Study Shows R&D Spending at its Highest Level Ever

Yearly R&D spending among the world’s 1,000 largest public corporate R&D spenders has hit a record high of US$638 billion, according to global management consulting firm Booz & Company in its ninth annual Global Innovation 1000 study.

 

R&D spending in 2013 rose by 5.8 percent from the previous year, signaling a return to the long-term growth trend after two years of faster growth following the recession.

 

Regionally, companies headquartered in China increased R&D spending by 35.8 percent and added 50 percent more companies to the Global Innovation 1000 from 2012 to 2013 – both the highest percentage increases of any major country.

 

Although China’s spending growth rate remains significantly higher than that of any other region, this is the second-lowest increase for the country in the last five years.

 

However, despite the sustained overall increase in R&D budgets over the last decade, this year’s findings show once again that higher spending doesn’t guarantee bigger payoffs.

 

The 10 most innovative companies the study identified this year financially outperformed the world’s top 10 spenders, despite actually spending significantly less on R&D.

 

Additionally, the study shows that companies are spending 8.1 percent of their R&D budgets on digital tools to enable their innovation process—either to boost productivity or to improve their ability to gain better insight into customer needs.

 

10 Most Innovative Companies
Apple and Google took top honors for the fourth consecutive year, but there were some noticeable shake-ups on the latest Global Innovation 1000 study’s survey ranking of the 10 most innovative companies.

 

Samsung displaced 3M from the number three spot for the first time, capping its steady rise in the rankings, and Amazon also made a significant move up, jumping six spots into fourth place. New to the list this year was Tesla, making its debut in the number nine slot, and Facebook returned at number 10 after a hiatus last year.

 

10 Most Innovative Companies Outperform Top R&D Spenders—Again
Google and Sony joined the top 20 R&D spenders list this year, at number 12 and number 20, respectively. The vast majority of the companies on the list—18 in total—were from the software & Internet, healthcare, and automotive industries, industries that, combined, accounted for nearly three-quarters of worldwide R&D spending growth in 2013.

 

“The 22 percent increase in R&D spending among software and internet companies is likely driven by an increasing demand for digital products and services, creating more opportunities for cutting edge innovation,” says Richard Holman, a partner at Booz & Company and coauthor of the study.

 

Higher R&D spending is no guarantee of better financial performance. This year’s 10 most innovative companies outperformed the top 10 spenders on both five-year revenue and market-cap growth averages.

 

“For the ninth straight year, our research has demonstrated that there is no correlation between how much you spend and how well you perform over the long term,” said Barry Jaruzelski, senior partner at Booz & Company and global leader of the Engineered Products & Services practice. “It has been proven time and time again that you can’t buy your way to the top. When it comes to innovation, how you spend is much more important than how much you spend.”

 

The research also shows that 90% of R&D spending worldwide in 2013 was from companies headquartered in North America, Europe, and Japan.

 

R&D spending in Europe grew by 4.5 percent despite the region’s ongoing economic pressures, slower than the global average.

 

Japan’s R&D spending decreased by 3.6 percent in 2013, marking the first time since the 2008–09 recession that any major economy reported a decrease in R&D spending.

 

Computers & electronics, healthcare, and automotive remained the three largest industries in terms of total R&D spend in 2013, representing 65 percent of the global total.

 

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