JRC – Territorial Development Unit Petros Gkotsis 08 March 2017 IRITEC Industrial Research and Innovation Combining corporate R&D with patent data to proxy territorial business R&D JRC – Territorial Development Unit Petros Gkotsis 08 March 2017

IRITEC research topics Focus on the world top R&D investors. Analysis of value chains in strategic knowledge intensive and high-value industrial segments Investigate the actual location of economic and innovation activity – matching company and territorial perspectives - proxy allocation of private R&D inestment to regions Assessing the capability of "EU industry" to develop key technologies – characterise tech and industrial profile of region. - Centrality of technologies/ firms in knowledge flows

Methodology EU R&D Scoreboard: R&D data + PATSTAT and REGPAT: dates, addresses, technological fields, citation etc. Link patents to applicants (Scoreboard companies) and subsidiaries. Information on inventors (proxy of international activities of companies). Networks of collaborations & knowledge flows. Attempt to estimate territorial business R&D funded by the business sector, using R&D and patent data from top R&D investing companies: industrial R&D is highly concentrated at company, country and sector levels. A representative subsample of the Scoreboard can be used. Patents are an output of the R&D investment. BERD- patents positively related. Here they are used as a proxy in order to re distribute R&D of parent companies to subsidiaries.

IRITEC Company data Top 2500 companies invested €696bn in R&D in 2015/16, ca. 90% of world BERD Understanding the scale and dynamics of industrial R&D at the firm level Since 2004 ca. 90% of world BERD including R&D of more than 600k subsidiaries Strong evidence on concentration of R&D (top 100 account for 53%, top US, EU, JP for 63% etc) PATSTAT (REGPAT) Relational database from EPO. Use of special string matching algorithms (IMALINKER) to establish links between entries in the 2 databases Work with patents filed in at least one of the 5 main IPOs

Our Evidence Inventor's location 80% of patents are developed by inventors residing in the same world region as the company legally owning the rights 20% are developed by inventors residing in a different region The recourse to international development of inventions varies across regions and industries Source: The 2015 EU Industrial R&D Investment Scoreboard, European Commission, JRC/DG RTD.

Is it possible to proxy business Intramural R&D using Scoreboard data? BERD vs Scoreboard EU-BERD vs Scoreboard US-BERD vs Scoreboard JP-BERD vs Scoreboard BERD vs Scoreboard and EU-BERD vs EU-1000 Scoreboard highly correlated >=0.98 US/ JP- BERD vs Scoreboard >=0.76

Scoreboard Subsample Key features: To address time restrictions in data availability, R&D data promptly available (Same year). Representative of countries and industries which appear in the Scoreboard Focus on the EU and largest R&D countries. 350 (500) companies (382.9 EUR bn R&D), 63.0% of World R&D. The EU subsample further improved by adding more DE, FR, UK companies Sectoral classification based on ICB (macro sectors)

R&D flows Starting point: Cross- border activity of companies BALANCE of private R&D flows in a region Home Outward Inward   Territory (BERD) Performed at "home" from local companies Performed at "home" from subsidiaries of "foreign" companies Performed "abroad" from foreign affiliated subsidiaries of the "local" companies Assumptions: R&D distributed proportionately among technologies/ inventor countries based on share of patent families No time lags between R&D investment and patent production

BERD vs Estimator BERD historical data together with our best estimator of BERD (IndRD) Correlation among the two statistics generally very good (0.99 for EU, 0.89 for France and UK)

Our Estimations Industrial R&D continued to grow in 2015: Global R&D funded by industry +5.5% (6.5% 2014) EU R&D by industry +5.6% (+3.4% 2014) US R&D by industry +4.4% R&D growth driven by increases in ICT services Industrial Sector EU (%) US (%) Global (%) ICT services 16.5 18.5 13.8 Automobiles 9.1 -1.1 7.9 Health industries 14.5 5.5 11.4 ICT producers 0.4 4.5 4.5 Industrials 11.5 -0.8 -0.4 Aerospace & Def -3.3 1.8 -1.1 Chemicals 4.0 -7.8 -2.2 Others -1.4 -12.1 3.4 EU and US showed different sectoral performance DE, FR and UK show mixed R&D performance DE +8.9% to €59.6bn, mostly fuelled by the Automobiles & parts sector (60% of R&D growth) and by Pharmaceuticals (about 15% of R&D growth) FR R&D +2.4% to €27.1bn driven by R&D growth from Automobiles, Pharmaceuticals, Software and Telecom equipment sectors. UK -3.3% to €18.9bn, mainly due to UK's Oil sector and high R&D outward flows of UK companies in Pharmaceuticals and Automobiles.

Recent Developments Methodology to estimate corporate R&D by technology: Analysis based on IPC classes IPC technological classification hierarchical, tree like Patent families from Company X and its subsidiaries matched from Scoreboard and PATSTAT Fractionally count families per mother company Fractionally count technological fields within families at 3, 4 digit level or using Schmoch classification Next Steps: Calculate RD allocated per company on the development of specific technology Aggregate by inventor country and/ or sector Update calculations

Conclusions- Future Work BERD and Scoreboard figures not directly comparable. Good correlation for high levels of aggregation of the data, (large countries/regions, large industrial sectors in terms of R&D) observed between the two datasets A subsample of representative Scoreboard companies is selected to overcome problems regarding on-time data availability. The use of patent data of companies' subsidiaries as a proxy indicator of the innovation output helps to characterise the location of companies' innovation activities worldwide. Combining corporate R&D and patent data important to understand industrial R&D flows. EU headquartered companies contribute 80% of the EU's territorial business R&D. High degree of heterogeneity across industrial sectors, e.g. EU shows an inward-outward R&D balance of -6.3% in the ICT producers sector and +5.5% in Health industries. More detailed analysis is required in order to better understand the reasons behind these differences and their policy implications.

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