How to encourage R&D in companies? Policies to support innovation in the private sector

As we have seen in Who pays research?, private agents (companies & private non-profit institutions) support most of the investment in R&D. This post is to analyze the role of policies who encourage investment in R&D in companies.

The role of private R&D in Catalonia and Spain

The Lisbon Strategy (the predecessor of the Europe 2020 Strategy) set that, by 2010, at least two-thirds of the economic effort for R&D were private. Although we have not reached this level, in Catalonia the current weight of the private sector has been increasing progressively to 57.5% in 2015. Spain’s overall data remains at even lower levels, in 46%, according to data provided by OECD.

Focusing on the state of R&D in Catalan companies, taking as reference the Innovation Barometer in Catalonia 2016 (3rd edition), published by ACCIÓ, we find that a quarter of the Catalan companies of 9 and more workers acquire or develop R & D. In the case of the industrial sector, the percentage reaches 39.4%. According to this report, 56% increased the resources allocated to research between 2014 and 2015, while only 6’9% cut them off.

Thus, we can see how, despite that investment in R&D has remained low during the crisis, it is true that the different levels of administration have enhanced several mechanisms to support entrepreneurship in R&D. Let’s analyze them:

R&D funding to companies in Catalonia

ACCIÓ (Catalonia Trade & Investment) is the public agency that works to attract foreign direct investment to Catalonia, promoting the area as an attractive, innovative and competitive business location. It is expected that, throughout 2017, the Catalan Government will have allocated up to € 43M to support programs for business innovation (in 2016 they were € 35M). Some programs that stand out in this sense are:

• Innovation Coupons, direct economic discounts of up to € 6.000 for hiring external innovation services.
• TECNIOspring PLUS, which provides 100% financial support to recruit researchers for applied research projects to companies.
• Advisory services to Start-Ups.

ACCIÓ also manages part of the ERDF funds, in full consistency with RIS3CAT, the Strategy for the Smart Specialisation of Catalonia (RIS3CAT):

• R+D nucleus, promoting R&D business projects that give rise to new products and services of high technological value. Since 2007 this program has mobilized more than 252M€.
• RIS3CAT Communities, groups of companies and actors from R & D system that propose strategies for economic transformation.
• Public procurement of Innovation (CPI) is another of the planned measures for the RIS3CAT strategy and executed by ACCIÓ.

But there are also some other initiatives that, from the private world, want to promote technological innovation, especially in Catalan SMEs. This is the purpose of MÉS PIME, a center of excellence driven primarily by PIMEC and Eurecat seeking to offer methodology, knowledge and permanent technological innovation, co-financing up to 50% of its projects. PIMEC also offers advice for those companies investing in R+D.

R&D funding to companies in Spain

Center for Industrial Technological Development (CDTI), centralizes funding for R&D in companies and belongs to the Spanish Ministry of Economy and Competitiveness. Its main goal is to support companies to carry all those transformations that imply innovation in areas such as financing, internationalization and other value-added services through various instruments. During 2015, the CTI directly funded more than 1 billion euros, largely by EU funding, in R&D projects. This center executed more than 15% of the total R & D of Spanish companies.

In addition to funding, the CDTI can issue the Reasoned Report for tax deductions for R&D activities, which aim to reward the efforts of companies in the development of innovative activities, allowing to reduce the total share of Corporation Tax up to 100%, increasing its competitiveness and encouraging the continuous improvement of its products and processes. The potential for tax deduction of this incentive can be up to 59% of expenses in R & D projects and 12% in projects qualified as IT.

R&D funding to companies by the EU

Horizon 2020 is the EU programme aimed to fund transnational projects in research and innovation. Through the SME Instrument, non-repayable grants are offered to small and medium-sized companies with projects of great impact and potential for International growth. The total budget for the whole programming period (2014-2020) is 3000M€.

During the first year and a half of the programming period in Catalonia, more than 50 SMEs benefited, 5% of those who received aid in the EU total, receiving from € 50,000 to € 2.5,5M to carry out studies of feasibility and to settle its projects to the market.

The SME Instrument has two phases of access for all SMEs:

• PHASE 1: Study of concept and viability. Especially recommended for those SMEs willing to define and consolidate their business model specially in the European market, rather than in the local. Aid of € 50,000 is provided to assess risks, exploit intellectual property, conduct market or design studies and validate the viability of the project, among others.
• PHASE 2: R & D, demonstration and commercial application. Aimed at developing the project and make the bridge to market through coaching to maximize success. It offers 70% support for projects between € 0.5M and € 2.5M.

Conclusion:

Over the last years the administration has promoted several ways of funding to promote R&D in enterprises. Nevertheless, these agencies have not developed any ex-post evaluation of these public policies, even more in the case of non-repayable grants.

However, there are several publications carried out in the academic field, by the Chair of Innovation & Business of the Universitat Rovira i Virgili (URV) which analyzed the direct effect of these grants on the innovative capacity of companies.

As a conclusion, it is necessary for the administration to implement this type of aid while quantitatively increasing the provision, as well as evaluating the achieved outcome.