KPMG\'s Innovation Monitor 2012

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This report focuses on Irish industry’s opinion of the current innovation environment, delivering insights into key business issues such as the impact of the recession on Irish innovation, financing ...

This report focuses on Irish industry’s opinion of the current innovation environment, delivering insights into key business issues such as the impact of the recession on Irish innovation, financing innovation, and relevant incentives.

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KPMG\'s Innovation Monitor 2012 KPMG\'s Innovation Monitor 2012 Document Transcript

  • Innovation Monitor 2012Insights into Innovation & R&D in Ireland kpmg.ie
  • ContentsExecutive summary 4Putting the survey in context 6Methodology & demographics 8Survey findings & analysis 10Conclusions & recommendations 24About KPMG 25Endnotes 26
  • ForewordWhere innovation thrives jobs follow. Around the world, countriesand cities which promote and encourage innovation do so becausethey know that it confers clear benefits in terms of employment andeconomic development. Some locations have become bywords forinnovation – Silicon Valley for example stands out as a location wherecreativity and entrepreneurship thrive.The good news is that Ireland is building its own reputation In particular, we need to know what is working and whatas an innovation hub in this highly competitive space. needs improvement or greater focus. The areas coveredFor example, Forbes magazine recently rated Dublin in the report range from business attitudes, incentivesas one of the seven best cities in the world to start a (including tax incentives and R&D tax credits) andbusiness. The recent Global Entrepreneurship Monitor linkages to our universities and related innovation centres.(GEM) report shows levels of entrepreneurship in Ireland Importantly - we also need to know when something isn’toften significantly higher than in many of our European working or needs improvement so that we can moveneighbours and events such as The Dublin Web Summit quickly to remedy or improve the situation.help reinforce Ireland’s reputation as a place where thebusiness of innovation gets done. Despite the immense challenges facing Irish business, we believe it vital that companies of every size take theHowever the world doesn’t stand still. The intense time to see how they can be more innovative. Whilst thiscompetition for innovation focussed capital and labour is often easier said than done the benefits are significantmeans that Ireland must constantly review our approach – particularly reducing costs, accessing incentives andto innovation. With this in mind, KPMG’s R&D Incentives financial support for research and development and makingPractice has produced Innovation Monitor 2012. Carried products and services more attractive to potential buyers.out by RedC Research, we hope it will become an annualreview of Irish business attitudes towards innovationand related issues. In doing so, it should help business,government, academia and indeed all stakeholders inIreland’s economic future understand some of the keydrivers in this vital area. Terence O’Rourke Managing Partner, KPMG in Ireland I N N O VAT I O N M O N I T O R | 3
  • ExecutivesummaryThe Irish Government’s Strategy for Science, Technology and Innovation2006-2013 set out a vision to guide policies in the areas of research,development and innovation: “Ireland by 2013 will be internationallyrenowned for the excellence of its research, and will be to the forefront ingenerating and using knowledge for economic and social progress, withinan innovation driven culture”1 As 2013 fast approaches, KPMG’s R&D .Incentives Practice was interested in establishing how close we are toachieving this vision, particularly from the perspective of Irish business.KPMG’s Innovation Monitor 2012 is based on data The findings of Innovation Monitor 2012 are outlined underprepared by RedC Research from a representative sample the following headings:of Irish business in autumn 2012. This unique piece ofresearch reflects Irish industry’s opinion of the current How are we doing? Irish innovationinnovation environment, both macro and micro, and our Two-thirds of our respondents feel the recession has madeannual research will enable us to monitor opinion as Ireland us more innovative. More than four in five businessessteers towards national economic recovery. think Ireland is either more innovative or the same as otherOne of the most striking revelations to come from countries. As positive as these results are, we don’t seemthe research is the disparity in views on innovation to give ourselves much credit on the global scale – onlybetween large and small businesses in Ireland. While 5% of our respondents think Ireland is the most innovation-large companies on the whole are more positive about friendly country in the world; the USA came in first placeIreland’s performance and optimistic for the future, smaller among 33% of respondents.companies are more apprehensive. With limited financialresources and little access to credit, small companies are Room for improvement?faced with challenging questions – to maintain the status More than half of our respondents feel that thequo and risk their competitiveness, or to pour their already Government isn’t yet doing enough to nurture andlimited resources into uncertain innovation projects. While help innovation in Irish business. The majority of thoseincentives exist to take away some of the financial risk respondents feel that more financial incentives areassociated with innovation, our research shows that small needed; in fact, four of the top five suggestions relatecompanies find it more difficult to take advantage of them. to finance. Cutting red tape, easing the administrative burden on claiming the R&D tax credit and R&D grants, and encouraging banks to lend were some of the more common responses received.4 | I N N O V AT I O N M O N I T O R
