Global R&D spend surpasses $700 billion, but threatened by protectionism

24 October 2017

A new report into the world’s top 1000 innovators has revealed that R&D spending has hit $700 billion. However, a third of companies surveyed felt that economic nationalism had begun to impact on their talent acquisition and retention, and a further quarter suggested their companies were under pressure to change how they conducted innovation, due to uncertainty surrounding Brexit and the current White House administration, among other geopolitical forces at play.

At the end of the latest financial year, the total worldwide R&D spend between the world’s 1000 largest corporate R&D spenders increased on last year’s levels by 3.2%, to $701.6 billion – the first time the collective bill exceeded the $700 billion mark. According to a new study by Strategy&, while this spike in spending suggests optimism, R&D leaders they surveyed from around the world are increasingly concerned about economic nationalism, and its potential to impact where companies invest in R&D and innovation.

While the Donald Trump Presidency continues to threaten the implementation of protectionist export and import policies, in the UK this concern chiefly relates to the unknown quantity of Brexit. The report, which analyses spending at the world’s 1,000 largest publicly listed corporate R&D spenders, saw 562 R&D leaders globally surveyed, found that more than half (52%) believe a general move toward economic nationalism around the world would lead to at least a moderate or significant impact on their company’s R&D efforts. The Global Innovation 1000 companies collectively account for just over 40% of the entire world’s R&D spending, from all sources, including corporate and government sources. Of the more than $700 billion put toward R&D efforts, 3% came from the UK.

Global Innovation 1000 R&D Spending

According to respondents from the survey, a quarter of executives surveyed had already experienced some pressure to change how or where they conduct innovation due to the increasingly volatile trading relations exemplified by the US and UK. 33% have meanwhile felt the effects on their R&D talent acquisition or retention – something particularly pertinent in the UK as thousands of skilled EU nationals consider returning to the mainland post-Brexit

Major companies have been conducting some R&D outside their headquarters’ countries for decades. But increasing attention on regulations and policies around visas, labour movement, and how to govern the sharing of knowledge and technology are causing some to question how sustainable their integrated global innovation networks are.

Survey participants believe the US, UK, and China could be most at risk from potential changes in policy that could impact R&D investment; while Canada, Germany, and France were likely to be the major beneficiaries if protectionist policies broadly became a reality. To this end, Frankfurt, in Germany, is among a number of major European cities which has already seen a major boost to its Financial Services sector, as banks and institutions consider relocating from London to remain within the free trade zone of the EU.

R&D by region

Europe’s total R&D spend among the top companies featured in the research was $188 billion. That is a 2.9% increase on last year’s figures – which are beginning to recover from a major 9% retraction in 2016. This may be relating to initial caution in part caused by Brexit, followed by a collective rallying of the market to prepare for tough times by investing in innovative, potentially cost cutting, measures now, while the getting is good. North America, by contrast, has remained bullish in the R&D investment stakes throughout both years – increasing 8% in 2016, and rising a further 3.8% this year. While this slowing may also indicate a slight cooling of optimism following the US’ own shock election, the belief in the need to invest in the future remains high – with a total spend of $308 billion across North America.

John Potter, partner in PwC’s Strategy&, said, “To deliver innovation, many of world’s largest companies rely on shifting talent, money, and ideas across borders. If policies in the major global economic powers start to focus more inwardly, however, this would cast uncertainty over companies’ innovation plans and their current models would need to evolve.

Sector spend

Surprisingly, the highest spending industry for R&D was in fact healthcare. While tech-giants Alphabet, Apple and Amazon saw the sector monopolise the very peak of Strategy&’s rankings, healthcare investors sank $173 billion into R&D – compared to computing and electronics ($159 billion) and software and internet companies ($145 billion). The global trend was replicated in the UK market, where the healthcare industry continues to invest a huge 49% of the total R&D spend. The automotive and aerospace and defence industries complete the top three for R&D spending by UK companies, investing 21% and 7% of the total respectively.

AstraZeneca ranked first in the UK, and 21 in the world, for its R&D spend – followed by fellow pharmaceutical conglomerate GlaxoSmithKline on $5.9 and $4.5 billion, respectively. They were followed by two representatives of the automotive industry – Fiat Chrysler Automobiles ($3.5 billion) and Delphi Automotive ($1.2 billion), as well as aerospace and defence manufacturers Rolls-Royce Holdings ($1.1 billion) rounding off the top five. These were the only companies to break the billion dollar investment barrier in the UK, and are each from industries which are likely to be acutely affected by import and export tariffs resulting from a “Hard Brexit”, or “No Deal” scenario, which is reportedly increasingly likely due to faltering negotiations between the UK and Brussels. Globally, the automotive industry was only the fourth highest spending segment on R&D, while Aerospace and Defence sat in seventh.

R&D by industry

In all, a total of 36 UK companies were part of the top 1,000 largest publicly listed corporate R&D spenders last fiscal year, investing a total of $23 billion (3.3% of the global total) in R&D between them. While this was a slight increase on the 3.1% of their revenue spent on R&D in 2016, the companies still put less than the global average toward research, at 3.8% of their revenue, compared to the total average of 4.5%.

