Research and development (R&D) is considered a key part of achieving innovation in various industries. In particular, advanced sectors, which include industries such as life sciences, information technology, and advanced manufacturing, benefit from investments in R&D. Investment in R&D has the potential to lead to significant economic growth for individual companies at a national level, and can result in considerable benefits to consumers, companies, and governments. However, despite the benefits of R&D, a number of risks and challenges remain, particularly in Canada, where investments remain significantly lower per capita compared to the US.

What is Research and Development?

Research and development refers to the activities companies complete to innovate and develop new products and processes. Generally, the research portion includes basic research, where new knowledge is created, and applied research, where the findings from basic research are used to develop new products or technologies to respond to established challenges. Development refers to the process of bringing these innovations to market.

The Role of R&D in Economic Growth

Investment in R&D can contribute to economic growth by introducing new products, improving process efficiencies, and allowing companies to enter new markets. Overall, this can lead to greater productivity, higher-value product generation, and increases in global competitiveness. On a regional level, this can also contribute to job creation, particularly in skilled positions, with corresponding improvements in training and wages.

R&D in Key Advanced Sectors

Many industries depend on R&D activities to maintain competitiveness, particularly in emerging and rapidly advancing sectors, where technological innovation is a significant aspect of achieving company growth and establishing relevance in a field.

  • Digital Technology: Digital technology includes software development and hardware manufacturing, with specialized areas including AI, quantum computing, virtual reality, cybersecurity, and more. Successful companies must stay up to date with the latest technologies, and work on improving and/or developing new innovations, either in hardware or software, to remain competitive in the field.
  • Biotechnology and healthcare: Life sciences sectors with significant R&D demands include biotechnology, healthcare technology, pharmaceutical development, and medical devices. Innovation in medical treatments, pharmaceuticals, and diagnostics and monitoring tools can improve patient outcomes, making R&D in these areas critical for both company success and global health outcomes.
  • Advanced Manufacturing: Advanced manufacturing uses new technologies to improve products and processes in the manufacturing industry. This includes the use of AI, machine learning, and robotics to enable improved production in terms of efficiency, quality, and adaptability.

Industry Collaboration and R&D

Collaboration between industry, government, and academia is a significant aspect of R&D. Working with post-secondary and research institutions can provide advantages to companies, including access to research, talent, and emerging technologies. For researchers, working with industry partners offers greater access to funding and resources, while reducing risk and speeding up commercialization. Collaboration can also exist between different companies, where resources, knowledge, and talent are shared to increase available R&D supports and move technologies from conception to market quicker.

Benefits of R&D Investment

Investing in R&D offers a number of potential advantages to companies and related organizations, including:

  • Intellectual Property (IP) Generation: R&D often results in the creation of intellectual property, such as patents, trademarks, or copyrights. Paired with an effective IP strategy, this allows companies to remain competitive, access new markets, and commercialize.
  • Product Innovation: Continuous improvements and innovation in product development allows companies to increase competitiveness in their sector, while adapting to consumer needs. This can also contribute to business growth by accessing new markets and .
  • Process Improvements: Increased productivity and improved performance achieved through process improvements can reduce costs and errors associated with manufacturing.
  • Funding Opportunities: Companies investing heavily in R&D have access to a number of funding programs designed to boost innovation. These opportunities can include grants, loans, tax credits, and private investment.
  • Company Growth: Companies that invest in R&D have the potential to significantly grow their business through increased market access, with opportunities to increase exports, as well as increased profits through improved productivity and expanded product offerings.

Challenges in R&D

R&D can also present significant challenges, considering that R&D projects are generally expensive and time-consuming, and companies may not have the resources to invest in R&D. Additionally, not all R&D projects result in a successful technology, and some successful projects may be challenging to commercialize. This requires significant planning in order to minimize risks, which can be especially difficult for smaller firms with a limited number of employees and cash flow. Funding, particularly grants and tax credits, provide significant benefits to companies investing in R&D in terms of enabling the use of increased resources with lower risk.

Government Support for R&D in Canada

Given the benefits that R&D presents to both the economy and societal outcomes, many funding programs are focused on encouraging innovation and R&D. The Scientific Research and Experimental Development (SR&ED) Tax Incentive provides credits to companies conducting R&D activities, while businesses of any size in any sector are eligible. Other programs including Strategic Innovation Fund (SIF), Industrial Research Assistance Program (IRAP), Global Innovation Clusters, and the Sustainable Canadian Agricultural Partnership (Sustainable CAP), have made significant investments in Canadian companies in industries including aerospace, agricultural technology, digital technology and AI, advanced manufacturing, and more.

Canadian Firms Compared to US Firms

Despite the achievements of Canadian firms in R&D and innovation, Canadian firms remain significantly behind American companies in terms of R&D investments, both in public and private spending. Notably, even though the US GDP is only around 10 times greater than Canada’s, US companies spend over 100 times more on R&D compared to Canadian companies. Given these substantial differences in spending, this puts Canada at a distinct disadvantage in remaining competitive in innovative sectors on a global scale. Often, this is attributed to issues such as limited collaboration between academia and industry, smaller company sizes, regulations surrounding R&D work, or the structure of funding bodies.   

Next Steps in R&D

Proposals to increase R&D spending and improve innovation in Canadian companies include reform to tax incentive structures such as SR&ED, for which consultations are ongoing; increasing support for commercialization; incentivizing collaboration; supporting company growth; and more directed funding programs.

While it will take time to implement changes to the frameworks surrounding innovation work to scale up R&D in Canada, in the meantime, individual companies have the opportunity to increase their R&D activities with support from SR&ED, the clean economy investment tax credits, and programs such as IRAP, SIF, and more.  Contact us to learn more about what programs your business is eligible for and how to apply.