  • The innovators – who’s doing it and why The measure of successWhen it comes to making the decision to innovate, the When it comes to measuring the success of an innovationmost influential factor is the availability of qualified in-house project, more than half of businesses use revenue growthpersonnel, according to almost three in five respondents. as a key metric. This was a common answer across small,This is by far the most influential factor among large medium and large companies. Market share and project-companies. Small and medium businesses, on the other dedicated return on investment were listed second andhand, give almost as much weight to the availability of third respectively, with only 5% of respondents listinggrant funding as qualified personnel. Two in three Irish patents, a traditional metric for measurement of success.businesses describe themselves as currently innovative,though small companies are more than twice as likely to be We hope you find the survey results insightful; weplanning innovation projects as currently undertaking them. welcome feedback on the findings and your suggestions for Innovation Monitor 2013.Financing innovation –the R&D tax credit and grantsFinancing is the most significant factor in the successfulinnovation process, with nearly 90% of Irish businessesfeeling it is important. Large companies are more likelyto be receiving grants and claiming the R&D tax creditthan small companies. Rather worryingly, only one in fivecompanies thinks there is sufficient information available onR&D and innovation funding. Anecdotal evidence suggeststhat a significant number of companies are still unclear asto the meaning of the R&D tax credit guidelines and as aresult miss out on a potential claim. This has been reflectedin our research, which has found that approximately 28%of those that don’t claim the credit could probably do so. “Two in threeCollaboration for innovation Irish businessesMore than half of all businesses feel there isn’t enoughinformation available for those wanting to collaborate with describe themselves asacademic partners on an innovation project. Thus, lessthan one in six companies is currently doing so. Large currently innovative”companies are more than twice as likely to collaborate onan innovation project as a small company, most likely dueto the time and resources required to locate a partner andmanage the relationship. I N N O VAT I O N M O N I T O R | 5
  • Putting the survey in context KPMG’s Innovation Monitor 2012 has been designed to addresssome of the key elements of innovation in Irish business and how it isfinanced. The following facts may help place this research in context:Ireland’s performance Business expenditure on R&Du Ireland ranks ninth out of a total of 141 countries in the  According to the most recent figures available from Forfás, 2012 Global Innovation Index, up four places from 2011.2 Irish businesses are continuing to invest in R&D in spite of recession as they continue to see the importance ofu According to the Innovation Union Scoreboard 2011,  bringing new and innovative ideas to the marketplace. It Ireland scores above the EU average for innovation is also notable that while investment by foreign affiliates performance, with relative strengths listed as: human dropped slightly between 2009 and 2010, indigenous resources; open, excellent and attractive research companies have actually increased their level of expenditure systems; and economic effects. The relative weaknesses (e583m in 2010, up 3.6% from 2009), a positive sign for the are: finance and support; linkages and entrepreneurship; future. Overall, business expenditure on R&D increased from intellectual assets; and innovators.3 e1.33bn in 2005 to e1.87bn in 2009,u Seventeen Irish companies are listed in the 2011 EU  a 31% increase in real terms.6 Industrial R&D Investment Scoreboard, a list of the top The R&D tax credit 1000 companies investing the largest sums in R&D in 2010.4 The research and development (R&D) tax credit was first introduced by the Finance Act 2004. It provides that anyu As part of Europe 2020, the EU’s growth strategy for  qualified company (or group of companies) with qualifying a smart, sustainable and inclusive economy, Ireland R&D activities is entitled to a tax credit valued at 25% of the has committed to raising its combined public and expenditure incurred on these activities, in any given year, private investment levels in R&D to 2.5% of GNP (2% to the extent that it is incremental to expenditure on R&D of GDP). The latest available data shows the research activities in 2003 (the “base year”). intensity rate for 2010 at 2.16% of GNP (1.77% of GDP), unchanged from the 2009 figure.5 Figures released by the Department of Finance in June 2012 show a 101% increase in the number of companies claiming the R&D tax credit between 2008 and 2010, from 582 to 1,172. The level of incremental investment (i.e. above the 2003 base year) in R&D increased by 14% over the two years, from e729m in 2008 to e832m in 20107; this is a particularly impressive achievement considering the turbulent economic environment of that period.6 | I N N O V AT I O N M O N I T O R
  • “Ireland ranks ninth out of 141 countries in the 2012 Global Innovation Index” I N N O VAT I O N M O N I T O R | 7
