Britain’s small and medium-sized engineering companies are not investing as much in research and development as their international competitors, according to the Government’s recently published R&D Scoreboard.
According to the figures, the main players, such as British Aerospace, Rolls-Royce, Siebe and Smiths, are investing a significant proportion of turnover in research and development 3.5%, 5%, 6.1% and 4.5% respectively.
This compares well with the big players in the electronics and electrical engineering sector. GEC is investing 7% of turnover in R&D, Siemens UK 6.2%, Bowthorpe 4.8%, Racal 6.7% and Fairey 5.2%
But this healthy picture quickly tails off, with small and medium-sized businesses in the engineering sector falling short, according to Norman Price at the Department of Trade & Industry’s Innovation Unit.
Price says this begs a number of questions: ‘Are they spending so little on R&D because they are investing elsewhere in capital equipment or marketing? Is it because they have not got the cash available? Is R&D being carried out by companies further up the supply chain? Or are they simply not declaring it?’ he asks.
Whatever the answer, he says, any company investing less in R&D than its international competitors has to question the future competitiveness of its business.
The eighth annual R&D Scoreboard, produced jointly by the DTI and Company Reporting, shows that more than half of all FTSE 100 companies are not investing in R&D, and of the remainder, about half invested less than 1% of overall sales.
UK-based companies also invested at a lower rate than their European counterparts, at 1.8% of turnover, according to the figures.
The UK figures are distorted, Price says, because the average calculations are skewed by the inclusion of figures from big-spending, low-percentage-per-sales companies such as Shell, BP and Unilever.
By eliminating this weighting, the figure for the UK comes in at an average of 5% of turnover invested in R&D. This is about the same as figures for the rest of Europe.
The real threat is coming from the US, says Price. ‘US firms on average invest about 10% of turnover in R&D, with a large number of medium-sized companies investing very highly. It is a very exciting time in the US.’
Although the Scoreboard may give some indication of levels of investment in R&D it does not tell the whole story. As Alan Wood, chief executive of Siemens, says in the report, it is the effectiveness of R&D investment, not the level, that will make the difference.
‘Innovation is our key competitive weapon and it is important to realise that this relates as much to people as it does to products. It is vital that companies bring out the most in their people, whether in creating new ideas, or in managing the innovation process.
‘Customer focus is an integral part of innovation. Competitive companies are the ones that can innovate to provide customers with tailored solutions.’