1350.0 - Australian Economic Indicators, Aug 2002  
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  • Foreign ownership characteristics of business undertaking research and experimental development activity in Australia (Aug, 2002) (Feature Article)

Feature Article - Foreign ownership characteristics of business undertaking research and experimental development activity in Australia (Aug, 2002)

This article has been reproduced from Australian Economic Indicators, August 2002, (ABS Catalogue No. 1350.0)

SUMMARY

As part of an initiative to expand the data available on economic globalisation issues, the ABS has embarked on a series of studies of the economic activity of majority foreign-owned businesses in Australia1.

The most recent study examines the foreign ownership characteristics of businesses undertaking research and experimental development (R&D) activity in 1999-2000, with the results showing a significant contribution by majority foreign-owned businesses. Majority USA-owned businesses made the largest contribution to R&D activity of all foreign-owned businesses to the extent that they contributed more expenditure and human resources devoted to R&D than all other foreign-owned businesses combined. Majority foreign-owned businesses dominated R&D activity by wholesale and retail businesses, both in terms of R&D expenditure and human resources devoted to R&D. However the overall level of R&D in these industries was relatively low.

The manufacturing industry contributed more than any other to total R&D activity, and this contribution was shared evenly between majority foreign-owned and majority Australian-owned businesses.


INTRODUCTION

Economic globalisation is not a new phenomenon: countries have conducted trade for centuries. However, the intensity of international activity and interdependency of economies gathered pace rapidly over the 1980s and 90s, and has given rise to economic, social and environmental issues which need to be taken into account by policy makers and economic analysts. A working party under the sponsorship of the OECD is developing a framework to guide national statistical agencies in their development of statistical indicators of economic globalisation.

This framework for statistical indicators is currently in draft form (Manual on Economic Globalisation Indicators OECD, Paris, in progress). It outlines three sets of indicators necessary to measure economic globalisation:

  • Indicators relating to trade.
  • Indicators of foreign direct investment and the structure and activities of multinational firms.
  • Indicators of the international dissemination of technology.

The ABS has for some time compiled traditional economic indicators for foreign trade and foreign direct investment. These data give some structural information, however, the ABS has not normally compiled data for the economic activity of multinational firms, nor the international dissemination of technology. The ABS has therefore embarked on a series of case studies to test the feasibility of synthesizing activity data for foreign-owned businesses and indicators of technology dissemination by blending data from a number of sources. Early studies examined new capital expenditure by foreign-owned businesses, the economic activity of foreign-owned business in the mining industry and the economic activity of foreign-owned businesses specialising in information technology.

This current study addresses the area of international dissemination of technology by creating indicators for research and development activity by majority foreign-owned businesses2.


DATA SOURCES

This study uses data collected by the ABS as part of the Survey of Research and Experimental Development in respect of the year ended June 2000, published in Research and Experimental Development, Businesses, 1999-2000 (ABS Cat. no. 8104.0). This survey sought data from all businesses identified by the ABS as likely to be undertaking R&D. Businesses responding to the R&D survey were linked to their foreign ownership characteristics from the ABS Survey of International Investment for those businesses included in both surveys.

For other businesses, a number of sources were used, with most ownership data compiled from extensive internet searches. For those businesses where the ABS was not able to determine ownership characteristics, data were imputed based on the ownership characteristics of other, similar businesses. This is discussed further in the Appendix: Businesses with Unknown Ownership.

Since the work reported in this article was completed, the ABS has released Research and Experimental Development, Businesses, 2000-2001 (ABS Cat. no. 8104.0).


SCOPE OF THIS STUDY

The ABS compiles a range of R&D statistics for government and non-profit organisations, higher education organisations and businesses. This study aims to provide experimental indicators of international technology dissemination by foreign-owned businesses, and therefore focuses on R&D expenditure by businesses only.


RESULTS

In 1999-2000, expenditure on R&D by all businesses in Australia was estimated to be $4,045m in current price terms, down slightly from $4,068m in 1998-1999, following a pattern of small annual falls from the 1995-1996 financial year. The recently released estimates for 2000-2001 show an expenditure of $4,828 in current price terms, an increase of 18% over the previous year, and reversing the decline in previous years.

In 1999-2000, foreign-owned businesses made a significant contribution to Australia’s R&D activity (see Table 1), spending $1,690m (42% of total R&D expenditure) and investing 10,747 person years (41% of total human resources devoted to R&D). Both Australian and foreign-owned businesses invested approximately 10% of their total R&D expenditure on capital items, however foreign-owned businesses spent a slightly higher proportion of their total expenditure on labour costs than Australian-owned businesses (47% and 43%, respectively) and a slightly lower proportion on other current expenses (44% and 47%, respectively).