  • Methodology & demographics Methodology The research for KPMG’s Innovation Monitor 2012 was conducted by RedC Research across a representative sample of Irish business. u  telephone interviews were conducted in August and 200 September 2012. u  survey was conducted among businesses with at least 10 TheHow Is Value Of Innovation Measured? employees; quotas were placed on company size to ensure a nationally representative sample. Interviews were conducted with the Finance Director or a similar u  director/partner in the company with responsibility for finance. Analysis of sample Location of Company size Turnover head office (no of employees) €50m+ 11% Large 25% (100+) €10m-€50m 22% Medium 25% €5m-€10m (50-99) 16% Ireland 87% €1m-€5m 34% Small 50% (10-49) €0-€1m 11% Rest of EU 5% Rest of Europe 2% Rather not say 6% North America Rest of World 5% 1% (Base: All Businesses – 200) 8 | I N N O V AT I O N M O N I T O R
  • I N N O VAT I O N M O N I T O R | 9
  • Survey findings & 48 analysisHOW ARE WE DOING? IRISH INNOVATIONIn 2008, as recession was taking hold of the Irish economy, the Irish Government published a fiveyear plan: Building Ireland’s Smart Economy – A Framework for Sustainable Economic Renewal.Stressing the importance of innovation to Ireland’s recovery, the report stated that “general nationalwelfare is highly dependent on the ability of a country to foster innovation and use that as a wealthbuilding platform”8. Four very challenging years later, how well is Ireland fostering innovation?The impact of the recession The recession has made Irish companies:According to our research, almost two in three businesses feel that the recessionhas made Irish companies more innovative (63%). Their perspectives are basedon fact – according to Forfás, Irish businesses spent around 31% more on R&D inreal terms in 2009 (the most recent confirmed figures available) than they did in2005. The estimates for 2010 show a slight decline of 1.9% on 2009 expenditure,though confirmed figures were unavailable at the time of publication.9What is of particular interest is that large companies seem to be the most 63 %positive about the impact of the recession on innovation – only 6% feel we’reless innovative because of the recession, compared to 16% of small companies. More innovativeThis is a theme throughout this research, highlighting a difference between theoptimism of large companies and the deep concerns of smaller businesses.“ lmost two in three A The same 23 % businesses feel that the recession has made Irish companies more innovative” Less innovative 14 % NET +49 (Base: All Businesses – 200)10 | I N N O V AT I O N M O N I T O R
  • How does Ireland compare? Relative to other countries, Irish companies are:The positivity continues when we asked how Irishbusiness thinks we compare to our internationalcompetitors in terms of innovation. Despite the recession,over 80% of Irish businesses feel Ireland is either moreinnovative or the same as other countries. 29 %Once again, large companies seem to be the mostpositive, with only 12% feeling Ireland is less innovative More innovativethan others, compared to 23% of small companies. The same 52%“ ore than four in M five businesses feel Ireland is either more innovative or the same as other countries” Less innovative 19 % NET +10 How Is Value Of Innovation Measured? (Base: All Businesses – 200) I N N O VAT I O N M O N I T O R | 11
  • Who’s getting it right?While in a general sense our originated from the US, and of therespondents are quite confident of €700m invested in R&D projects, Others mentioned – each 1%Ireland’s place in the world, when it €500m of it originated in US firms.11comes to naming the most innovation- Perhaps even more influential, though,friendly country in the world only 5% of is the brand the USA has successfully Australiarespondents named Ireland. One in three built around innovation – technology(33%) Irish businesses feel that the USA Canada companies like Apple, Microsoft, Googleis the most innovation-friendly country in and Facebook have become householdthe world. Germany was listed in second names, as have the names of their Denmark(13%), followed closely by China (12%). innovative founders. In a global KPMG FranceInterestingly, Ireland actually ranks survey examining technology innovation,higher than the USA, Germany and China American citizens accounted for seven Hollandin the Global Innovation Index 2012, of the top eight “emerging innovationcoming ninth ahead of their respective visionaries”12. Indiapositions of 10th, 15th and 34th10. It is Singapore 7 What has become apparent is that whilehardly surprising that the USA featuresso prominently in the minds of our % Irish businesses are positive about Ireland’s innovation performance, when Switzerlandrespondents, considering Ireland’s it comes to pitting the country againstbusiness relationship with the American international competitors we simplymarket: in 2011, three out of every four don’t give ourselves enough credit.FDI projects coming to IrelandThe most innovation-friendly country in the world is: USA 33% Germany 13 % China 12 %Republic of Ireland 5% United Kingdom 4% Japan 4% Sweden 2% South Korea 2% Others 8% Don’t know 17 % NET Europe 28% 0 5 10 15 20 25 30 35 (Base: All Businesses – 200) (Base: All Who Agree That The Government Is Not Doing Enough To Support Innovation – 110)12 | I N N O V AT I O N M O N I T O R
  • “ rish businesses think I the USA is the most innovation-friendly country in the world” I N N O VAT I O N M O N I T O R | 13