Marco Amitrano, UK consulting leader at PwC, commented, “Organisations that operate in and around the UK are rightly watching the ongoing Brexit negotiations closely and, as greater clarity emerges, that will drive decisions on investment bets to support medium and long-term plans. Innovation is essential for the future success of any economy, but here in the UK, the development of policy to maintain companies’ ability to bring talent from abroad will be an area of critical debate and importance for business. We need to make sure that stronger borders don't mean weaker innovation.”

Global Top Innovators

Eight of the 10 most innovative companies this year were headquartered in the United States – while half of the 10 most innovative companies were founded within just the last quarter of a century – Amazon in 1994, Alphabet (as Google) in 1998, Alibaba in 1999, Tesla in 2003, and Facebook in 2004. Bucking that trend, General Electric, a company founded over 100 years ago by the legendary inventor Thomas Edison, remains a major investor in innovation, at number seven – having risen from ninth in 2016.

Alphabet (which is now the umbrella name under which the Google group sits) was selected as the world’s most innovative company by respondents to Strategy&’s 2017 Global Innovation 1000 survey –having finally surpassed Apple, which had held the number one spot since Strategy& first sought to identify the most innovative company, in 2010. Alphabet’s top ranking comes just two years after Google announced its new holding company structure, separating its more mature businesses from new ventures in such fields as autonomous vehicles and life sciences.

Apple, now at number two, meanwhile is by far the most efficient innovator among major players in the computing and electronics and software and Internet sectors. While the company could easily up its collective R&D spend, the company used 4.7% of its revenue, or $10 billion, on R&D in 2017. Apple spends up to 60% less on R&D as a percentage of revenue than many other top computing and electronics companies – while still achieving innovative results, getting the best value for money from their investment on the ranking.


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Two thirds of UK employees not empowered enough to innovate

18 March 2019

A culture of equality can drive innovation at work, but only a third of UK employees feel empowered to innovate at present. This demonstrates a significant disconnect between workers and their bosses in the UK, with 76% of business leaders also claiming they empower employees to be innovative.

Despite innovation increasingly being seen as integral to the survival of businesses, innovation remains relatively difficult to achieve. A lagging disconnect between management and staff remains the driving force behind this. One study by PA Consulting previously confirmed that while 66% of companies believe they will not survive without innovation, only 24% said they had the skills needed for that, and only half thought they had the right leadership in place to change that in time.

In order to find a way around this problem, global consultancy Accenture has completed its own study into innovation, polling around 700 bosses and workers across the UK to do so. The key finding of the research is that companies with a culture of equality can see an individual’s willingness and ability to innovate improved by seven times that of the least equitable workplace cultures. At the same time, an innovation mindset is almost twice as high in the most-equal companies as in typical ones.

91% of employees want to innovate but just 34% in typical United Kingdom companies feel empowered to

What remains clear, however, is that most companies are failing to adequately create an equal culture, where staff of all ranks feel comfortable contributing new ideas. 91% of employees want to innovate but just 34% in typical UK companies feel empowered to. That is higher in the most equal companies, where 75% of staff feel confident making suggestions, compared to just 5% of the least equal, and 34% of typical companies. Since those equal companies are comparatively fewer, when averaged out, only a third of UK staff feel they are empowered to innovate.

That figure stands in stark contrast to the perceptions of UK executives, however.  76% of business leaders in Britain believe that they do indeed regularly empower their employees to innovate. As a result, it seems that leaders mistakenly believe that some circumstances encourage innovation more than they actually do. For instance, they overestimate financial rewards and underestimate purpose.

The opportunity which is presented by addressing this divorce is enormous. Accenture calculates that global gross domestic product would increase by up to £6 trillion over 10 years if the innovation mindset in all countries were raised by 10%.Top 10 workplace culture factors - by strength of impact on innovation mindsetAccording to Accenture, the best way to impact positively on a company’s innovation mindset is through the provision of relevant training – associated with a 10.5% uplift to staff’s confidence innovating. Allowing the freedom for employees to be creative followed, contributing an 8.1% boost, while ensuring that training times are flexible and the firm allows a healthy work-life balance both see a more than 7% improvement. Similarly, remote working being available and being common practice will buoy creativity by 6.9% – further demonstrating the importance of flexible working to improve innovation culture at a firm.

Commenting on the report, Rebecca Tully, executive sponsor for Human Capital and Diversity for Accenture in the UK and Ireland, said, “Our research reveals that a workplace culture of equality is an overlooked driver of innovation within companies. By understanding what motivates their employees and fostering an environment where people feel empowered, business leaders have the opportunity to unleash the innovation required to compete effectively in an era of disruption.”

The research came as part of a global survey by Accenture, which queried more than 18,000 professionals in 27 countries and 150 C-suite executives in eight countries. The overall research determined that an empowering environment is by far the most important of the three culture-of-equality categories in increasing an innovation mindset, which consists of six elements: purpose, autonomy, resources, inspiration, collaboration and experimentation. The more empowering the workplace environment, the higher the innovation mindset score.