Statistics Netherlands
Division of Business Statistics
Statistical analysis department Voorburg
Internationalisation of R&D and Dutch multinationals
General abstract of interviews with a number of Dutch multinationals on the internationalisation of R&D
Andries Kuipers
Prepared for the OECD Joint NESTI-CANBERRA II meeting on R&D capitalisation, Paris 26-27 April 2007
1.Background
The discrepancy between performing R&D and funding R&D has increased substantially,abroad being a destiny and a source of funds for R&D of growing importance. The cornerstone of the actual R&D survey is the intramural expenditures for R&D and focus on the performing of R&D of enterprises located in the Netherlands. However, bearing in mind the increasing (international) specialisation also of R&D the question can be raised if performing or funding of R&D is an adequate proxy for who in fact is using the output of R&D investments? The basic question is: is it possible to measure and treat R&D investments like a normal (capital) good, which can be produced, traded, depreciated et cetera?
This would also help to answer a number of questions in the public debate like: are we a net exporter of ‘knowledge’. And it contributes to a better measurement of economic growth and productivity,because it is possible that cross-border knowledge transfers especially within multinational enterprises are underreported. This means for example that knowledge produced in the Netherlands is exported and capitalised elsewhere, without any or only a symbolic payment by the final user. In this example the economic growth of the producer will be underestimated and the growth of the user will be overestimated.Issues as mentioned above illustrate the feeling by policymakers and statisticians that the actual measurement of R&D should be re-evaluated.
On the other hand a number of developments in the field of internationalisation of R&D can be illustrated very well with the actual data captured in the R&D survey. For instance the fact that the increasing cross-border financial flows for R&D are dominated by a limited number of large multinational enterprises and that these financial flows are mainly flows within an enterprise group. Or the share of R&D performed in the Netherlands by foreign affiliates (thus controlled by foreign parent companies). (See the Annex for (more) examples).
It was with this in mind and the fact that R&D in the National accounts in the future will be treated as a capital good and not as intermediate consumption any more, that Statistics Netherlands invited a number of large R&D performing multinational enterprises to discuss the idea of capitalisation of R&D and the measurement problems involved.
2.Organisation of discussions
The first round of discussions took place on 20th of March 2007 and was organised as a roundtable meeting with four multinationals. On 28th of March 2007 a bilateral talk took place with a fifth large Dutch multinational.
So, the conclusions as presented below are based on discussions with five multinationals, which on the other hand represent almost half of the R&D expenditure of the Dutch business enterprise sector.
The discussions concentrated on the following issues:
-How is R&D organised within your multinational enterprise group?
-Is there any clearance between the performers of R&D and the final users of R&D within your enterprise group?
-Is it possible to identify the ultimate users of R&D-investments within your enterprise group?
-Are licenses used within your enterprise group as a way of paying for the use of knowledge?
-Is basic research organised in a different way or not?
-How is the ultimate ownership of (patented) knowledge organised within your enterprise group?
-Are there any examples of R&D expenditures which were capitalised by your enterprise? And if so, how were they valued, depreciated et cetera?
3.General conclusions
1. The decision how much to spend on R&D is taken at the corporate level,is of a strategic nature and re-evaluated periodically (but not every year).
2. The funding of this R&D at corporate level varies between the multinationals from:
-a general basis: a percentage of turnover or profit;
-a basis more or less related to the (expected) benefits of R&D investments: for example an index of the R&D intensity of the different products was used;
-a very precise basis: you pay for your own R&D.
3. This raising of funds for R&D at the corporate level is done by ‘taxes’ at the level of business units. A business unit is a large unit responsible for a certain number of related activities within the enterprise group and is (normally) located in different enterprises spread over different regions (countries).So, in the cases of a R&D related basis of raising funds (2) and the precise basis of raising funds (3), multinationals can provide information on how much R&D is performed on behalf of which business unit.
4. Once the budgets are fixed business units are free to spend their budget for R&D. It is at this point that information is lost. Different dimensions get mixed up, for instance (1) funding, performing and using R&D and (2) business units and regions. At the end of the day it is not possible to provide information on for instance for whom the R&D in unit A in country A is performed. Information on business units is generally not specified by local enterprises/regions.
So, it seems not possible for these multinationals to give information on who performed R&D for whom by country and not even who funded the R&D performed.[1]
5. Besides the problems to allocate the use of R&D by country, the idea of capitalisation of R&D is far away from accounting practices of these multinationals. R&D is seldom capitalised, partly because of the same problems as we have (value, depreciation et cetera).
6. Basic research is sometimes organised differently. It is financed separately because it is hard to say which business unit will benefit from its results. So, for basic research it is even more impossible to identify who is the final user.
7. Within multinational enterprises it is common practice that knowledge is freely available within the enterprise group. Payments via licences and royalties do not occur within an enterprise group. However, legally all (patented) knowledge is owned by ‘headquarters’.
Annex.
Source: Statistics Netherlands, R&D survey.
Source: Statistics Netherlands, R&D survey.
Source: Statistics Netherlands, R&D and Innovation survey.
Source: Statistics Netherlands, R&D survey.
Source: EU Industrial R&D investment scoreboard 2004 and Statistics Netherlands, R&D survey.
Source: Statistics Netherlands, R&D survey and International trade in services.
1
[1]The question on funds received from abroad in the actual R&D survey does not match with the gross cross-border transfers. The reported answer to this question refers to funds received from abroad at a ‘lower’ level within the enterprise group and may be mixed up with ‘own resources’. Although a growth is observed, funds received from abroad in the actual R&D survey may still underestimate this phenomenon.