London, October 28, 2014 – Growth in big companies’ spending on research and development (R&D) is at the second lowest level for a decade in 2014 according to a new study from Strategy&, part of the PwC network of firms.
The trend is highlighted in Strategy&’s tenth annual Global Innovation 1000 Study, which analyses R&D investment at the 1,000 biggest-spending public companies in the world and this year found that R&D spend rose by only 1.4%. This was down from a 3.8% increase in 2013 and well below the 10-year average growth rate of 5.5%.
Key findings from the study include:
- UK toes the global trend line – overall UK R&D spend (£13.1bn) was up by 1.4%, but this represented a drop from the previous year’s growth rate of 6.4%. The highest-spending UK based companies were GlaxoSmithKline ($6.1bn) and AstraZeneca ($4.8bn) – although both were down on their 2013 spend ($6.3bn and $5.2bn respectively).
- The growth of China – over the past 10 years, Chinese companies’ share of total R&D spending has grown by a factor of 15. The number of Chinese companies represented among the Global Innovation 1000 jumped from just eight to 114 in the same time period. And in the past year alone, innovation spending in China increased 46%.
- It’s not always the usual suspects – four of the Top 10 R&D Spenders in 2014 were healthcare/pharma companies, but none of them were voted among the 10 Most Innovative by study respondents.
- The most innovative companies are not the highest spenders – Apple, Google and Amazon are still seen as the most innovative companies as identified by survey respondents but are not necessarily the ones spending the most on their R&D – indicating once again that it is not how much companies spend on research and development that determines success — what really matters is how those R&D funds are invested in capabilities, talent, process, and tools.
“We have found that companies across many sectors have been putting the brakes on their R&D spending,” said Jens Nackmayr, Partner at Strategy&. “This may be because they’re better at innovating today than they were a decade ago and it seems that they can now do more with less. Moreover, it’s striking that the companies viewed by survey respondents as the most innovative – Apple, Google and Amazon – are not the ones spending the most on R&D, indicating that there is no direct link between spend and innovation.”
Apple, Google, Amazon and Samsung top the list of the 10 Most Innovative companies in 2014 as identified by survey respondents. Among the full list, only three – Google, Samsung and Microsoft – are also on the Top 10 R&D Spenders list (which is topped by Volkswagen with a spend of $13.5bn). In fact, over the past ten years only Microsoft has been on the Top 10 R&D Spenders and Top 10 Most Innovative companies list each year.
Jens adds: “What many highly innovative companies have in common is not a high level of R&D spending, but an understanding of end-users’ wants and needs,” “Instead of depending on market research, these companies form strong connections with customers and innovate around their yet-to-be articulated needs.”
For more information on the study and its findings, including the innovation strategies that companies are pursuing, please click here.
Strategy& identified the 1,000 public companies around the world that spent the most on R&D, as of June 30, 2014. The Global Innovation 1000 companies collectively account for about 40% of the entire world’s R&D spending, while the next 1,000 largest corporate spenders only represent an additional 3%. For each of the top 1,000 companies, Strategy& obtained from Bloomberg and Capital IQ key financial metrics, including sales, gross profit, operating profit, net profit, historical R&D expenditures and market capitalization. To understand how innovation has changed at companies over the past 10 years and what to expect for the next decade, Strategy& conducted a separate online survey of 505 innovation leaders at 467 companies around the world. The companies participating in the survey represented just under US$130 billion in R&D spending, or 20% of this year’s total Global Innovation 1000 R&D spending, all nine of the industry sectors and all five geographic regions.
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