Service development accounts for an even smaller share of European R&D investments than we may think

In academic research on private R&D investments, sectoral differences are generally analyzed on the basis of firms’ classification according to systems such as the American NAICS and the European NACE industry classification systems. The same classification principles are applied in many countries and regions when aggregating R&D statistics to the level of industries, for example by the EU’s statistical office Eurostat. We report evidence suggesting that the share of R&D associated with development of service-oriented products or with service activities is systematically lower than the share of R&D conducted by service sector firms. Results from a survey run in Sweden shows that the revenue streams in a significant share of R&D-performing service sector firms (as classified according to NACE) are dominated by sales of physical products (e.g. factoryless goods producers). An even larger share report that a majority of their R&D is directed towards development of physical products rather than service products (e.g. consultancy companies acting as external R&D departments for their clients in manufacturing industries). These findings imply that the share of R&D investments focusing on service-oriented activities is even lower than traditional statistics suggest.