Innovation: keeping pace with the competition

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I took a trip up to Glasgow last weekend, and while I was there visited the excellent Kelvingrove museum. There was a section of the museum dedicated to the role of design and innovation in manufacturing, and I was particularly struck by this quotation from a Scottish politician:

“Rapidly improving design permeates every branch of manufacture…. To keep abreast with foreign nations… we must ourselves produce and invest”

This was said by Sir John Muir the Lord Provost of Glasgow in 1890, but it still rings true today. Innovation is a key tool that enables manufacturers to compete. But in our Innovation Monitor survey 2013 we found that for companies competing in global markets, it is not enough to innovate once. In order to beat the competition – both at home and abroad – companies must keep responding to their customers' needs, and keep innovating.

Manufacturers have often told us: there is no such thing as a sustainable competitive advantage. Looking at what's happened with R&D expenditure highlights just this. Over the last decade, the UK's expenditure on R&D grew by just over 10%, but was this enough?

UK R&D expenditure as a percentage of GDP flat for nearly a decade

The growth in R&D expenditure between 2002 and 2012 kept pace with GDP, but it it didn't keep pace with competitors. The UK's R&D intensity (expenditure on R&D as a percentage of GDP) has remained at about 1.7% or 1.8%. Over the same period, Germany's R&D intensity has risen from 2.5% to 2.9%.

And the rest of the world is catching up quickly.

Although in the UK the manufacturing sector is more R&D intensive than the rest of the economy, the relatively low levels of R&D expenditure across the economy as a whole need to be addressed, in order to ensure the UK can remain highly productive and competitive in global markets.

Innovation is challenging and risky; there is an important role for government support to play to help firms innovate successfully. As we have previously argued, there is much about existing government support to be positive about, but more can be done. We will be publishing Innovation Monitor 2014/15 in partnership with NatWest this summer, which will include some recommendations in this area.


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