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256.Examples from software development:

–Search for alternative methods of computation, such as quantum computation and quantum information theory, is basic research.

–Investigation into the application of information processing in new fields or in new ways (e.g. developing a new programming language, new operating systems, programme generators, etc.) and investigation into the application of information processing to develop tools such as geographical information and expert systems are applied research.

–Development of new applications software, substantial improvements to operating systems and application programmes, etc., are experimental development.

4.3.Product fields

4.3.1. Use of distribution by product fields

257.At present, the distribution of R&D by product fields is confined to the business enterprise sector. It could in theory also be applied to other sectors, but the distribution list suggested in the next section would have to be modified to account for the different orientation of R&D carried out in noncommercial institutions.

258.Product field analysis focuses on the actual industrial orientation of the R&D carried out by units in the business enterprise sector. Distribution of R&D by product fields will enhance the quality of data by distributing them more appropriately to the relevant industries, as these are more comparable internationally and allow for more detailed analysis. For example, R&D expenditures by product field are better for comparisons with commodity and production statistics than unmodified, institutionally classified data.

259.In theory, basic research, at least non-oriented basic research, cannot be assigned to product fields. In practice, the basic research carried out by firms is generally oriented towards a field of interest to the firm because of its potential commercial applications. Since the product fields identified in the next section are very broad, a firm should be able to assign even its basic research to a field that effectively describes its orientation. It is recommended, therefore, that all three types of R&D be considered in the product field distribution. R&D undertaken in the expectation that it will be applied to processes rather than products should be included in the product field in which the process will be used.

260.At this time, it is recommended that only current intramural expenditures should be considered for international comparisons. This is because a number of member countries are unable to include capital expenditures, while, on the whole, those that can are also able to report

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current expenditures separately from capital expenditures for the purpose of international comparisons.

4.3.2. The distribution list

261. The recommended list depends on the reason for the distribution, i.e. the intended use of the statistics. Trade data are classified by the national equivalent of the Standard International Trade Classification (SITC) (UN, 1986); industrial output data are classified by the national equivalent of the International Standard Industrial Classification (ISIC) (UN, 1990). At present, comparisons with industrial output data and with trade data are both popular with analysts. For reasons of symmetry with the institutional classification for the business enterprise sector, the same distribution list has been adopted (see Table 3.1).

4.3.3. Criteria for distribution

262. There are two feasible criteria for distributing R&D by product field. In one case, the distribution should take the nature of the product into consideration. In the other, the distribution is based on the use of the product in terms of the enterprise’s economic activities.

Nature of product

263.When applying the “nature of product” criterion, the R&D input is distributed according to the type of product being developed.

264.The guidelines formerly used by the National Science Foundation to survey applied research and experimental development in industry are good examples of operational criteria:

“Costs should be entered in the field or product group in which the research and development project was carried out, regardless of the classification of the field of manufacturing in which the results are to be used. For example, research on an electric component for a farm machine should be reported as research on electrical machinery. Also, research on refractory bricks to be used by the steel industry should be reported as research on stone, clay, glass and concrete products rather than primary ferrous metals, whether performed in the steel industry or the stone, clay, glass and concrete industry.”

265. These guidelines should pose few problems for most R&D projects on product development. R&D on processes may be more difficult to deal with. If the results of the R&D will clearly be embodied in materials or equipment, then the guidelines should be applied to those products. If not, then the process should be allocated to the product it is destined to produce. Furthermore, for enterprises engaged in broad R&D programmes, quite

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detailed records or consultations with R&D personnel are needed in order to provide complete estimates.

266. The advantage of this approach is that any enterprise in any industry carrying out R&D on a given product should select the same product field, whatever the expected use of the product. Therefore, both inter-firm and, especially, international data should be comparable. The main disadvantage is that R&D on products assembled from a wide range of components, such as aircraft, may be underestimated.

Use of product

267.The “use of product” criterion is applied in order to distribute an enterprise’s R&D among the economic activities supported by its R&D programme. The R&D is therefore distributed by industrial activities according to the final products produced by the enterprise.

268.The R&D of an enterprise active in only one industry would be assigned to the product field characteristic of that industry, except when R&D is carried out on a product or process in order to enable the enterprise to enter a new industry.

269.When an enterprise is active in more than one industry, the use of the product must be considered. For example, the R&D carried out on very largescale integrated circuits (VLSI) could be distributed in several ways:

–For an enterprise active only in the semiconductor industry, this is R&D for electronic components and accessories.

–For an enterprise active only in the computer industry, this is R&D for office, computing and accounting machines.

–For an enterprise active in the semiconductor and computer industries, the use of the VLSI will determine the choice of product field:

If the VLSI is sold separately, the product field should be electronic components and accessories.

If the VLSI is included in computers sold by the enterprise, the product field should be office, computing and accounting machinery.

270. In theory, the data derived from a functional analysis by use of product should be exactly the same as those derived from an institutional breakdown by industry, if the R&D by enterprises active in more than one industry is subdivided into several institutional units. In practice, the functional classification, which applies only to current expenditures, will be more detailed and should distribute the activities of many firms over several product fields, as adjustments will only be made in the institutional classification for the most significant multi-product firms.

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