R&D spending has reached an all-time high of $647 billion in 2014, concludes Strategy& in a new study. The consulting firm notes however that this year represents the second lowest growth rate in the past 10 years, likely caused by the growing innovation skills of companies, allowing them to innovate more effectively with less money.
Global strategy consulting firm Strategy& recently released its 2014 edition of its annual 'Global Innovation 1000 Study', a research that analyses the R&D investment of the 1,000 biggest-spending public companies in the world. The report shows that this year represents another year in which R&D spending among big multinationals is expected to grow, and will reach a record-high of $647 billion, representing 40% of total innovation spending by all public, private and not-for-profit organisations worldwide.
Even though spending has grown steadily over the past 10 years, increasing from $400 billion in 2005 to $647 billion in 2014, the Year-on-Year Growth Rate has been decreasing over the past four years, since it recovered from the negative growth rate of 5.6% in 2009, and reached its second lowest growth level in the past decade with 1.4%. A significant drop compared to the overall average growth rate of the past 9 years (CAGR = 5.5%).
Spending per sector
Looking at R&D spending per sector, Computing and Electronics, Healthcare and Auto sectors have spent the most on R&D in 2014, and represent 63% of the total spending. Sectors that have spent the least amount of money on R&D in 2014 are Telecom with 2.1%, Aerospace and Defence with 3.3%, and Consumer with 3.3%.
A comparison of spending patterns between 2014 and 2013 reveals that only four sectors increased their spending: Software and Internet, Chemicals and Energy, Industrials and Automotive, with the highest percentage of 16.5% for Software and Internet. The other two ‘big spenders’, Computing and Electronics, and Healthcare, both decreased their spending, with 1.8% and 1.2% respectively. The biggest drop in spending is seen in the Telecom sector, which overall also is the industry that spends the least on research & development.
“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,” comments Barry Jaruzelski, Senior Partner at Strategy& and a co-author of the report. “Companies say they’re better at innovating today than they were a decade ago. It seems that companies can now do more with less, allowing them to moderate spending growth while still achieving results.”