R&D enterprises more profitable than other enterprises

The results presented in this article are based on the merging of R&D statistics with financial accounts data for limited companies from 2001, 2002 and 2003. A substantial part of the enterprises in the R&D statistics could be linked to the accounts data, and these enterprises accounted for 90 per cent of the total R&D expenditure of NOK 13.5 billion in 2003. This is on a par with 2001 and 2002. This means that the profitability data for R&D enterprises are highly representative. The remaining 10 per cent of the R&D expenditure is mainly spent by enterprises that are not organised as limited companies.

Comparisons between R&D enterprises and all enterprises with at least 10 employees show that R&D enterprises have a higher turnover per employee and that their operating profit as a share of turnover and total capital and equity are higher for the entire 2001-2003 period. R&D enterprises also have higher wage costs per employee and a higher equity ratio.

However, it should be noted that the difference in operating margin between R&D enterprises and other enterprises has fallen slightly in this period. Whereas the profitability of R&D enterprises fell from 2001 to 2003, it remained unchanged for all enterprises. It is very unlikely that this development is affected by biased representation of R&D enterprises in the period.

The pattern in the total figures is also reflected in the breakdown of the data by size class. The key indicators show that R&D enterprises have better financial results in most size classes in the period, although the difference is most pronounced in the largest enterprises. Looking at these results, it should be noted that the representation of R&D enterprises differs from size class to size class. R&D enterprises with 100-499 employees account for 50 per cent of total turnover in the size group. R&D enterprises with 50-99 employees account for 30 per cent of total turnover, while the figure is only around 10 per cent for R&D enterprises with 20-49 employees.

However, the fact that enterprises involved in R&D are more profitable than other enterprises in a single year does not necessarily imply that R&D pays off. Reaping the benefits of R&D takes time and will not normally result in increased profit in the same year. Moreover, other effects than R&D, whether complementary or not, may be the reason behind higher profits. But the fact that R&D enterprises are more profitable than other enterprises over several years and irrespective of size class is a clear indication that R&D is profitable. We have also looked at enterprises with permanent R&D activities in the observation period. It can be concluded that these enterprises have even higher profits than enterprises with R&D activities in only one year. Enterprises with permanent R&D activities in the period 2001-2003 had a 17 per cent operating margin in 2003 compared with 15 per cent for all enterprises with R&D activities that year. The average operating margin for all enterprises, irrespective of R&D activities, was 9 per cent. If the period is extended to 1999-2003, enterprises with R&D activities in the whole period have an even higher operating margin, at 19 per cent. This is an even stronger indication that R&D pays off. By extending the observation period, the number of enterprises with R&D activities is reduced. Out of 1324 R&D enterprises with corresponding accounts data for 2003, there were 501 enterprises with permanent R&D activities in the period 2001-2003 and 293 in the period 1999-2003. This panel mainly consists of large enterprises and accounted for 57 and 48 per cent of total R&D in business and industry respectively.

Breaking down the results by NACE sectors gives a more multi-faceted picture. In the majority of the 36 2-digit NACE sectors included in this analysis the profitability is higher for R&D enterprises each year (around 16), but 11-14 sectors have higher profit figures for all enterprises. For some sectors the profitability is more or less the same. Looking at the whole period, 7-8 sectors have higher profit figures for R&D enterprises and the same number have lower figures. There seems to be no systematic pattern to prove that R&D intensive sectors have higher profits than sectors with little R&D activity. In sectors with at least NOK 400 million in R&D expenditure in 2003, post and telecommunication is the only sector with a considerable gap between the two types of enterprises.