The Boom in Industry Research

By Larson, Charles F. | Issues in Science and Technology, Summer 2000 | Go to article overview
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The Boom in Industry Research

Larson, Charles F., Issues in Science and Technology

U.S. companies are rapidly increasing their investment in research, including long-term research.

Meetings on science and technology (S&T) policy or innovation in Washington, D.C., or elsewhere around the country usually find at least one speaker lamenting that industry has abandoned longer-term high-risk research. Nothing could be further from the truth. Industry is doing more long-range, high-risk, discovery-type research than ever before. Indeed, as Robert Buderi points out in Engines of Tomorrow, "the extended time horizon of central labs is why many [industrial research] directors insist that basic research is alive and well-if not thriving." We can expect the recent strong growth in this type of research to continue as we move further into a new knowledge-driven economy.

Recent data from the National Science Foundation (NSF) show remarkable strength in total industrial research and development (R&D) investment during the past five years. This R&D investment by industry has risen from $97.1 billion (all spending is given in current dollars) in 1994 to a projected $166 billion in 1999, an increase of 71 percent and double-digit annual growth. The major change that few people are aware of is that directed basic research in industry (directed toward potential future products, processes, or services) has grown even faster than aggregate R&D investment over the past five years, rising from $6 billion in 1994 to a projected $10.9 billion in 1999, an increase of 79 percent, or nearly 15 percent a year. Applied research increased an equally amazing 91 percent in this period, whereas development grew only 65 percent. Thus, the trend is clearly toward an increased emphasis on research.

Industry support of university research has likewise been strong, growing from $1.45 billion in 1994 to $2.16 billion in 1999, an annual increase of nearly 10 percent. Industry's support of research in universities as a fraction of the total academic effort grew from 6.7 percent to 7.6 percent over this period. The increase is not dramatic, but projections show continued growth of this funding by industry and increasingly close links between industry and universities. The recent proposal by President Clinton for significant increases in federally funded research in fiscal year 2001, particularly in the basic sciences supported by NSF, will complement industry's growing support of academic research and lay the foundation for continued U.S. economic growth.

Inside the companies

The strong growth of industrial R&D is being driven by global competition and supported by healthy corporate profits and cash flows. As one should expect, a large fraction of industry spending on R&D is for the D. Of the estimated $166 billion that was in vested in R&D in 1999 by industry, slightly more than 70 percent was for development activities such as engineering, prototypes, and testing to meet today's immediate technological challenges. But nearly 30 percent of the total was for research-some 22 percent for applied research on tomorrow's products, processes, or services, and nearly 7 percent for discovery-type research to provide viability for the day after tomorrow. "Tomorrow" in this context might be considered a few years, so the fundamental research being funded by industry in its own labs and at universities is actually quite long-range, on the order of 5 to 15 years-and risky.

Although it is true that some companies, such as W. R. Grace and Eastman Chemical, have closed the doors of their corporate labs, many companies without central labs are carrying on discovery research in their business-unit labs, and other companies such as Pfizer and Corning are expanding their corporate labs significantly. Bell Labs has increased its R&D investment from 8 or 9 percent of sales before divestiture to 12 percent of Lucent Technologies' sales today. Nearly 10 percent of its R&D budget is allocated for discovery research.

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