Britain fails the research test

Government figures confirm that our companies are not investing enough. Roger Trapp reports

IN recent years there has been no shortage of soul searching among industrialists and policy makers about Britain's declining competitiveness.

One of the reasons for this was that even as the Conservative government was pushing forward the notion of Britain as the enterprise centre of Europe, evidence was mounting of a widespread failure to invest in the things that would create long-term prosperity rather than short-term shareholder gains.

Last week more material arrived to reinforce that view. The latest official figures show Britain falling further behind international competitors in corporate research and development.

According to the Department of Trade and Industry's UK R&D Scoreboard, although expenditure has increased, it still accounts for a smaller proportion of sales than in other G7 countries. Along with Italy, the UK spends 2.3 per cent of sales on R&D, while Japan, Germany, the United States and France all devote more than 4 per cent of turnover to it.

The top UK companies have increased spending at a similar rate to leading international companies in recent years. But in percentage terms they are only spending about half as much as these international peers, putting the UK corporate sector at the bottom of the league table of R&D intensity, says David Tonkin, the managing director of Company Reporting, the corporate monitoring organisation that compiled the tables.

Certainly, there are bright spots. Glaxo Wellcome, the pharmaceuticals group that tops the tables just ahead of SmithKline Beecham and Zeneca with a total R&D spend of pounds 1.16bn, is also the world's number one investor in this area.

Moreover, certain UK organisations, such as Siebe, arguably Britain's most successful engineering group, and Reuters, have invested a much greater proportion of revenues than the national average.

There are also some findings that confound conventional thinking. For instance, General Electric Company is traditionally thought of as a low spender on R&D, but according to the rankings it spends just under 7 per cent of sales on it, while BT is reckoned to be betting huge amounts on the future, yet is accorded an R&D intensity rating of only 2 per cent, even though its total spend of pounds 282m puts it in eighth place.

The findings of this seventh annual review are serious enough to lead John Battle, the energy and industry minister, to say in the report that under-investment by companies "could have serious implications for the long term and the crucial question must be what then is their strategy for achieving and more importantly sustaining success in the long term? Without more dynamic firms our whole economy's future is in jeopardy".

Coming on the heels of a CBI/NatWest survey showing that manufacturers are spending less on innovation (which is deemed to include training and marketing as well as straightforward R&D) this does not make for comforting reading. And it may be that Gordon Brown, the Chancellor, will use his first Budget to do something to ease the situation.

There is, however, a growing view that, except at the level of the smallest companies, governments should do no more than create the right environment. It is up to companies to set priorities correctly.

Advice on what they should do came earlier this month in a speech given by Steve Woolgar, director of the Centre for Research into Innovation, Culture and Technology (CRICT).

Among the recommendations in his 3M Innovation Lecture at Brunel University, Professor Woolgar called on organisations to beware linear thinking, to remember that many people are resistant to innovation as a result of fear of change, to realise that innovation is a social process and to encourage "intellectual promiscuity".

He said: "We need to promote greater interaction across the boundaries between government, industry and academia, preferably to the extent that we can comfortably disown the constraints of these categories."

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