C&EN: TODAY'S HEADLINES - R&D ENVIRONMENT LOOKS TOUGH

SOPHIE WILKINSON

Industrial R&D in the coming year will feature more alliances, greater interaction between industry and federal labs, and more grants to universities. But spending will decline as a percent of sales, and there will be less outsourcing of research activity.

PHOTOS BY SOPHIE WILKINSON

So says Albert L. Johnson II, senior analyst for science and technology with Corning. Johnson, who chairs the Industrial Research Institute’s (IRI) Research-on-Research Committee, spoke at last week’s presentation of the committee’s annual R&D trends forecast. IRI’s member companies account for some 60% of the industry-funded R&D that is performed in the U.S. Nearly half of the institute’s 201 U.S. members responded to the survey on which the forecast is based.

Most of the companies expect 2003 spending on R&D and related capital projects to grow less than 5%. In fact, one-fourth of the firms will hold the line or reduce R&D and capital spending. Another third plan to raise R&D spending 2.5% or less. And half anticipate capital spending increases in that range.

Only 20% of respondents intend to increase their spending on new projects by 5% or more in 2003, compared with more than 50% in 2001. And the fraction of companies that plan to invest 5% or more in directed basic research—a measure that has ranged from 13 to 20% for years—“broke through the 10% floor in this year’s forecast,” Johnson said.

Roughly half of the respondents plan to increase their use of alliances and joint ventures in 2003, Johnson said. “There will be more collaboration, less paying other people to do the work.”

John E. Jankowski, director of NSF’s R&D statistics program, provided context for the IRI results. NSF estimates that the U.S. will have spent about $292 billion on R&D by the end of this year—an increase of about 3.5% over 2001, or about 2.5% after adjusting for inflation. In constant dollars, industry has nearly doubled its R&D spending since 1993, whereas federal funding remains essentially flat.

In 2000, the latest year for which NSF has firm data, the chemical industry spent $21.3 billion on R&D. About 60% was for pharmaceutical R&D, and most of the rest went to research in basic and other chemicals. What drives research? Parry M. Norling, American Association for the Advancement of Science fellow with the Science & Technology Policy Institute at RAND, said it is a combination of intense global competition and exploitable scientific opportunities, such as having many blockbuster drugs come off patent between now and 2007 (see page 39). Much of the research aimed at designing cheaper generic replacements is being done in India and Asia, in many cases in partnerships.

U.S. companies themselves are moving more R&D abroad to access highly skilled researchers, government labs with state-of-the-art facilities in Europe and Asia, and attractive intellectual property laws, said Gregory Tassey, senior economist at the National Institute of Standards & Technology.

Given that the U.S. accounts for just 4% of the world’s population, it has had a remarkable run of technological and financial success. But “the law of large numbers is going to catch up with us,” Tassey said. The nation’s high-tech sector, which is presumably less vulnerable to foreign competition than other sectors, accounts for no more than 10% of gross domestic product. “The other 90-plus percent of the economy,” he said, “is increasingly under competitive pressure from science and engineering graduates in Asia, the European Framework program that has a $3.5 billion budget, upgrading of research facilities in Europe and Asia, and innovation parks that are springing up in India.

“We’re still the most technologically advanced economy,” Tassey added, “but we will slide back over time into the pack. They’re slowly eating our lunch.”