Industrial Research Institute's R&D Trends Forecast for 2005

Abstract

This year's trends are more favorable as IRI member companies begin to re-fill the innovation funnel-but they remain cautious about the economy. As the United States economy sluggishly recovers from recession, the annual Trends Forecast records a more favorable outlook for 2005 than has been seen in the past two years. More companies expect to moderately increase total company expenditures on and capital spending for operations (survey questions 1 and 2). However, with the U.S. continuing to be entangled in Iraq and oil prices hitting all-time highs, the future of the recovery remains uncertain and the number of IRI member companies increasing their allocation of resources is not dramatic, nor is the magnitude of that increase. More companies are forecasting a modest increase in expenditures of 2.5 percent to 5 percent as compared to the late 1990s when a significant number of companies forecasted a greater-than-5 percent increase. Nevertheless, the 2005 forecast shows more companies willing to make larger overhead commitments by increasing the R&D professional personnel and hiring of new graduates. For 2005, more companies expect to decrease the intensity (targeted R&D/Sales Ratio) than increase it, but in comparison to 2004 there is a shift from decreasing the intensity to holding it the same. Of the IRI member companies responding, 21 percent expect the average intensity to increase versus only 12 percent in 2004, and 51 percent of the companies expect the intensity to remain flat for 2005. Trends Analysis-Looking to 2005 This is the 21st year for the Trends Forecast. The 2005 forecast is based on 112 questionnaires collected from 207 member companies. Of the 112 companies responding, 99 have located inside the United States. The first part of this report will focus on only the U.S. questionnaires, which account for 48 percent of all the IRI member companies. The survey asked the companies to estimate the relative change in their level of: expenditures, effort allocation, personnel, etc., between what they have done in 2004 and what they plan to do in 2005. The data for the survey were collected during August and September 2004. Being a voluntary survey, the mix of companies shifts from year to year, which reduces the significance of the statistics. Even though the mix of companies that participate in the survey changes somewhat each year, a chi-squared analysis was conducted comparing the 2005 results to the 2004 results. Based on a 99 percent confidence limit, percentages for each interval are statistically different from the prior year and as we examine the data we see expectations increasing during 2005 for: * Capital spending for (Q2). * Hiring new graduates (Q5). * professional personnel level (Q4). * spending to support existing business (Q3a). * Contracts with Federal Laboratories (Q9d). * New spin-offs based on developed technology (Q9g). Lowering the confidence limit to 95 percent showed additional increases expected for: * spending for new-business projects (Q3c). * Total company expenditures (Q1). * Acquisition of technological capabilities through M/A (Q9f). * Grants, contracts, etc., for university (Q9b). The Sea Change Index, which was started in 2000, is calculated by taking the difference between the number of companies predicting a 5 percent or greater increase and the number of companies predicting no change to a decrease in the coming year. This is a rather conservative index in that it excludes those companies forecasting an increase of up to but not including 5 percent. However, the Sea Change Index does show gross changes from year to year. The absolute number is less significant than the directional changes that are occurring. …