Corporate R&D spending hits record highs for the Top 1000, despite concerns of economic protectionism

Annual worldwide R&D spending breaks through US $700bn for the top 1000 corporate R&D spenders for first time / China’s corporate R&D spending is US $45.2bn in 2017, saw a 3.3% decline in corporate R&D spending for the first time / 25% of executives surveyed reported having already experienced some pressure to change how or where they conduct innovation / Amazon is the world’s largest corporate spender on R&D at over $16bn / Alphabet surpasses Apple, according to a global survey of R&D executives, as the Most Innovative Company and for the first time a Chinese company, Alibaba joins the Top 10 Most Innovative Companies list

Annual worldwide corporate R&D spending broke through $700bn in annual investment, according to an annual analysis of R&D spending across 1000 global public companies by PwC’s Strategy&.

It shows corporate R&D spending increased a steady 3% in the past year, bouncing back from less than 1% increase previously.

However, in a global survey with 562 executive participants, R&D leaders expressed concerns about the growing heat of rhetoric about economic nationalism – and its potential impact on where companies invest in R&D how they conduct innovation.

Overall, 52% of respondents say that a general move toward economic nationalism will have a moderate or significant impact on their companies’ R&D efforts.

Major companies have been conducting some R&D outside their headquarters countries for decades. In 2015 it was determined that 94% of major corporations conduct their R&D in multiple countries. But increasing attention on regulations and policies for visas, labor movement, and the regulations governing the sharing of knowledge and technology are causing some companies to question how sustainable their integrated global innovation networks are. Nearly 33% of R&D executives surveyed, report that they have already felt the effects of economic nationalism on their R&D talent acquisition or retention because of visa or work restrictions — either losing employees, seeing less talent available, or in hiring more local talent.

• Although nearly 66% of all participants surveyed say they have not experienced pressure to change their approach to innovation in their headquarters country to date, 23% say they have already experienced such pressure in another country.
• Almost 50% of the companies in North America plan to make changes to their R&D programs over the next two years in response to the changing political environment.
• Survey participants believed US, UK, and China could be most at risk from potential changes in policy that could impact R&D investment.
• Both the US and UK’s talent flow could be at risk of potential disruption while China’s decline in corporate R&D spending and reliance on R&D investment from abroad could be at risk.
• Canada, Germany, and France are likely to gain if protectionist policies broadly become a reality.

“It’s been a year of highs and lows for R&D. Record levels of investment, next to unprecedented drops in alignment between innovation and business strategies. There’s no doubt that uncertainty is causing concern for medium and long term plans, irrespective of whether policy realities actually follow political rhetoric.” comments Barry Jaruzelski, Principal, PwC US, Strategy&.

Huw Andrews, PwC Partner and Innovation Lead says, “Although the goals and levels of investment in corporate innovation will likely not change if economic nationalism continues to develop, the global innovation model would need to evolve. At many companies, what is now a nimble, interdependent network may become a group of more autonomous hubs, hiring specialist technical talent in local regional markets and opening future R&D centers in regional markets. It could mean companies losing efficiency and taking on higher costs if it is not managed effectively.”

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 13th year.

• Amazon is the largest spender on R&D in the Global Innovation 1000 study, the first time the top spender is a high tech firm. All top four spenders are high tech companies.
• Overall, Software & Internet industry companies continue to increase their year-on-year R&D spending, and the analysis shows that by 2018, Healthcare companies will surpass Computing & Electronics to become the largest industry in terms of R&D spending - the first time in 12 years of analysis.
• Overall, Computing & Electronics, Healthcare, and Automotive are the top three industry sectors and represented 61.3% of global R&D spending in 2017.
• Alphabet, Amazon, GE, IBM and Microsoft all increased their ranking in the 10 Most Innovative Companies list, according to a global survey of R&D executives.
• R&D spending by companies based in China declined for the first time in the study, it increased in Japan for first time in 4 years, and continued to grow moderately in North America.

*The 10 Most Innovative Companies are named by 562 executive participants from the 2017 Global Innovation survey.

Key findings of China innovators
China’s corporate R&D spending saw a decline for the first time due to the depreciation of the Chinese Yuan against the USD this year and a 11.4% drop in R&D spending in China’s industrials sector – the country’s highest-spending industry – which has been affected by China’s general economic slowdown and increasing financial constraints.

• China’s total R&D spending in 2017 is$45.2bn, a decline of 3.3% from $46.8bn in 2016.
• The share of China’sR&D spend in the overall worldwide R&D spendfor the top 1000 corporate R&D spenders falls from 6.9% in 2016 to 6.4% in 2017.
• China saw a 3.8% decrease in number of companies in the Top 1000, from 130 companies in 2016 to 125 in 2017.
• Alibaba joins the ranking of the 10 Most Innovative Company for the first time. It spent $2.5bn in R&D in 2017 with a R&D intensity of 10.8%.

Adam Xu, Partner with PwC Strategy& says, “Noteworthy, as what we did in previous years, we compare Huawei against other Chinese peers on R&D spending, although we have excluded it out of the top spenders list due to its status as a non-public company. According to its FY 2017 annual report, Huawei spends RMB76.4 billion (US$11 billion) on R&D in 2016, making it the highest spender in China and the 8th largest spender among the Global Innovation 1000 (vs. No.9 in 2016).”

*Listed companies

Notes to Editors

1. In 2016, worldwide R&D spending among the world’s 1000 largest corporate R&D spenders increased 0.04% in 2016 to $680 billion.
2. R&D intensity - the measure of R&D spending relative to sales – hit an all-time study high of 4.5%: a rise of 6% year on year amongst the world’s top 1000 R&D spenders.
3. Companies that deployed 60% or more of their R&D spending outside their headquarters country earned a premium of 30% on operating margin and return on assets, and 20% on growth in operating income over their more domestically focused competitors.
4. Uncertainty in economic policy may also be contributing to an unprecedented 19% drop in high alignment between innovation and business strategies within companies, making companies cautious about how to plan for their innovation strategy in the short and medium term.
5. The study finds that companies ranked in the list of top ten most innovative companies outperform the top ten R&D spenders on financial metrics including growth, EBITDA, and market capitalisation.
6. 80% of China’s R&D spend in 2015 was performed by companies headquartered in other countries. The combination of these trends for China makes the country vulnerable to potential disruptions of R&D investment coming from abroad.

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