 2011, these businesses were responsible for approximately 50% of this expenditure compared to 30% in 1995.
The increase in the share of R&D expenditure by foreign-owned businesses has not been constant during this period. The share rose to 45% of the UK total in 2003 but dropped to 39% by 2007. The increase resumed in 2008 but then fell before peaking in 2011.
Of foreign-owned businesses, those that were United States-owned had the largest R&D expenditure (23% of business R&D expenditure in the UK in 2011), followed by businesses with ownership in France (6%) and India (4%).
The majority of foreign-owned business R&D is performed by businesses owned in a small number of foreign countries. However, the overall R&D landscape has diversified, with over 60 countries represented in 2011, more than double the number represented in 1995. In 1995, approximately 99% of business R&D expenditure was accounted for by businesses owned in the UK and seven other countries. By 2011, businesses owned in the UK and 16 other countries accounted for 99% of business R&D expenditure.
Increases from the European Union but more from the Rest of the World
While R&D expenditure from businesses owned within the EU has increased since 1995, the larger increase, in terms of share of total R&D, has come from businesses owned outside of the EU.
In 2011, foreign-owned businesses from within the EU accounted for 15% (£2.7 billion) of total business R&D expenditure in the UK, an increase from 8% (£1.0 billion) in 1995. This compares to an increase from 22% (£2.7 billion) in 1995 to 35% (£6.1 billion) in 2011 by businesses with ownership outside of the EU.
Driving this change is an increase in expenditure by United States-owned businesses, where expenditure has risen from £2 billion in 1995 to £4 billion in 2011, a 100% increase.
The increased expenditure from EU-owned businesses has occured during a period in which the size of the EU has also increased. Recent entrants such as Cyprus, the Czech Republic and Poland were represented in 2011 business R&D expenditure but were absent in 1995.
Business R&D Expenditure 1995 and 2011
An International Comparison
Published figures for international comparisons are limited. However, data published by the OECD illustrate differences in the proportion of business R&D expenditure by foreign-owned businesses in different countries.
Total business R&D expenditure in the UK is fairly evenly split between foreign-owned and domestically-owned businesses. This can be compared to Ireland where in 2007 over 70% of business R&D expenditure was by foreign-owned businesses. The other extreme would be Japan where in 2008 only 5% of business R&D expenditure was by foreign-owned businesses.
R&D expenditure generated by foreign-controlled affiliates, 2008
There has been a definite trend in the increased expenditure on R&D by foreign-owned businesses in the UK during the period 1995 to 2011. It remains to be seen if and when UK-owned businesses will become the minority contributors.
A mix of new foreign-owned businesses entering the UK and foreign takeovers of established UK-owned businesses may have contributed to this change in the business R&D landscape. Further research is needed to reveal which of these factors has had the greater impact on the balance of UK and foreign-owned business R&D expenditure.
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1 The remaining figures in this article focus on constant price information.