PDF file: Annual Report 2002/2003 - Scottish Crop Research Institute

Director’s Report
research institutes, supporting research grants, studentships,
and facilities. Currently, financial support
for non-university public research sector is around
£1.6 billion per annum, directed at the so-called ‘public-sector
research establishments’ consisting of
Research Council institutes and Government
Department research establishments of various types,
including the Scottish Agricultural and Biological
Research Institutes. Further financial support comes
from the European Union, particularly the EC
Framework Programme (at levels well below full economic
cost), and also to a limited extent from charities
and from the private sector. Rarely are there
donations! Government also assists R&D by introducing
R&D tax credits, and by trying with limited
success as a result of ingrained suspicions about the
private sector to ensure effective, market-measurable,
knowledge and technology transfer.
UK R&D Scoreboard Verification of the view that
companies with above-average R&D spend in the
longer term tend to show above-average sales-growth,
productivity, and market value or shareholder return,
has been given in the annual R&D Scoreboard published
by the Department of Trade and Industry.
This series, the latest being the 2003 R&D Scoreboard,
is one of the most useful international benchmarking
tools for UK companies to compare their R&D and
capital expenditure portfolios with the best international
competitors. In the 2003 R&D Scoreboard,
details of the top 500 UK companies by R&D investment
together with details of the top 700 R&D-active
companies were presented, giving R&D investments,
capital expenditure, sales, profits, employee numbers,
as extracted from company annual reports and
accounts. Also included for the first time was information
on cost of funds, US patents, and market-capitalisation-to-sales
ratios. The top 700 UK companies
were listed under 32 sectors, and the top 700 international
companies under 27 sectors. R&D was based
on the OECD ‘Frascati’ manual, commented on in
my previous reports, and defined in SSAP13
(Standard Statement of Accounting Practice) and
IAS38 (International Accounting Standard). As the
report stressed, R&D as reported is not the sole or
complete measure of investment because market
development, training, capital equipment, and certain
intangible assets can all provide innovative ways of
gaining competitive advantage. Nor does the report
cover all R&D activity in the private sector, or companies
spending less than £30,000 per annum on
R&D. The five high R&D sectors were electronic &
electrical, health, information technology (IT) hardware,
pharmaceuticals & biotechnology, and software
& IT services, all of which accounted for almost 60%
of international 700 R&D, and with the exception of
electronic & electrical were dominated by the USA.
Considering the business environment was difficult
during 2002-2003 with depressed profits and a
decrease in the number of employees, R&D intensities
(R&D as a percentage of sales) nonetheless were
unchanged from 2002 for Japan at 4.3%, increased to
5.2% in the USA and to 3.7% in Europe. Within
Europe, both Germany (4.6%) and Switzerland (6%)
increased their intensities whereas the UK R&D
intensity changed only marginally remaining at
around 2.2%.
As a result of the higher dividends paid by UK companies,
they had a higher cost of funds relative to both
sales and R&D (over 200%) compared with France,
Germany, Japan, and the USA (an international average
of 90%). Another characteristic of the UK business
environment, commented on in my previous
report, was the fact that acquisition spend relative to
R&D plus capital expenditure is substantially higher
than even in the USA. A total of 684 acquisitions
were made by 97 UK companies in 8 sectors over the
period 1997-2001. The top 30 UK companies
accounted for three quarters of all acquisition expenditure
and 21 of these companies under-performed
the FTSE all-share index after making their largest
acquisition, severely so in many instances. They failed
to grow based on their endogenous innovation. In the
USA, 665 companies completed only 1931 acquisitions,
giving rise to the situation that the UK was in
2002-2003 in a more advanced state of consolidation
than the USA.
Analysis of the data shows that the UK had its highest
proportions of R&D in pharmaceuticals & biotechnology
(40%) and aerospace & defence (9%), compared
with the international 700 companies which
had the highest proportions in IT hardware (22%),
automotive (18%), and pharmaceuticals & biotechnology
(17.5%). Although not stated, global agribusiness
is second only to pharmaceuticals &
biotechnology in R&D spend as a percentage of sales.
The UK 700 R&D intensity was above international
levels in pharmaceuticals, aerospace, and health but
generally below in other sectors. The scale of the
challenge facing UK companies is revealed by the fact
that a comparison of the US 1000 with directly comparable
UK-owned companies in the UK 700 showed
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