TABLE 1. TOTAL R&D EXPENDITURE AND HUMAN RESOURCES DEVOTED TO R&D, 1999-2000
Expenditure
Human Resources
Capital Expenditure
Labour Costs
Other Current Expenditure
Total
$m
%
$m
%
$m
%
$m
%
Person Years
%
Australian
241.1
61
1 008.9
56
1 104.9
60
2 354.9
58
15 362
59
% of Aust exp
10
43
47
100
Foreign
152.8
39
787.8
44
749.8
40
1 690.4
42
10 747
41
% of foreign exp
9
47
44
100
Total
393.9
100
1 796.7
100
1 854.7
100
4 045.3
100
26 109
100


For the mining industry (see Table 2), foreign-owned businesses had significantly less R&D expenditure than Australian-owned businesses ($97m and $176m respectively) and devoted fewer human resources to R&D (331 person years and 419 person years respectively). However, foreign-owned businesses reported higher capital expenditure on R&D than Australian-owned businesses ($18m and $10m respectively), which differs from the expenditure patterns for all other major industries.

TABLE 2. TYPE OF R&D EXPENDITURE, MINING INDUSTRY, 1999-2000
Expenditure
Human Resources
Capital Expenditure
Labour Costs
Other Current Expenditure
Total
$m
%
$m
%
$m
%
$m
%
Person Years
%
Australian
10.1
36
39.9
66
125.9
68
176.0
65
419
56
Foreign
17.7
64
20.4
34
58.6
32
96.7
35
331
44
Total
27.8
100
60.3
100
18.4
100
272.7
100
749
100


On an industry basis, R&D activity was dominated by businesses in the manufacturing industry. Foreign-owned manufacturing businesses (see Table 3) contributed strongly to R&D, accounting for 45% of total manufacturing R&D expenditure and 44% of human resources. Of the R&D expenditure by businesses manufacturing motor vehicles and parts and other transport equipment, $295m (70%) was attributed to foreign-owned businesses, while for manufacturers of petroleum, coal, chemical and associated products, $226m (55%) was attributed to foreign-owned businesses. Human resources devoted to R& D by both these types of manufacturers was also dominated by foreign-owned businesses (71% of the total for manufacturers of motor vehicles and parts and other transport equipment and 52% of the total for petroleum, coal, chemical and associated products).

TABLE 3. TYPE OF R&D EXPENDITURE, DETAILED MANUFACTURING INDUSTRY, 1999-2000
Expenditure
Human Resources
Capital Expenditure
Labour Costs
Other Current Expenditure
Total
$m
%
$m
%
$m
%
$m
%
Person Years
%
MOTOR VEHICLE AND PARTS AND OTHER TRANSPORT EQUIPMENT
Australian
12.9
54
46.4
27
65.9
30
125.2
30
895
29
Foreign
10.9
46
127.5
73
156.3
70
294.8
70
2 178
71
Total
23.8
100
173.9
100
222.3
100
420
100
3 074
100
PETROLEUM, COAL, CHEMICAL AND ASSOCIATED PRODUCTS
Australian
49.4
65
72.3
45
66
37
187.7
45
1 118
48
Foreign
26.3
35
88
55
111.4
63
225.6
55
1 228
52
Total
75.7
100
160.3
100
177.3
100
413.3
100
2 347
100
ELECTRONIC AND ELECTRICAL EQUIPMENT AND APPLIANCES
Australian
8.2
38
86.9
46
69.1
52
164.2
48
1 473
53
Foreign
13.5
62
100.4
54
64.2
48
178.2
52
1 291
47
Total
21.7
100
187.3
100
133.3
100
342.4
100
2 764
100
OTHER MANUFACTURING
Australian
60.3
73
283.6
72
299.1
75
643
73
4 461
75
Foreign
22.1
27
109
28
102.3
25
233.3
27
1 467
25
Total
82.4
100
392.6
100
401.3
100
876.3
100
5 927
100
TOTAL MANUFACTURING
Australian
130.8
64
489.2
54
500.1
54
1 120.2
55
7 947
56
Foreign
72.8
36
424.9
46
434.2
46
931.9
45
6 164
44
Total
203.6
100
914.2
100
934.3
100
2 052.1
100
14 111
100


For the wholesale and retail industries (see Table 4), foreign-owned businesses dominated R&D expenditure and human resources, spending $265m (75% of the industry total) and investing 1,681 person years (68% of the industry total). This domination of R&D expenditure was across the board, with capital expenditure, labour costs and other current expenditure at 74%, 72% and 79% respectively.

