As the pressure on private sector companies to provide constant innovation to meet changing consumer demands increases the ability of the organisation to successfully research and develop new products has become essential in creating growth. Historically, North East companies have performed poorly in this area with relative and absolute levels of investment falling well below the national average. Whilst elements of this trend can be explained by R&D spend being attributed to the head office of the organisation involved (there are fewer large companies per head based in the North East than anywhere else in the UK), it is also true that the overall explanation is more likely to be related to the region’s poor business stock across the board. Analysis shows that R&D investment tends to be clustered in areas where competencies already exist (the best example of this would be Silicon Valley in the USA), this is to the detriment of the North East and shows the difficulties associated with the development of effective industry clusters.

Research shows that the R&D spend in the North East varies from the national picture. In the UK the total R&D spend, as a percentage of GDP, is 150% of the North East rate, the way this spend is allocated amongst the three main research areas is also very different. The North East takes just 1 % of its R&D spend from government sources, 36% from higher education and 63% from business, compared with 10%, 22% and 68% respectively, in the UK.

Despite its poor historic performance the region has shown signs of improvement, in 2005 it had the second highest rate of trade mark applications in the UK and the highest number of design applications, per million inhabitants. Whilst it is acknowledged that more research is required to understand how relevant a measure these factors are, it is some evidence that there has been improvement in encouraging innovation in the region.

A lack of investment in an economy creates cycles of underperformance, in order to close the output gap between the region and the UK averages, regional policy makers must ensure that the companies in the region adopt a long term view of the future. Without this view it is difficult to comprehend the future value of effective R&D.

Fact File

• The North East has one the lowest level of R&D spending as a % of regional GDP in the UK (1.38%); the NE rate is well below the national rate of 2.04%.
• 36% of the region’s R&D spending comes from the higher education sector, 63% comes from business and 1% comes from government sources.
• The national average shows that 22% of R&D spend comes from higher education, 68% from business and 10% from the government sector. 
• In 2005 there were 671 Trade Mark Applications, 69 Design Applications and 164 Patent Applications in the North East (all figures are per 1 million inhabitants). In the UK the rates were 396, 56 and 292 respectively.