  • ROOM FOR IMPROVEMENT?Innovation and the Irish Government The Irish Government is not doing enough to help and nurture innovation in Irish companiesRecently the Minister for Jobs, Enterprise and Innovationinformed the Dáil that the Government “is focusedon economic recovery by delivering improvements incompetitiveness, ensuring companies have access to the 35 %finance they need to grow and by prioritising innovation asa key driver of success which will lead to jobs and export Agree stronglygrowth.”13 } NETThe fact that governments worldwide embrace the principlesof innovation is not surprising. The aura of progressivemodernity has great appeal and it is unlikely that being anti- 55% 55 % agreeinnovation sits well in any manifesto. However, there is oftena gap between what governments aspire to and how their Agree slightly 20 %actions are perceived by business and other stakeholders.This is particularly the case as governments worldwidegrapple with spending constraints; in Ireland it appears no 26 %different. NeitherWhen asked to rate the work being done by Government tohelp and nuture innovation in Irish companies, more than half } 19of Irish businesses (55%) believe that the Irish Government NETcould do more. This was strongly felt by small and mediumenterprises in particular (57% and 60% respectively, Disagree slightly 14 % disagree %compared to 46% of large companies). Disagree strongly 5% 19%“ he Government needs T More innovative The same Less innovative to do more to help and (Base: All Businesses – 200) nurture innovation” How Is Value Of Innovation Measured? (Base: All Businesses – 200)14 | I N N O V AT I O N M O N I T O R
  • What more can be done? Of those that think the Government could do more, almost half (45%) said they would like to see more financial incentives – this was given as the top answer by small, medium and large companies. Rather unsurprisingly in a time of recession, four of the top 5 answers relate to finance. The following are some of the suggestions put forward by our respondents: “Assistance with grant aid – try to free up some finance. It’s exceptionally difficult to get financing these days.” u  “Make it easier to claim the R&D tax credit – the administrative burden on claiming is very high.” u  “They need to take note of the fact that smaller companies need help.” u  “Provide access to experts in fields of developing products.” u  7% “Just handing out money doesn’t create innovation. They should support new product planning and mentoring.” u  What would you like to see the Government do more of to support innovation in Irish companies?* More financial incentives/grants 45 % Address taxation issues 26 % Training and employment programmes 18 % More regulation of banks/ more support from banks 15 % Support the economy 15 % Less red tape 11 % More communication with businesses 6% Focus on domestic industry 5% Other 2% Don’t know 7% 0 10 20 30 40 50 *Respondents were invited to give one answer To Support Innovation – 110) (Base: All Who Agree That The Government Is Not Doing Enough or more.asured? (Base: All who agree that the government is not doing enough to support innovation – 110) I N N O VAT I O N M O N I T O R | 15
  • THE INNOVATORS – WHO’S DOING IT AND WHYInnovation: a significant improvement of a good or service, or of a production or delivery method.14Deciding to innovateWhen it comes to a company making the remuneration tax free via the R&D annum, yet an average employee workingdecision to innovate, the most influential tax credit scheme. While the idea of in R&D earns approximately €45,000factor is the availability of qualified in- rewarding the people that actually do the – €55,000 per annum.15 In practice,house personnel (58%); this is particularly innovating is to be welcomed, particularly therefore, it seems the scheme can onlytrue for large companies, with two in if it helps companies attract and retain be of benefit to the most senior R&D staffthree (66%) listing it as a key influence. them, in practice the scheme is not in larger companies. particularly effective.It’s unsurprising that the requirement While the survey shows availability offor sufficiently qualified people in-house As a company has to be tax paying to avail qualified personnel was also of highis a key influencer when it comes to of the reward mechanism and the key importance to SMEs, equally importantsomething as intangible as innovation; employees cannot be directors or have was grant funding – 56% and 54% ofafter all it is people that innovate, not a material interest in the company, this small and medium companies respectivelycompanies. This is one of the key reasons measure is likely to have greater relevance said so. This supports the theme runningthat the Government introduced the “key for multinationals rather than SMEs. throughout our research – SMEs needemployee” reward mechanism in Budget Furthermore, investigations have shown more funding if they are to innovate.2012, whereby key employees who that to benefit from the mechanism an With public finances already stretched,have been involved in R&D activities can employee would have to be earning a companies must look at alternativeeffectively receive part of their salary of approximately €70,000 per options to fund their innovation.To what degree would each of the following influence your company’s decision to invest in innovation projects? Availability of qualified in-house personnel Grant fundingMajor influence 5 26 % R&D Availability of a tax credit collaborative partner 31% Venture capital 14% 20 % funding 4 32 % 16 % 22% 25 % 17 % 15 % 3 27 % 21 % 22% 25 % 21 % 2 6% 9% 12 % 11 % 15 % No influence 1 9% 17 % 27% 27 % 33 % (Base: All Businesses – 200)16 | I N N O V AT I O N M O N I T O R