TABLE 4. TYPE OF R&D EXPENDITURE, WHOLESALE AND RETAIL INDUSTRIES, 1999-2000
Expenditure
Human Resources
Capital Expenditure
Labour Costs
Other Current Expenditure
Total
$m
%
$m
%
$m
%
$m
%
Person Years
%
Australian
9.7
26
46.9
28
30.3
21
87.0
25
794
32
Foreign
27.1
74
122.1
72
116.3
79
265.4
75
1 681
68
Total
36.8
100
169.0
100
146.6
100
352.4
100
2 475
100

For the property and business services industry, R&D indicators for businesses involved in scientific research have been compiled separately to assist analysis (see Tables 5 and 6). For businesses involved in the property and business services industry (but not scientific research), the proportion of total R&D expenditure by foreign-owned businesses was similar to the all industries total (45% and 42% respectively). In contrast, for businesses mainly involved in scientific research, the proportion of total R&D expenditure by foreign-owned businesses was relatively low (8%).

TABLE 5. TYPE OF R&D EXPENDITURE, PROPERTY & BUSINESS SERVICES INDUSTRY (EXCLUDING SCIENTIFIC RESEARCH), 1999-2000
Expenditure
Human Resources
Capital Expenditure
Labour Costs
Other Current Expenditure
Total
$m
%
$m
%
$m
%
$m
%
Person Years
%
Australian
24.5
58
243
56
125
51
392.5
55
3 658
63
Foreign
18
42
187.5
44
121.9
49
327.4
45
2 126
37
Total
42.5
100
430.5
100
246.9
100
719.9
100
5 784
100

TABLE 6. TYPE OF R&D EXPENDITURE, SCIENTIFIC RESEARCH INDUSTRY, 1999-2000
Expenditure
Human Resources
Capital Expenditure
Labour Costs
Other Current Expenditure
Total
$m
%
$m
%
$m
%
$m
%
Person Years
%
Australian n.p.
81.8
93
n.p.
192.5
92
1 203
93
Foreign n.p.
6.2
7
n.p.
17.6
8
86
7
Total
21.3
100
88.1
100
100.8
100
210.1
100
1 289
100
n.p. not published due to confidentiality

TABLE 7. TYPE OF R&D EXPENDITURE, OTHER INDUSTRIES N.E.C., 1999-2000
Expenditure
Human Resources
Capital Expenditure
Labour Costs
Other Current Expenditure
Total
$m
%
$m
%
$m
%
$m
%
Person Years
%
Australian n.p.
108
80
n.p.
386.8
88
1 342
79
Foreign n.p.
26.7
20
n.p.
51.4
12
359
21
Total
61.8
100
134.7
100
241.6
100
438.2
100
1 701
100
n.p. not published due to confidentiality


Table 8 presents R&D indicators by country of majority ownership and provides estimates for businesses’ source of R&D funds. The source of R&D funds has been aggregated into three main groups. Own Funds are the funds that are set aside by businesses for R&D as a normal part of their day-to-day activity, while Other Australian Funds are those funds sourced from other Australian-based businesses, Commonwealth government grants, other government funding and other funds. Overseas Funds are those funds that flow into Australia for R&D purposes.

TABLE 8. INDICATORS FOR R&D BY COUNTRY OF MAJORITY OWNERSHIP, 1999-2000
Source of Funds
Total Expenditure
Human Resources
Own Funds
Other Australian Funds
Overseas Funds
$m
%
$m
%
$m
%
$m
%
Person Years
%
Australian
2 062.5
58
259.6
84
32.8
17
2 354.9
58
15 362
59
USA
769.1
22
23.8
8
99.6
52
892.5
22
6 187
24
European Union
448.5
13
16.5
5
12.4
7
477.4
12
2 878
11
Other
265..9
7
9.3
3
45.3
24
320.5
8
1 682
6
Total
3 546.0
100
309.1
100
190.2
100
4 045.3
100
26 109
100

Table 8 shows that businesses with majority ownership from the USA had a total R&D expenditure of $893m (22% of total expenditure), more than the combined total for all other foreign-owned businesses. Most funding for businesses owned by major countries was sourced from funds generated from within the resident businesses. In contrast, the use of other Australian funds for R&D activity was dominated by Australian-owned businesses, while the use of overseas funds was dominated by foreign-owned businesses, mostly those with majority USA ownership. Businesses that were majority USA-owned used more than half of all funds that flowed into Australia for R&D purposes.

TABLE 9. INDICATORS FOR R&D BY SIZE OF BUSINESS
Total Expenditure
Human Resources
$m
%
Person Years
%
Small Businesses (employment 0-19)
Australian
289.5
7
2 731
10
Foreign
110.1
3
1 031
4
Total
399.6
10
3 762
14
Medium Businesses (employment 20-199)
Australian
869.9
22
6 880
26
Foreign
342
8
2 225
9
Total
1 212.0
30
9 105
35
Large Businesses (employment 200+)
Australian
1 195.5
30
5 751
22
Foreign
1 238.3
31
7 490
29
Total
2 433.8
60
13 242
51
Note: For confidentiality reasons it was necessary to combine some of the size categories used in Cat. no. 8104.0.


