China and Europe Increase R&D Spending the Most as Global R&D Investment Reaches US$782bn

China and Europe Increase R&D Spending the Most as Global R&D Investment Reaches US$782bn

China and Europe Increase R&D Spending the Most as Global R&D Investment Reaches US$782bn

The FINANCIAL -- Annual worldwide corporate R&D spending increased by 11% in 2018, totaling US$782bn in annual investment, based on an annual analysis of the 1000 largest global public companies by R&D spend conducted by PwC’s Strategy&.

The 14th edition of PwC’s Strategy& Global Innovation 1000 Study shows how innovation investment is related to long-term growth strategies and confidence, with R&D spending increasing across all regions and nearly all industries.

Globally, all regions saw an increase in R&D spend, most notably China (+34%) and Europe (14%) where spending grew by double digit rates, while North America (+7.8%) and Japan (+9.3%) saw only single digits increases in R&D. Overall R&D intensity – the measure of R&D spending relative to sales – remains at an all-time high of 4.5%.

In a five-year study of company performance and innovation investment relative to industry peers as part of this year’s report, 88 companies world-wide, across all regions and industries, were assessed as ‘high-leverage innovators’.

These companies outperformed their industry groups on seven key measures of financial success for a sustained five-year period, while at the same time spending less than the median of their industry peers on R&D as a percentage of sales. The basket of seven metrics of financial success include revenue growth, market capitalization growth, operating margin, gross margin, operating profit growth, gross profit growth, and total shareholder return (TSR).

While high-leverage innovators had similar operating and gross margins as other Global Innovation 1000 companies for the five years ending in 2017, the companies demonstrated sales growth which was 2.6 times greater than other companies on the Global Innovation 1000 list and with growth in market capitalization that was 2.9 times higher. High-leverage innovator firms achieved performance at least twice as high as other firms on all other metrics examined. They achieved this sustained superior performance while spending less that the median of their industry peer group on R&D as a percentage of sales for the entire five-year period.

Common characteristics of this set of high-growth companies include:

Alignment: 77% of fastest growing firms say their innovation strategies are highly aligned with their business strategies, compared with 54% of respondents that report the same growth, and 32% of respondents that report slower growth.

Culture: 71% of respondents that report their companies’ revenues are growing faster than competitors say their corporate cultures are highly aligned with their innovation strategy, compared with 53% of companies that report the same growth, and 33% of companies that report slower growth.

Leadership: 78% of companies reporting higher than peer revenue growth say their executive team is highly or closely aligned with R&D investment and innovation strategy, compared with 62% for same-growth companies, and 53% for slower-growth companies.

Regionally, the list reflects the continued dramatic rise of China-based companies — from 3% in the first High-leverage Innovators assessment in 2007 to 17% in 2017. Europe too increased significantly from 18% in 2007 to 30% in 2017. The number of high-leverage innovators fell 45% for North American companies and 8% for Japanese companies.

By industry, the number of high-leverage innovators rose from 2007 to 2017 in telecommunications, consumer, healthcare, industrials, autos, and aerospace and defence, while the numbers fell in chemicals and energy, computing and electronics, and software and internet.

Of over 1,000 companies examined across three distinct five-year periods ending in 2007, 2012 and 2017; only two companies attained the status of high-leverage innovator across the entire 15-year period: Apple and Stanley Black & Decker.

Global Innovation 1000

The Strategy& Global Innovation 1000 study analyses spending at the world’s 1000 largest publicly-listed corporate R&D spenders and is now in its 14th year.

Other key findings include:

Amazon maintained the top spot as the largest spender on R&D in the Global Innovation 1000 study, for the second year in a row. Sanofi and Siemens rejoined the Top 20 spenders globally.

Apple regains the top rank as the world’s most innovative company from Alphabet, while Netflix joins the top 10 most innovative companies list for the first time, according to a global survey of R&D leaders and managers.

The consumer industry overtook the software & internet industry for the first time in five years, experiencing fastest year-on-year growth in R&D spending (26% vs 20.6%)Healthcare industry in on track to become the biggest R&D spending sector by 2020.

Computing & electronics, healthcare and automotive industries together represent 60% of global corporate R&D spending in 2018.

China and Europe saw increases in the number of companies in the Top 1000, while North America (-5%), Japan (-6%) saw decreases.