In the wake of a challenging few years, the focus on revitalising growth and productivity is more pressing than ever.
In 2024 the Enterprise Research Centre published a report commissioned by Economic Intelligence Wales which highlighted the pivotal role R&D-intensive firms can play in driving Wales towards a stronger economic future.
For any economy, innovation is crucial. And it’s precisely the R&D-focused companies, whether they’re working in high-tech manufacturing, pharmaceuticals, or software development, that are laying the groundwork for tomorrow’s industries. These businesses are not just participants in the economy; they are the trailblazers, creating the high-value jobs and expertise needed to propel future growth.
In our study, we found around 2,400 companies in Wales that fall into this high R&D intensity category. Despite representing only about 0.5% of firms in Wales, they contribute disproportionately to the wider economy, accounting for around 2% of employment and 3% of jobs.
These firms are often clustered in urbanised areas like North Wales and South-East Wales, where their larger scale allows them to make a more substantial impact. Yet, we also found R&D-intensive firms across rural areas in the mid and south-west regions, highlighting a broad distribution of innovation. This geographic spread demonstrates that the benefits of R&D are felt across the Welsh economy, providing new avenues for skilled jobs and potential economic resilience even in less urbanised areas.
Investing in R&D is no small feat, especially in an uncertain economy. The cost of R&D projects, typically spanning several years, can be substantial. Many companies, especially SMEs, have had to pause or scale back R&D during recent economic turbulence, delaying the progress of projects. However, as we move towards recovery, we expect to see many of these projects revived and new products brought to market, generating further momentum for economic growth.
Wales’ focus on R&D could yield significant returns, particularly in terms of productivity. Another of our studies, this time in collaboration with Innovate UK, found that companies investing in R&D grew twice as fast as non-innovative firms. R&D-intensive firms not only lead the way in developing new products and technologies but also drive productivity, which has long been a challenge for Wales and the UK as a whole compared to other developed nations.
The value of these firms extends well beyond their individual contributions. High-intensity R&D businesses are instrumental in shaping supply chains, creating demand for skilled suppliers and specialist service providers. As these firms expand, they bring along a network of smaller companies that benefit from the increased demand for services and products, fostering a more resilient local economy.
For Wales to fully realise the potential of these R&D-focused firms, sustained support is essential. This includes access to funding, skilled talent, and infrastructure. Investment in infrastructure – both digital and physical – remains a cornerstone of supporting these businesses, whether it’s improving connectivity or enhancing access to research and testing facilities. Furthermore, expanding networks between businesses and research institutions, like Welsh universities, can catalyse new partnerships and drive further innovation.
Ultimately, R&D-intensive firms are well-positioned to lead the charge towards sustainable growth. While the investment may come with risks, the rewards – faster growth, job creation, and productivity gains – are compelling. By fostering these firms and supporting their development, Wales can harness a powerful engine for economic progress, one that aligns with our goals for innovation, resilience, and prosperity.
As we aim for economic growth, it’s critical to keep our sights on the long-term value that R&D investment brings, especially in an economy that increasingly depends on knowledge, technology, and skilled labour.
