Australia still lags on innovation

Australia, November 1, 2016 –Australia still lags behind global peers on innovation with research and development (R&D) spend amongst some of Australia’s largest companies falling relative to their global counterparts, according to PwC Strategy&’s 2016 Global Innovation 1,000 study.

For a second year running, just five Australian companies made the list of the world’s top 1,000 global R&D spenders: Telstra, CSL, Aristocrat Leisure, Atlassian and Cochlear. At a cumulative level their R&D expenditure was only USD$1.6bn, compared to the global top six companies R&D cumulative spend which accounts for USD$62.8bn.

Three of the four Australian companies who remained on the list from 2015 have dropped between 6 and 72 places.

PwC partner and R&D specialist, Sandra Boswell said: “Australia’s top R&D spenders make up just 2.5 percent of the total R&D expenditure of the top 1,000, down from 2.9 percent of the total back in 2013. This shows that whilst there’s a lot of positive thinking around innovation and some exciting initiatives emerging in Australia, it’s clearly not translating into results.

“Our inability to commercialise innovation and the small number of researchers working in business enterprises as compared to higher education, means many opportunities are being missed. We need to spend more on research and development and have greater government support to spur growth and ensure our transition to an “innovation nation” doesn’t fall flat.

“Saying that, both major parties have subjected R&D policy to a stream of inquiries. Whilst we can appreciate the scale of the federal budgetary challenges, restricting and limiting R&D tax incentives is the wrong place to look for savings. This incentives program has successfully supported investment in Australian innovation for more than a quarter of a century,” Ms Boswell said.

Chinese firms lead world in innovation spending growth

In contrast to Australia, China’s standing in the ranking continues to rise with 130 Chinese companies on the 2016 list and R&D spending growth by Chinese companies leading the global market.

At a cumulative level the total R&D expenditure of Chinese firm’s on the list is 46.8 billion, up 18.6 percent from $36.4 billion last year. This accounts for 6.9 percent of the total Global Innovation 1,000 R&D spending, up from 5.8 percent in 2015.

“Back in 2005 there were eight Chinese companies and two Australian companies in the top 1,000. China now has more than 15 times that number of companies on the list, whereas Australia has only increased the number of companies to five,” Ms Boswell said.

“Alibaba, a company innovating at the intersection of mobile, social and ecommerce, is the top R&D spender in China. Few had heard of Alibaba before the Global Financial Crisis – as a company they are just 15 years old. Now they have a market capitalisation twice that of Australia's largest company, the Commonwealth Bank of Australia and their business is 100 percent online.

“In many ways, this study highlights the importance of looking to and working with Asia – and in particular China – in our push to become an innovation nation,” Ms Boswell said.

Other key findings from the 2016 Global Innovation 1,000 study include:

  • The average allocation of R&D spending for software and services increased from 54 percent to 59 percent between 2010 and 2015 and is expected to grow to 63 percent by 2020.
  • Meanwhile, the average allocation of R&D spending dedicated to product-based offerings fell to 41 percent (from 46 percent in 2010), and is expected to fall to 37 percent by 2020 (an overall decrease of 19 percent this decade).
  • Average allocation of R&D spending on software offerings alone will increase by 43 percent by the end of this decade and R&D spending on services will gradually overtake investment in product-based innovation (39 percent vs. 37 percent by 2020).
  • Global R&D spending on software offerings has increased by 65% between 2010-2015, from US $86 billion to $142 billion.
  • Regionally, companies in North America are making the strongest shift to software offerings—from 15 percent of total R&D spending in 2010 to 24 percent in 2020.
  • Asia remains the most product-centric region, with 44 percent of R&D allocated to product offerings in 2010, only falling to 40 percent in 2020.

Note to Editors

About the 2016 Global Innovation 1000 Study:

As it has in each of the past 11 editions of the Global Innovation 1000, this year PwC Strategy& identified the 1,000 public companies around the world that spent the most on R&D during the last fiscal year, as of June 30, 2016. To be included, companies had to make their R&D spending numbers public. The Global Innovation 1000 companies collectively account for 40 percent of the entire world’s R&D spending, from all sources, including corporate and government sources. PwC Strategy& also conducted an online survey of 466 innovation leaders around the world. The companies participating in the survey represent more than US$91 billion in R&D spending, or 13.5 percent of this year’s total Global Innovation 1000 R&D spending. For information about the methodology of the study, please contact the media representative or visit http://www.strategyand.pwc.com/innovation1000.


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Rachel Mulholland
PwC
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