Next Year's R&D Hampered by COVID... Even Large Corporations Face Uncertainty

Next Year Investment RSI 91.2, Workforce RSI 91.6
7 out of 10 Companies Say "COVID-19 Negatively Affects R&D Investment"

[Asia Economy Reporter Hwang Junho] Due to the economic impact of the novel coronavirus infection (COVID-19), it is anticipated that South Korean companies will reduce their research and development (R&D) investments or cut back on hiring research personnel next year. In particular, the willingness of large corporations to invest in R&D has significantly declined, raising urgent concerns about securing industrial competitiveness.

According to the "Next Year R&D Investment and Research Personnel Hiring Outlook" survey conducted on 500 companies with research institutes by the Korea Industrial Technology Association on the 16th, the R&D investment and research personnel hiring RSI of South Korean companies were recorded at 91.2 and 91.6, respectively. An RSI below 100 indicates a reduction in R&D investment and research personnel hiring compared to the current year.

Uncertainty Surrounding Large Corporations' R&D Investment

For the first time since this survey began in 2013, the RSI for large corporations fell below 100. The investment RSI for large corporations was 96.2, and the personnel RSI was 94.1. Large corporations account for 62.5% of total R&D investment.

The situation was similar for medium-sized and small enterprises. The investment and personnel RSI for medium-sized companies was 90.9, lower than that of large corporations. The investment and personnel RSI for small companies were 86.4 and 89.8, respectively, indicating a significant reduction compared to the previous year.

By industry, the investment and personnel RSI for all sectors were below 100. The service sector, which suffered significant damage from COVID-19 this year, is expected to see the largest reductions, with an investment RSI of 83.8 and a personnel RSI of 89.0. In contrast, the information and communication sector, which experienced high demand due to digital transformation and the spread of untact culture, recorded an investment and personnel RSI of 97.0 each.

Regarding the impact of COVID-19 on next year's R&D investment and personnel hiring, 69.6% responded negatively. By company size, 62.4% of large corporations, 68.9% of medium-sized companies, and 77.7% of small companies viewed the impact negatively. The biggest reason was the deterioration of internal and external management environments due to COVID-19 (48.9%). This was followed by increased uncertainty in the investment environment (23.2%), difficulties in securing R&D funds (20.2%), and low R&D performance and contribution (4.7%).

Research personnel hiring is also being avoided due to 'no need for hiring caused by reduced R&D investment (51.0%).' Other reasons included increased labor cost burdens such as minimum wage hikes (22.1%) and the utilization of existing or idle personnel as substitutes (14.8%).

Need for R&D Tax Credits and Research Personnel Employment Stability Fund Support

Companies expressed a desire for the government to provide 'R&D tax credits, tax payment deferrals, and other tax support (24.1%)'. Support for research personnel employment stability funds (22.7%), quantitative expansion of government R&D projects (20.1%), and support for R&D project planning (12.8%) were also seen as helpful. In particular, large corporations wanted R&D tax support (28.1%), while medium-sized and small companies emphasized the need for research personnel employment stability fund support (medium-sized 35.0%, small 25.0%).

Machanghwan, Executive Vice Chairman of the Korea Industrial Technology Association, stated, "With a global L-shaped economic recession expected, continuous R&D is the only way to proactively respond to economic recovery during difficult times." He emphasized, "The government must actively pursue measures to incentivize R&D investment, such as tax support and personnel support, to prevent companies' willingness to invest in R&D from weakening."

This content was produced with the assistance of AI translation services.