The US Bureau of Economic Analysis (BEA) released this month the latest figures for US companies’ R&D domestic spending and R&D spending by foreign-owned affiliates. The report shows dramatic shifts in annual R&D spending by both segments in recent years among industries that are major purchasers of analytical instruments. The data provide quantitative information on the R&D of US companies in the US and aboard. Contrary to expectations, the amount of R&D conducted by foreign affiliates has not consistently increased across all industries.

BEA figures are based on an annual survey of US parent companies of R&D performed by themselves and their foreign affiliates. US firms with over $250 million in assets, sales or net income were required to complete the survey. All foreign affiliate numbers refer to majority-owned affiliates with more than $250 million in assets, sales or net income. Industry classification for a US parent and a foreign affiliate may differ.

The data show that R&D performed for all industries by US parent companies rose 5.6% in FY13 to $246,046 million. Total R&D performed by foreign affiliates increased 8.4% to $48,750 million. Categories of industry covered were Mining; Manufacturing; Wholesale Trade; Retail Trade; Information; Finance and Insurance; Professional, Scientific, and Technical Services; and Other Industries. Manufacturing accounted for 70% and 65% of total US parent and foreign affiliate R&D performed in FY13, respectively. Within manufacturing, three industry categories accounted for over 50% of R&D spending by both US parents and foreign affiliates (see graphs below).

In each of these three industries, one subsector’s R&D performance was dominant. Within Chemicals, Pharmaceuticals and Medicines accounted for 86% of the R&D spending by US parents and 76% of foreign affiliates’ R&D spending in FY13. The relatively similar percentages were despite a ratio of 510 foreign affiliates to 46 US parent companies.

Similarly, one subsector each accounted for the highest shares of R&D spending for the Computers and Electronic Products, and Transportation Equipment industries in FY13. But for these industries, foreign affiliates’ R&D was more pronounced. Semiconductors and Other Electronic components accounted for 53% of Computers and Electronic Products foreign affiliate R&D performance in FY13, but only 38% of US parent R&D spending. These data were for 459 foreign affiliates and 77 US parent companies. Motor Vehicles, Bodies and Trailers, and Parts accounted for 90% of R&D performance by the Transportation Equipment industry’s foreign affiliates but only 42% of US parents’ R&D. In this case, the ratio of foreign affiliates to US parents was 748 to 65.

R&D performance by Pharmaceutical and Medicines US parent companies increased 8.1% in FY13 to $50,788 million, following a 5.7% increase in FY12. In contrast, foreign affiliate R&D increased just 0.1% to $7,170 million, following a 7.0% decrease in FY12. These figures seemingly contradict evidence of increased foreign R&D performance by pharmaceutical companies. Possible explanations include the growth of biotechnology R&D, which is largely US based, and greater outsourcing, which is not included in the figures. Pharmaceutical and Medicines for US parents and foreign affiliates combined grew 7.1% to $57,958 million in FY13, up from 3.8% growth the year before. As a percentage, US parent R&D accounted for 88% of combined foreign affiliate and US parent R&D in FY13, up from 87% in FY12.

As for contract research, the data provided a number for foreign affiliate R&D for Scientific R&D Services. For this category, foreign affiliate R&D performance declined 7.3% in FY12 but grew 3.5% in FY13 to $5,034 million. FY11 data and regional information, and US parent data were unavailable.

For the Chemicals industry, the data clearly showed the increase in non-US R&D. Excluding Pharmaceutical and Medicines, for Chemicals, R&D performance by US parent companies declined 0.6% in FY13 to $8,071 million, compared to 0.8% growth the year before. However, for foreign affiliates, it jumped 16.3% in fiscal 2013 to $2,313 million and rose 25.5% in FY12. In FY13, the combined US parent and foreign affiliate R&D performance rose 2.7% to $10,384 million, compared to 4.9% growth in FY12. Consequently, the share of foreign affiliate R&D of the combined figure was 22% in FY13, up from 20% the year before.

Regional information was available only for all Chemicals R&D, which includes Pharmaceutical and Medicines. These data indicate the move in foreign affiliate R&D for the industry from Europe to Asia. Chemicals industry R&D performed by foreign affiliates in Asia and Pacific rose 34%, 34% and 36% in FY11, FY12 and FY13, respectively (see graph below). In FY13, Asia and Pacific made up 22% of all foreign affiliate R&D, or $2,038 million, compared to 15% in FY10.

Although foreign affiliate Chemicals R&D is growing in Asia, the UK and Japan still prevail. Within Europe, in FY13, the UK accounted for the largest percentage of Chemicals foreign affiliate R&D performance at 17%. Within Asia and Pacific, Japan accounted for the largest percentage at 49%.

However, China and India clearly gained steam. China foreign affiliate R&D performance for Chemicals rose 77% in FY12 to make up 3% of foreign affiliate R&D. In FY13, China rose 16%. In India, Chemicals foreign affiliate R&D performance jumped 196.1% in FY12 to represent 3% of foreign affiliate R&D. In FY13, it rose 13.4% to make up 4%.

For Food, US parent R&D performance rose 1.3% in FY13 to $2,656 million, following a 2.3% increase in FY12. However, the R&D performance of 560 foreign affiliates declined 4.6% to $496 million, after falling 15.7% in FY12. Combined US parent company and foreign affiliate Food R&D performance rose just 0.3% in FY13, but was up from a 1.2% decline in FY12. The share of US parents combined R&D performance rose in FY13 to 84% from 83% in FY12.

After a 21.3% increase in fiscal FY2011, Food foreign affiliate performance in Europe fell 36.8% in FY12 and declined 1.7% in FY13 to $230 million, representing 46% of all Food foreign affiliate R&D. However, Asia and Pacific foreign affiliate R&D rose 13.9% and 15.7% in fiscal 2011 and fiscal 2012, respectively, before declining 21.8% in fiscal 2013 to $104 million, or 21% of total foreign affiliate R&D. Latin America Food foreign affiliate R&D also rose, climbing 9.9% and 22.5% in FY11 and FY12, respectively, before declining 5.5% in fiscal 2013 to make up 21%.