  • Innovation Incidence – Irish BusinessesWho’s innovating?More than four in five (82%) Irish businesses are either 18%currently innovative or are planning to be so in the near future.The larger the company, the more likely it is to be currentlyinnovative or planning to be so in the near future.Interestingly, small firms are more than twice as likely to beplanning innovative projects as to be currently undertaking 17%them. While on the surface this could suggest that a waveof innovation among small firms could be on the horizon,planning to innovate and actually innovating are two verydifferent things. As our research shows, there are a number 65%of factors influencing a company’s decision to innovate –finance and qualified staff being top of the list. For smallercompanies who are already preoccupied with accessingcredit and dealing with resource constraints, it’s likely that asignificant number of innovation projects are being placed onthe back burner until the pressures of the recession ease. Currently innovativeAs the European Commissioner for Research, Innovation Planning to innovateand Science, Máire Geoghegan-Quinn, wrote in The IrishTimes in June 2012, “either we innovate or die”16. A major Not innovative/ not planning to innovateconcern should be that companies that are already strugglingto survive, with too few resources to put innovation plans intopractice, will fall behind in the innovation race and becomeless competitive as a result. (Base: All Businesses – 200) (Base: All Businesses – 200) “Small businesses are more than twice as likely to be planning to innovate as to be currently innovating” I N N O VAT I O N M O N I T O R | 17
  • FINANCING INNOVATION – GRANTS AND THE R&D TAX CREDITAccess to funding Importance of acess to funding for successful completion of innovation projectsTwo in three companies (65%) feel thataccess to funding is “very important” tothe successful completion of an innovationproject, with an additional 22% viewingit as “somewhat important”. Keeping inline with our earlier results, the smaller thecompany the more importance it placeson access to funding – 92% of smallcompanies deem it important. Very important 65 % Somewhat important 22 % } NET important 87% A little important 8% Not at all important 5% (Base: All Businesses – 200) Incidence of Having Collaborated On An innovative The same Less Innovation Project With AcaR&D grants Has your company ever received a grant to 22% 16% conduct an R&D/innovation project? – 200) (Base: All BusinessesWe’ve seen that the availability of grants 17% amongis a key concern for Irish businesses those thatconsidering innovation projects. are currentlySecuring R&D grant funding is difficult, innovative (65%as suggested by the fact that only 15% of total base)of businesses have received a grant for 18% amongan R&D/innovation project. Of those that How Is Value Of Innovation Measured? those who areare currently innovative (65%), only 17% 15% currently innovativehave received a grant. 84%Large companies are almost three 78%times as likely to have received a grant 85%for their innovation projects as smallcompanies (28% vs. 10%). No No Yes Yes Company Size Yes Small Medium Large Yes % No 10 12 28 (Base: All Businesses – 200)18 | I N N O V AT I O N M O N I T O R (Base: All Businesses – 200)
  • Getting the right information How would you rate the availability of information on R&D and innovation funding, including grants and tax incentivesWhen asked to rate the availability of (on a scale of 1 – 5)?information relating to R&D and innovation 8% }funding, including R&D grants and R&D A lot of information 5tax credits, 42% of companies feel there NETis not enough information available. 4 12 % positive ratingOnly one in five (20%) gave a positive 20%rating. These trends are fairly equal acrossall company sizes.Regardless of whether a company is 3 30 %eligible for an R&D tax credit or an R&Dgrant or not, the ability to get informedone way or the other is essential tothe successful implementation of such 19% }programmes. There is little point putting 2innovation incentives in place if companies NETdon’t know what they are or how to negativequalify. rating 42% No information 1 23 % Don’t know 8% (Base: All Businesses – 200) How Is Value Of Innovation Measured? “Only one in five companies think there is sufficient information available on R&D and innovation funding” I N N O VAT I O N M O N I T O R | 19
  • The R&D tax creditThe R&D tax credit gives companies the Has your company claimed the R&D tax credit sinceopportunity to claim 25% of their R&D its introduction in 2004?expenditure as cash or a tax credit to 22% 16%reduce their corporation tax liability17.Yetonly one in six companies (16%) takesadvantage of this incentive. 16%Who’s claiming the R&D tax credit?Small companies are least likely to claim the credit –almost twice as many large companies have claimed 84%as small companies. This is consistent with findingsin previous KPMG surveys into the R&D tax credit 78%regime, Take a Closer Look, from 2009 to 201118. The2011 Tax Strategy Group papers, recently released bythe Department of Finance, also noted the low rate 84%of claims among smaller companies, stating: “WhileIreland’sNo tax credit regime is well understood by R&D Nolarger scale enterprises with significant in-house R&D Yesresources, take up among smaller companies continues Yesto be low”.19 No NoAt first glance this would appear somewhatcontradictory – 87% of small companies believe access Yes Yes Company Size Small Medium Largeto finance is important to the successful completion ofan innovation project, yet only 16% of them are claiming Yes % 14 10 26the R&D tax credit. However, when we explore thereasons given for not claiming the R&D tax credit, thepicture becomes a little clearer. (Base: All Businesses – 200)Claiming for outsourced Claimed the R&D tax credit for outsourced R&D activitiesR&D activities 22% 16%Of those that have claimed the R&D tax credit,just over one in five (22%) of them have claimedfor outsourced R&D activities. For claims prior 22% 16%to the 1st of January 2012, companies werelimited in how much of their outsourced R&Dthey could include in their R&D tax credit claim– 10% of the company’s overall R&D spend forwork outsourced to a third party; 5% to a third 84%level institution. Changes introduced in FinanceAct 2012 have enabled companies to claim 78%the greater of these current percentage limits 84%or E100,000, improving the potential benefitfor small companies in particular, who tend to 78%outsource a significant amount of R&D. It will be No Nointeresting to compare this result in the future Yes Yesonce the new rules are applied. No No Yes Yes (Base: All who have ever claimed R&D tax credit – 32*)20 | I N N O V AT I O N M O N I T O R
