This chapter below links innovation growth to productivity and emphasises the importance of how spending on innovation can improve productivity outcomes for firms. Innovation involves the transformation of new ideas into products or services and can be achieved through activities such as research and development, acquisition of external knowledge or through acquiring additional machinery and equipment. The data used in this chapter comes from the CSO Innovation in Irish Enterprises 2020. This publication focuses on innovation spending within the state and allows us to assist readers in explaining how investing in research and development can lead to more efficient production processes for companies and hence can improve productivity growth.
The Foreign and Domestic and Other classification has followed the CSO National Accounts classification, where Foreign-dominated refers to sectors where MNE turnover on average exceeds 85% of sector total, while Domestic and Other refers to all sectors not captured in the Foreign-dominated sectors. In this chapter, the classification of Irish (Domestic) and non-Irish (Foreign) follows the Business Statistics definition, which defines a Foreign enterprise as one where foreign control exceeds 50% and a domestic enterprise as one where foreign control is less than 50%.
| Category | Spending |
|---|---|
| In-house RD | 6081.003 |
| Purchase of External RD | 810.945 |
| Acquisition of machinery, equipment and software | 336.437 |
| All other innovation activities | 174.338 |
| Acquisition of other external knowledge | 31.582 |
Source publication: Innovation in Irish Enterprises 2020
Get the data: PxStat CIA87
Figure 6.1 shows the total expenditure on innovation activities in the economy in 2020. A total amount of €7.4bn was spent on innovation, mainly composed of spending on in-house R&D (€6bn). The purchase of external R&D amounted to €810 million which involves either the outright purchase or external contracting of R&D by enterprises. The remaining €542 million was spent across the categories of Other Innovation Activities and the Acquisition of External Knowledge, Machinery, Equipment, and Software.
| Category | Irish | Non-Irish |
|---|---|---|
| In-house RD | 1245.57 | 4835.433 |
| Purchase of External RD | 386.189 | 424.756 |
| Acquisition of machinery, equipment and software | 223.073 | 113.363 |
| All other innovation activities | 139.667 | 34.671 |
| Acquisition of other external knowledge | 14.211 | 17.371 |
Get the data: PxStat CIA87
The split of the types of innovation spending by Foreign and Domestic firms is shown in Figure 6.2. Across most categories, spending by Foreign firms exceeds that of Domestic firms, particularly in the Purchase of External R&D and In-house R&D. Of the €6bn spent of In-house R&D, €4.8 billion of this was spent by Foreign firms and €1.2 billion spent by Domestic companies. The Purchase of External R&D was more evenly distributed between Foreign and Domestic firms, accounting for €425 million and €386 million respectively. Domestic companies spent slightly more than Foreign companies on Other Innovation Activities and the Acquisition of Machinery and Software at 80% and 66% respectively.
| Category | Small | Medium | Large |
|---|---|---|---|
| In-house RD | 335.447 | 819.477 | 4926.079 |
| Purchase of External RD | 137.537 | 403.87 | 269.539 |
| Acquisition of machinery, equipment and software | 24.177 | 180.004 | 132.256 |
| All other innovation activities | 5.887 | 68.984 | 99.467 |
| Acquisition of other external knowledge | 0.782 | 4.769 | 26.03 |
Get the data: PxStat CIA87
A further split of spending on innovation activities by firm size is illustrated in chart 6.3. Unsurprisingly, given the large number of resources available to them, large companies spent the most on in-house R&D, amounting to €4.9bn in 2020. Medium-sized companies spent €819 million on this category, followed closely by small companies at €335 million.
Looking at Purchase of External R&D medium-sized companies spent €403 million. Medium-sized companies also spent the most on the Acquisition of Machinery & Software at €180 million. Moreover, small companies account for 7% (€503 million) of the total spend on all innovation activities, with in-house R&D being the largest category.
Increasing digitalisation can play a role in improving productivity outcomes for firms. Factors such as lack of broadband or lack of internet usage can hamper the performance of companies by reducing the potential to enhance productivity growth. This subsection draws on the CSO publication: Information Society 2020 and gives readers an insight into the digital usage of many sectors of the economy.
| Table 6.1: Digitalisation Indicators - 2020 | |||
| % of enterprises with e-Commerce sales | % of enterprises with e-Commerce purchase | % of Enterprises using broadband | |
| Industry excl. Construction | 46.8 | 55 | 98.9 |
| Construction | 14.6 | 47.9 | 98.1 |
| Dist, Trans, Hotels & Restaurants | 44.8 | 48.8 | 94.1 |
| Information and Communications | 36.1 | 62.3 | 98.9 |
| Real Estate | 22.8 | 44.2 | 100 |
| Professional, Admin and Support Services | 27.5 | 53.5 | 98 |
Table 6.1 presents information on e-commerce and broadband usage across the main sectors of the economy in 2020. The picture for broadband usage is more complete than e-commerce and in particular for e-commerce sales. The benefits are apparent for sectors such as Wholesale & Retail trade rather than Construction and this is reflected in the responses reported above for the survey.
| Table 6.2: Company Website Indicators - 2020 | ||||||
| Have a website or homepage (%) | Providing links or references to the enterprise's social media profiles (%) | Facilitating access to online ordering or reservations (%) | Personalised content on the website for regular/repeat visitors (%) | Tracking/status of orders placed (%) | Possibility for visitors to customise or design online goods or services (%) | |
| Industry excl. Construction | 87 | 49 | 18 | 6 | 7 | 8 |
| Construction | 73 | 27 | 2 | 6 | * | 0 |
| Dist, Trans, Hotels & Restaurants | 69 | 53 | 37 | 11 | 17 | 12 |
| Information and Communications | 92 | 69 | 21 | 20 | 12 | 13 |
| Real Estate | 84 | 48 | 18 | 9 | 6 | 4 |
| Professional, Admin and Support Services | 81 | 47 | 9 | 10 | 1 | 5 |
| * Confidential | ||||||
A range of additional digitalisation indicators are provided in Table 6.2. At least 70% of enterprises in the industries shown have a website or homepage. The survey results show that the features of a large proportion of these websites are quite limited. indicating potential for many enterprises to improve their digital offering.
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