Greater Visibility for R&D. (Corporate Strategy).(research and Development in North American Industry Classification System( (NAICS))(Brief Article)

Article excerpt

Research and development gets a boost in the North American Industry Classification System (NAICS), which has recently replaced the U.S. Standard Industrial Classification (SIC).

U.S., Canadian and Mexican government agencies and businesses use NAICS (pronounced Nakes) to track economic activity. The six-digit NAICS updates the four-digit SIC system, which was created in the 1930s and last updated in 1987. More than 350 new industries, such as fiber optic cable manufacturing and satellite communications are recognized for the first time in NAICS.

"NAICS should do a better job of accounting for these emerging high-tech industries that have been ignored under the old SIC coding system," says Lisa Anderson, an economist at Economy.com, West Chester, Pennsylvania.

R&D Under One Code

In NAICS, compared to the old SIC system, R&D activities are clustered under one NAICS code, rather than eight SIC numbers. For example, the NAICS code for Research and Development in the Physical, Engineering, and Life Sciences, 54171, brings together all R&D activity in the hard sciences into one meaningful location, giving marketers, researchers and academics a better handle on what takes place in the R&D universe.

"The language in the 2002 NAICS revision more clearly defines what is included in the manufacturing industries, in regard to Research & Development," says Francis McCormick, survey statistician at the U.S. Census Bureau. In one example under the SIC system (Appendix B), R&D activity was included within an industry code, such as SIC 3769, Guided Missile Space Vehicle Parts and Auxiliary Equipment.

McCormick, who answers queries posted on the Dr. NAICS part of the Census Bureau web site (http://www.census.gov/naics) adds: "NAICS developers tried very hard to maintain what was called production function in each code, which is quite different from business activity in that it actually includes a lot more. Within R&D labs, production function would include the labs' specialized equipment and specially-trained technicians."

Adds Anderson of Economy.com, "My initial reaction is that NAICS could certainly help with monitoring employment growth in R&D labs, by consolidating those numbers into one series. Also, I think NAICS will certainly make it easier to develop another proxy to go along with, say, patent filings, as a measure of innovative activity in the economy. So NAICS will certainly increase the profile of the R&D community, as well as help gauge innovation trends in the U.S."

One characteristic of NAICS, says Anderson, is its more precise focus. "Because the new NAICS code will strip out research in physical sciences, as opposed to social sciences, one can isolate the R&D that's taking place in high-tech areas a little bit better."

Some key NAICS numbers in the research area include: 5417, Scientific Research and Development Services; 54171, Research and Development in the Physical, Engineering, and Life Sciences; 54172, Research and Development in the Social Sciences and Humanities. …