  • If they aren’t claiming, why not? 46% of those that haven’t claimed Companies with little or no corporation 2011/12, a KPMG study of the R&D the credit advised that they were not tax liability can in fact receive the tax credit regime in Ireland, 63% of conducting R&D – yet 62% of these credit as a cash refund, subject to respondents felt that Government should companies are currently innovative! certain conditions. Another respondent provide more guidance and support for As qualifying R&D is frequently found noted they weren’t a manufacturing companies wishing to claim the R&D tax in product and process innovation, this company, “so it wouldn’t suit”. While credit. Furthermore, 48% of companies could imply that up to 28% of those that qualifying R&D is frequently found in the said they would give the credit more haven’t claimed the credit could in fact manufacturing sector, it is also found in consideration if there was greater do so.20 other sectors, for example, software, certainty of a claim being accepted engineering, agribusiness, financial by Revenue.21 This reinforces the Similarly, almost a quarter (23%) of services and biotechnology, and in a importance of the recently announced respondents that haven’t claimed the wide variety of activities. We always innitiative under the Governments 2012 credit advised that they were not eligible recommend that companies check Action Plan for Jobs, which aims to or that it wasn’t relevant. When we their eligibility with an R&D tax credit attract more companies to avail of the examined the responses, it seems that specialist before making any decisions R&D tax credit for the first time22. This is companies are still unclear about the on whether or not to claim. far too valuable an incentive to be left to credit. For example, one respondent stated “we haven’t had any corporation tax liability for three or four years”. Earlier KPMG surveys have told a similar story. According to Take a Closer Look 7 chance, and, as our Take a Closer Look % survey highlighted, more certainty is likely to lead to increased investment in R&D by Irish companies. Reasons for not claiming R&D tax credit*: Not conducting R&D 46% Not eligible/ not relevant 23 % Do not know/ understand application procedures 14 % Have not heard of R&D Tax Credit 7% Too busy with other activities 4% Too much effort required to claim 4% Outsource R&D to a third party 2% Large base year for R&D Tax Credit purposes 1% Don’t know 8% 0 10 20 30 40 50 *Respondents were invited to give one answer or Support Innovation – 110) (Base: All Who Agree That The Government Is Not Doing Enough To more.n Measured? (Base: All Businesses – 200) I N N O VAT I O N M O N I T O R | 21
  • COLLABORATION FOR INNOVATIONCollaborating with academia Has your company ever collaborated on an 22% innovation project with an academic partner? 16%Collaboration between industry and academia is 18% amongessential in bridging the gap between innovation those thatand commercialisation, a topic at the forefront of are currentlyGovernment’s innovation strategy.23 Yet less than one innovating (65% of the total base)in six companies (16%) has collaborated with a partnersuch as a Centre for Science and Engineering Technologyor an Applied Research Centre on an innovation project –18% among those who are currently innovative.Ireland’s lack of collaboration was highlighted as one of 84% 84% 16%our key areas for improvement was collaboration. 78%Large companies are more than twice as likely tocollaborate as a small company (29% vs. 13%). This ismost likely due to the fact that finding a collaborationpartner and successfully managing the relationship takestime andNoresources, something small firms often have in No Yesshort supply. Yes No Company Size Small Medium Large No Yes Yes Yes % 13 16 29 (Base: All Businesses – 200)Where to go to collaborate? How would you rate the availability of information on collaboration with an academic partner on an innovation project 4% }Furthermore, the perception is that there simply isn’t (onlotscale of 1 – 5)? A a of information 5 4% 8%enough information available for companies wanting A lot of information 5 NETto collaborate with universities on innovation projects positive(knowing who to approach, which university would bemost suitable, etc). More than half of all businesses 4 4 8% NET rating positive 12% rating 26 %(52%) feel that there isn’t enough information – thisapplies across the board to small, medium and large 12%companies. This has a great impact on levels ofinnovation when considering the fact that almost 40% 3 26 %of companies say that the availability of a collaborative 3partner has an influence on their decision to innovate.24The links between academia and industry are clearly not 25%as strong as they could be. Fostering open innovationand collaboration between academia and industry 2 25% }requires two-way communication and education – if 2 NETcompanies don’t know where to go to find the relevant negative NET ratinginformation, they need to be informed. This issue is negativecurrently being championed by many of the academic 27% 52% rating 27%bodies across the country, so it will be interesting to see No information 1 52%if there is any improvement in next year’s results. No information 1 Don’t know 10 % Don’t know 10 % (Base: All Businesses – 200)22 | I N N O V AT I O N M O N I T O R