Large foreign-owned businesses (those with employment of 200 or more) had the same share of R&D expenditure and human resources, both approximately 30% (see Table 9). This close correspondence between R&D expenditure and human resources for foreign-owned businesses continued in the medium and small business size ranges. Conversely, while large Australian-owned businesses, with 30% of R&D expenditure, used only 22% of human resources, smaller Australian-owned businesses had a proportionately smaller share of R&D expenditure than human resources.


OTHER STUDIES

Several globalisation case studies were undertaken prior to this exercise3. They examined the foreign ownership characteristics of businesses in other areas of interest. The study of businesses in the mining industry in 1997-1998 showed that foreign-owned businesses made a larger contribution to industry turnover than Australian-owned businesses (56% and 43% respectively), but a lower contribution to industry employment (40% and 59% respectively) and capital expenditure (34% and 59% respectively). Foreign-owned and Australian-owned businesses contributed similar amounts to expenditure on wages and salaries by the mining industry (50% and 49%).

A study of the ownership of businesses undertaking capital expenditure for the 1998-1999 financial year showed the lower contribution of foreign-owned businesses to capital expenditure was not restricted to the mining industry, with the capital expenditure by foreign-owned businesses across all industries estimated at $11.5b (26%) and capital expenditure by Australian-owned businesses estimated at $27.9b (62%).

The study of the foreign ownership characteristics of information technology businesses in the 1998-1999 financial year showed a strong contribution by foreign-owned businesses. Foreign-owned businesses provided more employment than Australian-owned businesses (43% and 29% respectively) and gained higher total income (62% and 25% respectively). USA-owned businesses had the largest economic activity of foreign-owned businesses to the extent that they rivalled Australian businesses in terms of employment (26% and 29% respectively) and exceeded Australian-owned businesses in terms of income (32% and 25% respectively).

Further studies are underway to investigate the foreign ownership characteristics of information technology businesses in respect of the 2000-2001 financial year and to profile the characteristics and activities of importing and exporting businesses.


FURTHER INFORMATION

For more information about the foreign ownership of businesses undertaking R&D expenditure, contact Glen Malam on 02 6252 5040 or email glen.malam@abs.gov.au


ENDNOTES

1. Business are determined to be majority foreign-owned if more than 50% of their equity is held by foreigners.
2. hereafter the word ‘majority’ is omitted but it is implied.
3. Totals for previous studies did not all add to 100% because in those studies, ownership was not established or imputed for some businesses. See Appendix 1 for this study.


REFERENCES

Balance of Payments and International Investment Position, Australia (Cat. no. 5302.0)
Foreign Ownership Characteristics of Information Technology Businesses, published in Australian Economic Indicators (Cat. no. 1350.0), March 2002
Globalisation and Foreign Investment special article in Australian Mining Industry, 1998-1999 (Cat. no. 8414.0)
Manual on Economic Globalisation Indicators, OECD, Paris, in progress
Ownership Characteristics of Businesses Undertaking Capital Expenditure in Australia, 1998-1999, published in Australian Economic Indicators (Cat. no. 1350.0), July 2001
Research and Experimental Development, Businesses, Australia, 1999-2000 (Cat. no. 8104.0)
Research and Experimental Development, Businesses, Australia, 2000-2001 (Cat. no. 8104.0)
Research and Experimental Development, All Sector Summary, Australia, 1998-1999 (Cat. no. 8112.0)
The Measurement of Scientific and Technological Activities (‘Frascati Manual’ 1993) OECD, Paris, 1994



APPENDIX 1 BUSINESSES WITH UNKNOWN OWNERSHIP


When conducting this study, it was not possible to establish the country of ownership for a significant number of units (see Table A for their values). Detailed analysis of these unknown units showed that the overwhelming majority were either small or medium sized businesses. However, there were no reliable patterns of unknown business size or industry upon which assumptions of ownership could be based.
TABLE A. TOTAL R&D EXPENDITURE AND HUMAN RESOURCES DEVOTED TO R&D, 1999-2000
Expenditure
Human Resources
Capital Expenditure
Labour Costs
Other Current Expenditure
Total
$m
%
$m
%
$m
%
$m
%
Person Years
%
Australian204.552 765.9 43965.3521 935.74810.942
Foreign140.1 36 702.639711.6381 554.3389.336
Unknown49.3 13 328.218177.810555.4146.023
Total393.9 100 1 796.7 1001 854.71004 045.310026.1100


To create the data used in the main body of this paper, a country of ownership was imputed for each of the unknown units based on the ownership characteristics of similar businesses. All R&D units were stratified by size (large, medium and small businesses) and by fine industry detail. Within each stratum, the predominant country of ownership for known businesses was imputed as the country of ownership for any unknowns within that stratum.