Tuesday 19 March 2024
 
»
 
»
Story

R&D spending growth rate... significant drop from 10-year average

R&D spending rate ‘second lowest in a decade’

NEW YORK, October 28, 2014

While total R&D spending at large companies rose to its highest level ever in 2014, the rate of growth was the second lowest in a decade, a report said.

R&D spending at the 1,000 biggest-spending public companies in the world rose by only 1.4 per cent last year – a more modest increase than the 3.8 per cent rise the year before and a marked drop from the 10-year average growth rate of 5.5 per cent, according to a new study from Strategy&, (formerly Booz & Company), a global team of practical strategists.

R&D spending as a percentage of revenue fell by 17 per cent between 2005 and 2014, added the tenth annual Global Innovation 1000 Study, which analyses R&D investment.

“Companies say they’re better at innovating today than they were a decade ago,” said Barry Jaruzelski, senior partner at Strategy& and a co-author of the report. “It seems that companies can now do more with less, allowing them to moderate spending growth while still achieving results.”

“The decrease in R&D spending growth and intensity may indicate that companies have realized more spending doesn’t always produce better results, or that innovation leaders are making progress in leveraging their R&D investments into greater financial performance,” said Georges Chehade, partner with Strategy&.

Saudi Arabia’s Saudi Basic Industries Corp. (Sabic) is the only company in the Middle East to make it into the Global Innovation 1000 list this year. Sabic ranked 272 out of the 1,000-strong list of innovative companies.

The company’s ranking this year is an improvement over last year’s 304th position. Total R&D spend by Sabic in 2014 was $440 million, a 19 per cent increase from $371 million in 2013. Sabic’s average R&D intensity increased from 0.7 per cent in 2013 to 0.9 per cent in 2014.

Software and Internet R&D spending growing quickly

The software and Internet industry generated the most rapid growth, 17 per cent, in R&D spending in 2014. However, despite the industry’s ongoing increase in spending, software and Internet companies still accounted for just 9 per cent of total corporate R&D spending in 2014.

Meanwhile, the computing & electronics and healthcare industries accounted together for 50 per cent of total innovation spending over the same period – though in 2014, those industries’ R&D spending dropped by 1.8 per cent and 1.2 per cent, respectively.

“It is striking that half the industries in the study saw a decline in R&D spending growth. Among them were two of the largest industries within the Global Innovation 1000, computing & electronics and healthcare. And yet, significant investments by smaller industries like software and Internet were large enough to compensate and even drive an overall positive R&D spending growth,” said Jaruzelski.

Companies headquartered in China generated a 46 per cent increase in R&D spending last year, while North American and European companies increased spending by only 3.4 per cent and 2.5 per cent, respectively, and Japanese companies spent 14 per cent less. Furthermore, the number of Chinese companies represented in the Global Innovation 1000 rose from only eight in 2005 to 114 in 2014 – an increase of 1,325 per cent.

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.

In fact, over the past ten years only Microsoft has been among the Top 10 R&D Spenders and Top 10 Most Innovative companies each year. And although four of the Top 10 R&D Spenders in 2014 were healthcare companies, not a single healthcare company were voted among the 10 Most Innovative as identified by survey respondents.

“For the 10th year, our research demonstrates that there’s no correlation between how much you spend on innovation and how well you perform,” said Chehade.  “You can’t just buy your way to the top.”

“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,” added Jaruzelski. “Instead of depending on market research, these companies intimate connections with customers and innovate around their yet-to-be-articulated needs.”

More than three-quarters of innovation leaders (76 per cent) say that they are better at innovation today than they were 10 years ago, according to a survey of over 500 innovation leaders across nearly 500 companies. And about the same number (78 per cent) believes they have developed a more detailed understanding of their customers’ wants and needs over the past decade.

“Despite this strong sense of improvement, most surveyed innovation leaders believe they have room to grow. Only 41 per cent say their companies are highly proficient in the innovation areas that they have tried to improve in the past, and just 27 per cent believe they are mastering the elements they will need for innovation success over the next 10 years,” concluded Chehade. – TradeArabia News Service




Tags: sabic | Software | R&D spending | Strategy& |

calendarCalendar of Events

Ads