  • THE MEASURE OF SUCCESSMeasuring the value of innovationMore than half (56%) of Irish businesses use revenue growthto measure the value of innovation – this was the mostimportant metric for small, medium and large businesses.Market share was listed second, followed closely by project-dedicated return on investment. Only 5% of respondentslisted the number of patents as a metric. These results areconsistent with KPMG’s Mobilizing Innovation Survey 2012,a study of 668 global technology leaders.25Market share is significantly more important to largebusinesses than small businesses, with 38% of largecompanies listing it as a key metric compared to 21% ofsmall companies.How would your company measure the value of innovation to the business?* 56% 27% 25% 7% 5% Revenue growth Market share Project dedicated Don’t know Number of patents return-on-investment calculations (Base: All Businesses – 200)*Respondents were invited to give one answer or more. “Revenue growth is the most important metric in measuring the success of innovation” I N N O VAT I O N M O N I T O R | 23
  • Conclusions & recommendationsA healthy environment in which innovation can flourish is a vital component in economic recovery.This was recognised in the Irish Government’s Action Plan for Jobs, published in February 2012,which outlined the importance of industry innovation to Ireland’s international competitiveness.26In order to achieve the Government’s goal of “an innovation driven culture”27, we must understandnot only what is working, but also what needs improvement. It is hoped this research will help Irishbusiness, Government and key stakeholders understand the primary drivers of innovation and thekey focus points for improvement.Throughout this research, finance is consistently mentioned guidelines for the R&D tax credit; we suggest that this beas one of the key drivers of innovation, in particular by smaller incorporated into the Government’s Action Plan for Jobscompanies. A frequently underutilised source of finance for initiative mentioned above.innovation is the R&D tax credit, an incentive that can enablecompanies to receive up to 25% of their R&D costs back as a u  research found that a key driver of innovation among Ourtax credit or, in some cases, cash. Yet, for a variety of reasons, Irish business is the availability of qualified in-housethe incentive is consistently underutilised by companies. This personnel to undertake the innovative activities. Yet theis currently being addressed by the Government as part of the “key employee” reward mechanism element of theAction Plan for Jobs, with Enterprise Ireland and IDA Ireland R&D tax credit regime, introduced in Finance Act 2012,undertaking a project to attract 100 companies to avail of seems overly restrictive in its current state. We wouldthe R&D tax credit regime for the first time.28 The following urge the Government to revise the criteria for availing ofrecommendations relating to the R&D tax credit regime may the mechanism to make it applicable to a wider range ofhelp guide this initiative: companies and their key R&D employees.u key finding of our research was the fact that small A Collaboration between industry and academia is vital to u  companies are significantly more likely to be planning improving the success of innovation within Irish businesses, innovation as opposed to being currently engaged in as well as improving Ireland’s innovation culture overall. innovation. The challenge for Government is to encourage While agencies such as Enterprise Ireland, ISIN, and these companies to take the leap from planning to doing. IRDG are available to help companies source collaboration One way in which this could be done is to implement an partners, it is essential to ensure this is communicated SME-specific R&D tax credit regime. As small companies effectively to all companies, large and small. It is vital that are much less likely to claim the R&D tax credit in its current smaller businesses, which generally don’t have the resources form, a scheme tailored for SMEs, similar in approach to available to large companies, see collaboration as a viable other countries, could remedy this. route to innovation. Since its creation in 2004, the R&D tax credit has certainlyu  u  an increasingly globalised economy, Ireland most certainly In helped to increase investment in R&D in Ireland. However, holds its own in terms of R&D and innovation, featuring a lot more needs to be done to increase awareness of consistently high on European and international scoreboards the incentive and to encourage increased uptake. While for innovation performance. While we recognise the severe companies seem to be more aware of the regime than in constraints on expenditure and the need for the exchequer previous years, a large number still see their innovation to ensure value for money, innovation must be prioritised activities as outside the realm of Revenue’s definition of if we are to compete successfully. We therefore urge R&D and thus miss out on a potentially vital financial benefit. Government to continue to review the innovation incentives We recommend a communications initiative to ensure available to ensure they are fit for purpose to meet the companies are fully briefed on the criteria and Revenue changing needs of Irish business.24 | I N N O V AT I O N M O N I T O R
