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Research and development expenditure by foreign-owned businesses rises

This expenditure now accounts for approximately half of total business R&D expenditure in the UK

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

Business R&D Expenditure 1995-2011 - Constant Prices

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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

Business R&D Expenditure 1995 and 2011

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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

R&D expenditure generated by foreign-controlled affiliates, 2008

Notes:

  1. Source: OECD, AFA, FATS and AMNE Databases, May 2011
  2. Data for 2008 unless denoted otherwise in brackets.
  3. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
  4. Financial intermediation excluded for Japan.
  5. Community, social and personal services excluded for Austria and Slovenia.

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Summary

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.

Categories: Business and Energy, Businesses, Research and Development in Business
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