The UK technology sector is investing more in research and development (R&D) for new products and services, but is still "streets behind" the US, according to an annual Department of Trade and Industry (DTI) survey.
The twelfth annual R&D scoreboard, which also claims that companies should look at organic growth rather than acquisition as a way of expanding, is used by companies to benchmark themselves against leading international competitors.
In hardware the US accounts for 57.8 per cent of worldwide R&D investment, compared to just 1.4 per cent from the UK.
In software and services the US share is 89.8 per cent compared to 2.1 per cent for the UK, which lags behind France and Germany.
However, Mike Tubbs, senior industrialist at the DTI's business, finance and investment unit, insisted that there are signs of UK technology companies making up some ground.
"The US is streets ahead of all the European countries and Japan," he said. "But if you look at the software sector in the UK there are some companies which have expanded significantly over the past few years such as Misys, which spends £80m on R&D, Sage, and newcomers like Baltimore Technologies."
Investment in R&D has direct links to competitive benefits and shareholder return, according to the survey.
"There is a fairly clear relationship between R&D intensity and sales growth," explained Tubbs.
"And we've seen quite a comprehensive showing over the past 10 years for companies that invest heavily in R&D. They have a better shareholder return for share price gain and dividends."
But buying companies to increase performance is not the answer, with the survey claiming that two-thirds of acquisitions led to a reduction in shareholder value.
"What seems to happen is that the acquirer pays a premium and believes that it will come back through synergies, but they are not always as large as predicted and take longer to achieve," said Tubbs.
The survey is compiled from the annual reports of the top 600 UK companies and top 600 international companies by R&D investment. UK R&D totalled £16bn compared with £206bn internationally.
Tim Bradshaw, senior policy advisor on technology and innovation at the Confederation of British Industry, maintained that the figures support the Confederation's own research which found that 40 per cent of companies have cut back on R&D because of the difficult economic climate.
"If we're not pulling our weight in R&D it is a matter for concern," he said. "But R&D is only one part of innovation and there are many other things such as training, marketing and investment in new technology."
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