Total GCC healthcare spending is expected to hit $69 billion by 2020

The face of innovation is changing because of a significant shift toward service and software offerings and away from product-based offerings.

Global innovation is changing from products to services and software, with important implications for GCC healthcare

• The global healthcare sector to emerge as the largest R&D spending industry globally by 2018
• Total GCC healthcare spending is expected to hit $69 billion by 2020
• GCC governments are expected to spend and invest significantly more in the healthcare sector by 2020

By 2020, companies will have shifted the majority of their R&D spending to service and software offerings according to the 2016 Global Innovation 1000 Study from Strategy&, formerly Booz & Company, part of the PwC network. The top reason for changing the focus of R&D budgets is to stay competitive according to companies cited. Indeed, according to our study companies which allocated 25 percent more of their R&D budgets to software offerings than their competitors reported faster revenue growth.

Trends in R&D Globally

“Many of the world’s major innovators are in the midst of a transformational journey mostly driven by changing – and rising – customer expectations,” says Per-Ola Karlsson, Partner with Strategy&. “The shift is also being driven by the supercharged pace of improvement in what software can do, including the increasing use of embedded software and sensors in products, the ability to reliably and inexpensively connect products, customers and manufacturers via the Internet of Things, and the availability of cloud-based data storage”.

To support the development of software and services offerings, fewer companies will focus their R&D spending on the electrical and mechanical field. By 2020, the number of companies reporting that electrical engineers are their top employed engineering specialty will fall by 35 percent and the proportion of companies who expect that data engineers will represent their largest group of employed engineers will double from 8% to 16%.

Karlsson added, “An increase in software and services, even in more traditional industries, has created a shift towards hiring talent that can develop software and provide platforms to collect and analyze product-related data. The shift is already changing the way business schools think about their course offerings, and will have profound effects both on education and, more generally, on the future of employment.”

Trends in R&D in the GCC Healthcare Market

The stress on software is leading to important technological advances across different sectors including the healthcare sector. In particular, digital technology is greatly expanding the reach and efficacy of so-called telemedicine, in which medical professionals can monitor patients and deliver services without having to be physically present. Connecting medical devices through digital technology, the so-called Internet of Things, is also having a growing impact as it allows for distance monitoring and the collection of data that can lead to efficiency gains and improved diagnostics.

In line with this growth, the study highlights that R&D spending in the global healthcare sector is expected to reach US$ 165 billion by 2018. Surpassing computing and electronics, it is set to become the largest R&D spending industry globally.

Rising R&D spending in healthcare is in line with the growth of the GCC healthcare sector. Total GCC healthcare spending is expected to hit $69 billion by 2020. GCC governments and private companies are making significant investments in the sector to improve the range of medical offerings and services available.

However, in the GCC, R&D in the healthcare market is currently below international levels. GCC R&D is held back by five main factors. The first is limited availability of research funding and grants. The number of GCC healthcare research publications in international peer-reviewed journals and healthcare patents of GCC origin remain below international standards. The World Intellectual Property Organization’s Indicators also show that the UAE and Saudi Arabia rank low when it comes to resident patent applications. The second is an insufficient number of healthcare researchers, which has been driven by the limited number of post-graduate medical education institutions and consequently not enough researchers being produced or receiving training on the ground. The third is insufficient research infrastructure in terms of research centers and labs. Some GCC countries for example like Kuwait, Bahrain and Oman only have one to two medical schools. The fourth is weak university to industry linkages. The fifth is limited cross-border research collaboration.

Promisingly, there are an increasing number of healthcare research institutions that have been established, such as the Al Jalila Foundation Research Center in the UAE, King Faisal Specialist Hospital & Research Center in Saudi Arabia and Sidra Hospital and Research Center in Qatar. To support more research and development efforts, the Masdar Institute and King Abdullah University of Science and Technology (KAUST) have also opened recently.

Commenting on the GCC’s healthcare sector, Nikhil Idnani, Principal with Strategy& stated: “GCC healthcare has significant potential for investment in R&D. The demand for new hospitals, clinics and medical services is growing, and GCC governments are expected to spend and invest significantly more in the sector by 2020. This should be accompanied by governments enhancing research funding and a strengthening of linkages between universities, the private sector and governments. If these steps are taken into consideration, the GCC definitely has the potential to provide its patients with world-class care, and its caregivers and healthcare businesses with the ideal opportunities to develop.”

Additional Findings

Strategy&’s annual analysis of the world’s 1000 largest R&D spenders also found the following:

• For the first time in the study’s history, the number of Global Innovation 1000 companies headquartered in the US grew, up 9.5% year over year.
• Volkswagen, Samsung, Amazon, Alphabet (Google) and Intel round out the Top 5 R&D Spenders, with Amazon and Alphabet making bold moves up the list (+4 and +2 positions, respectively).
• Global innovation professionals have ranked Apple, Alphabet, and 3M as the three Most Innovative Companies in the world.
• The 10 Most Innovative Companies continue to outperform the Top 10 R&D Spenders on key performance metrics, as has been the case for each of the past seven years.

To learn more about the 2016 Global Innovation 1000 Study, visitwww.strategyand.pwc.com/innovation1000. A copy of the study findings by geography and industry are available from the media contact. Additional multi-media assets including infographics and video are also available.

About the 2016 Global Innovation 1000 Study: As it has in each of the past 11 editions of the Global Innovation 1000, this year 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. For information about the methodology of the study, please contact the media representative.