Paradigm Shift: Ireland findings
IOP-commissioned report highlights challenges and opportunities for businesses involved in physics-based innovation.
This IOP-commissioned report by CBI Economics (supported by the Irish Business and Employers Confederation) highlights where the challenges and opportunities lie for businesses in Ireland which undertake physics-based innovation. These insights will help us to develop a blueprint for physics research and development (R&D) which will ensure that physics can make its contribution to the government’s goal of 2.5% of gross national income invested in R&D by 2030.
The survey included 29 responses from physics innovators with R&D/innovation activities taking place in Ireland (henceforth known as Ireland innovators), with broad representation across sectors, but a particular strength in computing and electronics (28%).
Here are the headline findings for businesses in Ireland.
- 65% of physics innovators in Ireland said greater access to direct funding for early-stage R&D could encourage more R&D/innovation activity in the next five years;
- 65% of physics innovators in Ireland said long-term funding schemes could encourage more R&D/innovation activity in the next five years;
- 52% of Ireland physics innovators believed that a more attractive tax rate for R&D would support greater activity in Ireland; and
- Among physics innovators that have not received any public funding, 23% in Ireland believed that improved navigation of support schemes could support more R&D/innovation in the next five years.
Spanning a diverse range of sectors – including manufacturing, engineering, energy, construction, and services sectors – it is estimated that physics-based businesses contribute 16% of gross domestic product (GDP) in Ireland. They also account for around 9% of employment, implying high value added per person employed.
These industries had seven positive and challenging messages for policymakers:
1. COVID-19 pandemic was a source of disruption
For the majority of physics innovators in Ireland, the pandemic was a source of disruption. The report found that:
- 26% saw a positive impact on R&D/innovation activity; and
- 57% saw a negative impact, giving a net balance of -30%, somewhat weaker than in the UK (-20%).
2. Investment expected to increase over next five years
Nonetheless, Irish innovators expect to increase investment in R&D/Innovation in the five years ahead (a net balance of +74% vs 59% in the UK). These businesses can help the Irish government achieve its goals to raise R&D spending (a target of 2.5% of gross national product (GNP) was set under the 2015-20 innovation strategy, though this was not met).
However, this may require ensuring greater access for smaller and medium-sized firms for R&D/innovation support, action to strengthen links between physics researchers and industry, and ensuring that Ireland remains an attractive location for highly skilled workers from abroad.
R&D/innovation activity is a strategic priority for the vast majority of Irish innovators (86%). As was the case in the UK, Irish innovators cite many motivations for undertaking R&D/innovation:
- to develop new products/services (86%) and grow the company (76%);
- to adapt to new technologies (69%); and
- changing market/consumer preferences (66%).
3. Physics innovation seen as costly and risky
The direct costs (54%) and risks (61%) associated with R&D/innovation were seen as the two most significant challenges to undertaking such activity (vs 50% and 46% in the UK, respectively). Access to funding is also a key challenge (43% of vs 32% in the UK).
Compared with the UK, Ireland innovators appeared to experience fewer difficulties securing funding at the basic R&D stage (25% vs 36% in the UK). Funding pressures were most acute at later stages in the R&D/innovation pipeline, notably demonstration (46% vs 19% in the UK) and production/scaling up (42% vs 40% in the UK) stages.
4. Public funding for early-stage R&D is helping Irish innovators
This suggests that public funding for early-stage R&D is helping Irish innovators, which were more likely than their UK counterparts to have benefitted from support over the past five years.
For example, 68% of Irish innovators had received funding from the Irish government, compared to 51% of UK innovators receiving UK government funding. Support from EU funds was also more common in Ireland: 40% vs 19% in the UK. For 70% of Irish innovators, public funding helped fill financing gaps, without which the activity would not have been undertaken.
A further 30% said that public funding helps attract private investment, increasing total resources for projects. Only 10% of Ireland innovators said public funding acts as an alternative to private funding. Long-term benefits of public support include:
- more collaboration (55%);
- the development of skills (60%); and
- improvements to equipment/infrastructure (45%) that benefit future products.
5. Policy intervention could help raise spending
Although Irish innovators expect to raise spending on R&D/Innovation in the five years ahead, policy intervention could increase this further. The overall level of policy support for R&D is below the Organisation for Economic Co-operation and Development (OECD) average and skewed more heavily towards tax credits than direct funding.
A majority of Irish innovators believe greater access to finance (i.e. loans), direct funding for early-stage R&D and direct funding for late-stage development (63% for all three options) could help increase spending in the next five years. Long-term funding schemes were also a popular option (65%), while 52% called for support to de-risk capital investment.
Interestingly, although Ireland offers a relatively generous tax subsidy rate for R&D by OECD standards, a majority of Irish innovators (52%) believed a more attractive tax rate for R&D would further increase R&D/Innovation spend in Ireland in the next five years.
This was particularly the case among Irish-owned innovators, with only 27% of foreign-owned firms calling for an improved tax environment. The make-up of the sample for Ireland may help explain this: the survey included responses from a number of large, foreign-owned firms based in Ireland that may already be benefiting from R&D tax credits.
This suggests that enhancing the tax environment for R&D could provide further benefits for small- and medium-sized innovators in particular.
6. Skills shortages cited as a key challenge
The benefits of public funding go beyond financial considerations, with the survey pointing to long-term legacy benefits from improved skills and facilities and equipment. Nonetheless, almost half (46%) of Irish innovators cited skills shortages as a key challenge to undertaking R&D/Innovation activity, slightly higher than for the UK (39%).
Only 5% of Irish innovators said they faced no difficulties recruiting. The roles that Irish innovators had most difficulties filling were those requiring a combination of technical and commercial skills (38%) and data analytics (38%).
The two most important factors driving skills shortages in Ireland were the competition for talent (cited by 64% of Ireland innovators) and the opportunities for potential applicants to get better compensation elsewhere (50%).
This was a very different picture to the UK, where the most commonly cited factors were a lack of relevant skills (46% vs 36% in Ireland) or experience (40% vs 27% in Ireland) in the applicant pools.
A majority of Irish innovators (61%) said that skills shortages had caused R&D/Innovation activity to be suspended or delayed in the past five years, with 33% saying the activity had not been undertaken at all. To overcome skills shortages, 44% had tried to recruit from outside Ireland (33% did so successfully), compared to only 16% in the UK.
7. More opportunities for collaboration
Ireland innovators were less likely than their UK counterparts to say that a lack of proper equipment or space was a significant barrier (7% vs 17% for UK). Greater collaboration with “knowledge institutions” (such as universities and research institutes) may help explain this.
Ireland innovators were more likely than UK innovators to say that a benefit of public funding was to enable improvements to equipment or infrastructure (45% vs 31%). They were also more likely to access facilities through higher/further education partners (52% vs 34%) and through public/private partnerships (e.g. Science Foundation Ireland centres; 35% vs 17%).
The smaller number of companies and higher education/research institutes in Ireland than in the UK may make it easier to manage collaboration.
Nonetheless, in Ireland (as in the UK) collaboration with external partners/networks tends to drop off beyond early-stage R&D, suggesting there are opportunities to improve collaboration during later stages the innovation pipeline (such as demonstration).