  • About KPMGKPMG provides a wide range of audit, tax and advisory services and we are proud of our strongassociation with many of Ireland’s most innovative businesses. With a global network andconveniently located offices in Dublin, Belfast, Cork and Galway, we work with a wide range ofcompanies from leading multinationals to dynamic Irish owned operations. Whilst they may differin scale and sector they all have one thing in common – namely an ambition to succeed in an oftenhugely challenging environment. To help and support these ambitions, we have a long term commitment to supporting innovation and sharing our knowledge and insight based on our experiences not just here in Ireland but around the world. We produce a wide range of global thought leadership publications including the recently published Mobilizing Innovation which provides an in-depth analysis of current developments in technology and innovation worldwide. Here in Ireland, we are proud to support events such as the Dublin Web Summit, IT@Cork and Archipelago, to name just some of the innovation-led initiatives that we are involved in. Importantly, we also support our clients in ensuring that they can make informed decisions about the business issues that matter most. Of particular note are our services in the area of R&D incentives. Our R&D Incentives Practice is Ireland’s largest, longest-established and most experienced specialist R&D tax credit practice. With over eight years’ experience helping Irish companies claim R&D tax credits, our dedicated team of tax, finance and technical experts has built the expertise required to help ensure our clients submit maximised and robust R&D tax credit claims to Revenue. Furthermore, as members of KPMG’s Global R&D Incentives Practice, an international network of specialist R&D practices, we have access to over 300 multidisciplinary professionals working full-time on R&D tax incentive claims. In conclusion, we would welcome further discussion with you on any of the matters raised in this publication so please don’t hesitate to get in touch. I N N O VAT I O N M O N I T O R | 25
  • End notes1. Government of Ireland, Strategy for Science, Technology and Innovation 2006-12, http://www.djei.ie/publications/science/2006/sciencestrategy.pdf, p.8.2. Global Innovation Index 2012, http://www.globalinnovationindex.org/gii/main/fullreport/index.html.3. Innovation Union Scoreboard 2012, http://ec.europa.eu/enterprise/policies/innovation/files/ius-2011_en.pdf.4. 2011 EU Industrial R&D Investment Scoreboard, http://iri.jrc.ec.europa.eu/research/scoreboard_2011.htm.5. Ireland’s National Reform Programme 2012 Update, http://ec.europa.eu/europe2020/pdf/nd/nrp2012_ireland_en.pdf.6.  Strategy for Science, Technology & Innovation. Indicators, Dec 2011, http://www.djei.ie/publications/science/2011/SSTI_Indicators_December2011.pdf, p.9.7. Dáil Debates, Private Members’ Business – Tax Reliefs. Tuesday, 12 June 2012, #190, http://debates.oireachtas.ie/dail/2012/06/12/00122.asp.8.  uilding Ireland’s Smart Economy – A Framework for Sustainable Economic Renewal, http://www.taoiseach.gov.ie/attached_files/BuildingIrelandsSmartEconomy.pdf, p. 36. B9.  Strategy for Science, Technology & Innovation. Indicators, Dec 2011, http://www.djei.ie/publications/science/2011/SSTI_Indicators_December2011.pdf, p.9.10. Global Innovation Index 2012, http://www.globalinnovationindex.org/gii/main/fullreport/index.html.11. American Chamber of Commerce, http://www.amcham.ie/article.aspx?id=461.12. KPMG, Mobilizing Innovation Survey 2012, http://www.kpmg.com/IE/en/IssuesAndInsights/ArticlesPublications/Pages/Technology-pub13.aspx, p. 39.13.  áil Eireann Debates, 2 October 2012, Written Answer #253, http://oireachtasdebates.oireachtas.ie/debates%20authoring/debateswebpack.nsf/takes/dail2012100200061?opend D ocument.14.  efinition of product and process innovation taken from “Oslo Manual: Guidelines for Collecting and Interpreting Innovation Data”, used by the OECD. D For the purposes of this survey marketing and organisational innovation were excluded. http://www.oecd.org/site/innovationstrategy/defininginnovation.htm.15. Chartered Accountants Ireland Pre-Budget Submission 2013, http://www.charteredaccountants.ie/General/News-and-Events/News1/2012/September/PreBudget- Submission-2013/.16. The Irish Times, 25 June 2012, http://www.irishtimes.com/newspaper/finance/2012/0625/1224318628674.html.17. Subject to certain conditions, see Revenue guidelines, http://www.revenue.ie/en/tax/ct/research-development.html.18. KPMG, Take a Closer Look. Results: 2011/12 – 14% (Small) vs. 22% (Large) / 2010/11 – 12% (S) vs. 24% (L) / 2009/10 – 6% (S) vs. 28% (L).19. Government of Ireland, Tax Strategy Group, Corporation Tax, http://taxpolicy.gov.ie/wp-content/uploads/2012/09/11.19-Corporation-Tax.pdf.20. 62% of 46% of companies that have not claimed the credit.21. KPMG, Take a Closer Look 2011/12, http://www.kpmg.com/IE/en/IssuesAndInsights/ArticlesPublications/Pages/RD-pub1.aspx.22. Dáil Debates 2 October 2012, Written Answer #253, http://oireachtasdebates.oireachtas.ie/debates%20authoring/debateswebpack.nsf/takes/dail2012100200061?opendocument.23. Government of Ireland, Strategy for Science, Technology and Innovation 2006-12, http://www.djei.ie/publications/science/2006/sciencestrategy.pdf.24. See ‘Deciding to innovate’, Innovation Monitor 2012, p.16.25. KPMG, Mobilizing Innovation Survey 2012, http://www.kpmg.com/IE/en/IssuesAndInsights/ArticlesPublications/Pages/Technology-pub13.aspx26. Government of Ireland, 2012 Action Plan for Jobs, http://www.djei.ie/publications/2012APJ.pdf, p. 20.27. Strategy for Science, Technology and Innovation 2006-12, http://www.djei.ie/publications/science/2006/sciencestrategy.pdf, p.8. 28. Dáil Debates 2 October 2012, Written Answer #253, http://oireachtasdebates.oireachtas.ie/debates%20authoring/debateswebpack.nsf/takes/dail2012100200061?opendocument.26 | I N N O V AT I O N M O N I T O R
  • For a wide rangeof video insightson current businessissues see www.kpmg.ie/r&d I N N O VAT I O N M O N I T O R | 27
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