Total R&D Spending Growth at Large Companies Falls to Second Lowest Rate in a Decade

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, according to a new study from Strategy&, part of the PwC network.

The tenth annual Global Innovation 1000 Study found that R&D spending rose by only 1.4% last year – a more modest increase than the 3.8% rise the year before and a marked drop from the 10-year average growth rate of 5.5%.

R&D spending as a percentage of revenue fell by 17% between 2005 and 2014.

“Companies say they’re better at innovating today than they were a decade ago,” says Barry Jaruzelski, senior partner at Strategy&, formerly Booz & Company, 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 software and Internet industry generated the most rapid growth, 17%, in R&D spending in 2014. However, despite the industry’s ongoing increase in spending, software and Internet companies still accounted for just 9% of total corporate R&D spending in 2014.

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

Chinese innovation spending growing impressively

Companies headquartered in China generated a 46% increase in R&D spending last year, while North American and European companies increased spending by only 3.4% and 2.5%, respectively, and Japanese companies spent 14% 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%.

What successful companies do

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.

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