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State of the Nation 2008
3. Foundations for Innovation — Elements of the Innovation System
3.6 Canada's Principal Research and Development Performing Sectors and their Roles
No one sector of the economy or society is solely responsible for supporting Canada's science, technology and innovation capacity. Figure 4 shows R&D funding and performance are undertaken by various partners in the three principal performing sectors and other supporting agents such as private not-for-profit organizations.
In Canada, the major performing sectors are:
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Private Sector: Private entrepreneurs represent the single largest R&D sector. They range from research giants to small and medium-sized enterprises. Private entrepreneurs bring new innovative products and services to the marketplace and enhance their competitive advantage by introducing new efficiencies through advanced, and at times, revolutionary processes and systems. In 2006, this sector performed $16 billion, or some 56 percent, of Canada's total R&D.
R&D expenditures by the principal industrial sectors in Canada were: agriculture, forestry, fishing and hunting ($115 million); mining, oil and gas extraction ($578 million); utilities ($318 million); construction ($69 million); manufacturing ($8.6 billion); and services ($6.5 billion). The manufacturing sector and the services sector accounted for the vast majority of all R&D expenditures in Canada. Within these aggregated sectors, however, a number of industries were responsible for a disproportionately large share of the total. In 2006, the six leading industries performing R&D represented almost half (46 percent) of all business expenditure on R&D. These industries were information and cultural industries ($1.7 billion); communications equipment ($1.5 billion); scientific R&D services ($1.2 billion); computer system design and related services ($1.2 billion); pharmaceuticals and medicine ($1.1 billion); and aerospace products and parts ($857 million).20
Current indicators of R&D performed do not reflect purchases of equipment for innovation or new processes. For example, application of a new fertilizer would not be captured under agricultural R&D, although the development of the fertilizer would be captured under R&D spending in the chemicals industry. Research into automated lumber processing equipment would not be captured under forestry but would be captured under one of the machine or instruments industries. Adoption of this equipment would only be reflected under the lumber industry's machinery and equipment investments and in innovation surveys.
Many Canadian high-tech companies are niche-oriented and supply services and products for various industrial vertical markets both in Canada and abroad. In the computer systems design and related services industry, for example, companies can produce custom software solutions to support the financial services industry or the natural resources sector. Many Canadian companies produce advanced equipment for process monitoring and control in manufacturing. R&D in some industries can support and lead to process innovations in other industries as new software and industrial products are adopted.
The scientific R&D services industry includes companies that undertake R&D activities in Canada. R&D captured under this heading might be more appropriately classified under a range of other technological fields. For example fabless semi-conductor companies (companies that undertake research and design but contract out manufacturing) are often classified in this industry. As outsourced and offshore manufacturing grows, the share of total expenditures recorded under the R&D services industry will likely increase.
Large companies disproportionately undertake research and development expenditures. In 2004, 17 222 companies reported performing R&D in Canada. Smaller companies, with less than $10 million in revenues, accounted for 81 percent of all performers, but only 22 percent of all R&D performed. By contrast, the largest companies, those with revenues of $400 million or more, accounted for only 1 percent of all R&D performers but 42 percent of all R&D performed.21 Dr. Douglas Barber and Dr. Jeffrey Crelinsten, using data from Statistics Canada and RE$EARCH Infosource Inc., found that from 1994 to 2001, just 228 companies in Canada could be considered R&D Leaders. These companies invested between 3 percent to 50 percent of sales revenue on R&D and had R&D spending of $3 million or more each year.22
- Universities and Colleges: There are some 400 universities and colleges in Canada.23 These institutions fulfill multiple roles in Canada's innovation system. They prepare the next generation of highly skilled and qualified personnel, and drive innovation through the basic and applied research they conduct. They also spur collaboration through national and international networks and partnerships. Many of Canada's major science investments like the Canadian Light Source Inc. and NEPTUNE Canada, are based at universities. In 2006, the Canadian higher education sector performed some $10 billion, or 34 percent of Canada's total R&D.24
- Private Not-for-Profit Organizations: These organizations and research institutions are increasingly playing a role in supporting the creation of critical masses of expertise. Their public profile helps bring Canadian R&D efforts to individual Canadians. The funds and philanthropic endeavours mobilized by these organizations demonstrate tangible support by individual Canadians for R&D. Health charities, for example, fund major research initiatives focused on specific diseases or health care demands. Others focus on the needs of industry and work at solutions or coordinate research activities for sector-wide or cross-sector research challenges. In 2006, the private not-for-profit sector performed some $125 million, or 0.4 percent of Canada's total R&D and funded $830 million in R&D.25
- Public Sector: Municipal, provincial and federal governments establish policies and incentive structures to encourage R&D. The public sector conducts research to meet its own regulatory requirements and undertakes fundamental research in areas of local, regional or national importance. The public sector can also help coordinate the research activities of the other players by creating opportunities for competitors to collaborate for their mutual benefit. While government R&D is an important feature of Canada's innovation landscape, the principal financial contribution of government to research in Canada comes in the form of funding for R&D, which is carried out by the other sectors.
The Government of Canada directly funded about $5 billion of R&D performed in Canada in 2006. Half of this $5 billion (around 8.7 percent of total Canadian R&D) was carried out in Government of Canada institutions and labs. The remainder of about $3 billion for R&D was performed by the higher education, business enterprise and private not-for-profit sectors. Provincial governments funded some $1.4 billion in R&D expenditures in 2006, some $993 million of which was in the form of direct R&D funding to the higher education sector.26
20 Statistics Canada CANSIM table 358-0024, Business enterprise research and development (BERD) characteristics by industry group based on the North American Industry Classification System (NAICS) downloaded December 23, 2008. Note: Aerospace Products and Parts Manufacturing figure is R&D spending for 2005 (2006 not available).
21 Statistics Canada, Industrial Research and Development: Intentions 2007, September 2008, Cat. no. 88-202-X, p. 17.
22 Dr. H. Douglas Barber and Dr. Jeffrey Crelinsten, The Economic Contribution of Canada's R&D Intensive Enterprises 1994-2001, RE$EARCH Infosource Inc., March 2004, p. 3.
23 Statistics Canada, Register of Postsecondary and Adult Education Institutions. Downloaded January, 2009. Figure is sum of categories "University and degree granting institutions," and "colleges and institutes."
24 Statistics Canada, CANSIM table 358-0001, downloaded December 17, 2008.
25 Statistics Canada, CANSIM table 358-0001, downloaded December 17, 2008.
26 Statistics Canada, CANSIM table 358-0001, downloaded December 17, 2008.
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