PA Consulting: Manufacturing R&D moving to China

03 June 2015

Emerging markets are gaining considerable traction in terms of attracting the R&D investment dollar, with nearly 40% of high-tech and 43% of automotive R&D to occur in emerging markets by 2025, a survey from PA Consulting finds. Especially China is seen as very appealing. However, while big players (>€5 billion) are making the move to emerging markets to take advantage of their know-how and proximity to growing markets, small players (<€1 billion) are less likely to make the move.

In a recent survey from PA Consulting and the ESB Business School*, titled ‘Innovation for peak performance’, the authors seek to determine the key components of a successful innovation strategy in engineering intensive industries. The survey involved 61 participants from 4 industries, with respondents from automotive 17%, consumer goods 22%, high-tech 26% and mechanical engineering 35%. Most of the respondents came from Europe (83%), with Germany providing 38% of respondents and the UK 17%. Over a third (36%) of those surveyed has revenues of more than €5 billion and 25% have less than a billion.

Participants by country

Emerging R&D investment
The survey results show that the R&D footprint, in terms of investment, is set to shift away from developed markets towards emerging markets. High-tech and mechanical engineering companies particularly are likely to see major demographic shifts in terms of their local activity – with high-tech increasing its emerging market presence by 20%, while mechanical engineering will increase its emerging market share by 18%. The automotive industry will see the smallest gain in changing R&D investment, up from 21% to 29%.

Global R&D Investment Distribution - Today and 2025

Motivating R&D relocation
The biggest motivation for companies making R&D investment allocations – on average – is the proximity to market, followed by access to know-how, with cost reduction coming in third. Among top players, ranked highest in the new product vs. revenue spend per industry, access to know-how is by far the most important, followed by proximity to market, with cost reduction a close third.

Drivers and motivation for R&D investment allocation

With a breakdown of the movement of investment to emerging markets in terms of respondents by revenue size, a considerable disparity occurs between those of revenue of <€1 billion (small players) and those with revenue of more than €5 billion (big players).

Only 11% of those of less than a billion expecting to move their R&D activity to emerging markets while those between €1 – €5 billion expand their emerging market share by 20%, with potential consequences of further from the market and production, and those with revenue of more than five billion by 19%.

Global R&D investment distribution - Today and 2025

The Chinese development
In term of countries set to see the largest allocation of new R&D investment, China is set to enjoy massive growth over the coming years, with 70% of respondents ranking China as the country where the highest growth in R&D investment might occur. This compares to 16% ranking the US and 16% Europe. Africa, while an emerging market, has the smallest share of respondents ranking the area – at 4%. India too remains relatively unattractively ranked, with 19% of respondents indicating it as a place for growth in R&D investment.

Respondents ranking R&D growth potential

* The ESB Business School is the business school of Reutlingen University in Baden-Württemberg, Germany.


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.