RESEARCH BRIEF: Growth strategy opportunity for Wood Products Industry: Research and Development

by Johanna Madrigal
Ph.D. Candidate, Virginia Tech

The Frascati Manual indicates that Research and Development (R&D) expenditures in The United States of America (USA) are classified by the North American Industry Classification System (NAICS) and under three research categories. These three categories are: (1)Basic research that covers all the experimental and theoretical work developing knowledge for the foundation of a topic but with no defined application or use; (2) Applied research which is knowledge developed through original investigation aiming an objective; and (3) Experimental development that is created under a systematic work, developing knowledge or using existing knowledge, targeting improvement of current material, products, process and services or the development new materials, products, processes and services. In 2008, R&D expenditures in the USA were approximately $397 billion. Out this total, basic research accounts for 17% ($69.15 billion), applied research for 23% ($88.59 billion), and development for about 60% ($239.89 billion)  according to the National Science Foundation (NSF 2010). 

At the industry level, these expenditures were mostly performed by the pharmaceuticals/medicines (NAICS code 3254), the semiconductor/other electronic components (NAICS   code 3344),  the communications equipment (NAICS code 3342), and Software publishers  (NAICS code 5112) sectors. This last sector has the highest ratio of R&D as a share of sales.   Table 1 shows the data corresponding to R&D expenses and sales for these industries (Wolfe, 2010). 

Table 1. R&D expenses as a share of sales. (Wolfe, 2010)

Industry (NAICS code) Sales worldwide ($ million) R&D expenditure ($ million) R&D as a share of sales
Semiconductor/other electronic components (3344) 192,258 28,812 15%
Pharmaceutical/medicines (3254) 529,601 69,516 13%
Communication equipments (3342) 132,307 14,987 11%
Software publishers (5112) 317,084 35070 11%

In the wood products industry data show that the primary wood products (NAICS code 321) and the secondary wood products sector (NAICS code 337) spent together $0.697 billion in 2008, which is less than 1% of total sales, similar to what happened in 2006 in this industry (Wolfe 2010). As a comparison, the overall ratio of R&D expenses to sales in the manufacturing industry in US was approximately 4% in 2006. This might be indicating that perhaps wood products industries need to increase their investments in R&D activities in order to increase their sales.  Figure 1 shows a comparative chart of R&D expenditures as a ratio of sales for some industries including wood products.

Figure 1. R&D expenditure by selected industry (Wolfe, 2010)

 This situation shown in Figure 1 might be an indication that R&D expenditures (as a measure of Innovation) must could be defined as a sustainable growth strategy for the Wood Products Industry if the business wants to remain competitive and profitable.


National Science Board. (2010). Research and development: essential foundations for U.S. competitiveness in a global economy. A companion to Science and Engineering Indicators – 2008. NSF.

Wolfe, R. (2010). U.S. Businesses Report 2008 Worldwide R&D expense of $330 billion: findings from new NSF survey. NSF. 10, 322