strategy+business Winter 2013 : Page 36
Proﬁling the Global Innovation 1000 worldwide economic downturn, R&D spending among the Global Innovation 1000 increased by just 5.8 percent this year. This is in line with the average annual growth rate since 2002 of 5.5 percent, marking a return to business as usual. Still, two-thirds of the com-panies in our 2013 study increased their R&D spending, contributing to a total amount spent of US$638 billion—a $35 billion increase over 2012. (Data for the 2013 reporting pe-riod was gathered between July 2012 and June 2013. For more details, see “Methodology,” page 44.) Because the group’s total revenues increased by a mere 0.9 percent, to $17.7 trillion, R&D intensity—innovation spending as a percentage of revenues—rose two-tenths of a percent, reaching the highest R&D intensity level since 2010 ( see Exhibit A ). Exhibit A: R&D and Revenue R&D spending rose 5.8 percent in 2013, to US$638 billion, marking a return to the average 12-year growth rate. 1998 base year = 1.0 3.5 3.0 2.5 2.0 Revenue 1.5 1.0 0.5 R&D Spending A fter two years of close to 10 percent growth following the R&D Intensity (spending as a % of revenue) 2000 2005 2010 Source: Bloomberg data, Capital IQ, Booz & Company 19 20 14 21 Panasonic Sony TOP 20 TOTAL: $6.1 $5.7 $159.2 –3.5% 9.3% 4.6% 6.9% 7.0% 8.1% Japan Japan Computing and Electronics Computing and Electronics * Shifts were partly a result of changes in how we accounted for R&D spending this year; see Methodology. Source: Bloomberg data, Capital IQ, Booz & Company strategy+business issue 73 feature innovation 36 Exhibit B: The Top 20 R&D Spenders The top 20 companies were responsible for about 25 percent of the Global Innovation 1000’s total R&D spending in 2013. As in past years, this group was dominated by companies in the computing and electronics, healthcare, and auto industries. Google made its first appearance in the top 20 this year at number 12, joining Microsoft in the software and Internet segment. Rank 2013 2012 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 11 6 3 8 5 1 2 7 4 12 9 26 15 19 13 17 16 10 Company 2013 US$ Billions Volkswagen * Samsung Roche Holding Intel Microsoft Toyota Novartis Merck Pfizer Johnson & Johnson General Motors Google Honda Daimler * Sanofi IBM GlaxoSmithKline Nokia $11.4 $10.4 $10.2 $10.1 $9.8 $9.8 $9.3 $8.2 $7.9 $7.7 $7.4 $6.8 $6.8 $6.6 $6.3 $6.3 $6.3 $6.1 R&D Spending Change from 2012 22.4% 15.6% 14.7% 21.5% 8.5% 3.5% –2.6% –3.5% –13.3% 1.6% –9.3% 31.6% 7.8% 3.2% 2.3% 0.7% –1.0% –14.4% As a % of Revenue 4.6% 5.8% 21.0% 19.0% 13.3% 3.7% 16.5% 17.3% 13.3% 11.4% 4.8% 13.5% 5.7% 4.5% 14.1% 6.0% 15.0% 15.8% Headquarters Location Industry Europe South Korea Europe North America North America Japan Europe North America North America North America North America North America Japan Europe Europe North America Europe Europe Auto Computing and Electronics Healthcare Computing and Electronics Software and Internet Auto Healthcare Healthcare Healthcare Healthcare Auto Software and Internet Auto Auto Healthcare Computing and Electronics Healthcare Computing and Electronics
Profiling The Global Innovation 1000
After two years of close to 10 percent growth following the worldwide economic downturn, R&D spending among the Global Innovation 1000 increased by just 5.8 percent this year. This is in line with the average annual growth rate since 2002 of 5.5 percent, marking a return to business as usual. Still, two-thirds of the companies in our 2013 study increased their R&D spending, contributing to a total amount spent of US$638 billion-a $35 billion increase over 2012. (Data for the 2013 reporting period was gathered between July 2012 and June 2013. For more details, see "Methodology," page 44.) Because the group's total revenues increased by a mere 0.9 percent, to $17.7 trillion, R&D intensity-innovation spending as a percentage of revenues-rose two-tenths of a percent, reaching the highest R&D intensity level since 2010 (see Exhibit A).
The top 100 companies on the list accounted for 45 percent of the R&D spending growth and more than 60 percent of the total spent on innovation, and the top 20 companies alone made up almost a quarter of both total spending and spending growth. The list of the 20 largest spenders changed somewhat from last year (see Exhibit B). Volkswagen took the top spot, Samsung jumped from sixth to second, and Google made its first entrance in the top 20, at number 12. (Some of these shifts were a result of changes in how we accounted for R&D spending; see "Methodology.") Outside the top 20, 89 new companies entered the Global Innovation 1000. They contributed more than $16 billion in R&D spending, a healthy addition given that the 89 companies leaving the list spent less than $9 billion in 2012.
Together, three sectors-computing and electronics, healthcare, and auto-accounted for 65 percent of overall R&D spending, about the same proportion as last year (see Exhibit C). But this year the software and Internet sector overtook computing and electronics as the largest contributor to the growth in R&D spending. The software and Internet sector added 10 companies to the Global Innovation 1000 and boosted its innovation spending by $9.3 billion- more than any other sector, by both measures.
Despite the fact that its spending makes up just 8 percent of total R&D spending, the software and Internet sector's growth in spending appears to indicate that the tide is turning in favor of technologies that run our increasingly digitized world (see Exhibit D). In contrast, spending in the computing and electronics sector increased by just $3.4 billion-almost $10 billion less than last year's growth total. Twelve of the 28 computing and electronics companies in the top 100 spent less than last year; even IBM just maintained the same level of spending. Still, the computing and electronics industry remains the highest-spending sector by a wide margin-27 percent of the total, compared with 22 percent for healthcare, the second-highest spender.
Meanwhile, spending growth in the auto sector slowed to just $7.4 billion in 2013 from $13.2 billion last year; the flurry of R&D surrounding the launch of new models in the past several years is clearly abating. The healthcare sector, however, increased spending by $9.2 billion in 2013, up from an increase of $6 billion the year before. The industry received a boost from several healthcare companies that increased their spending significantly, including Roche in Europe, Gilead in the United States, and Takeda in Japan. The chemicals and energy sector was the only one to see a decline in spending this year, falling by $2 billion. The decline was mostly on the chemicals side; energy companies increased their spending overall.
With a few notable exceptions, the geographic picture looks similar to last year's (see Exhibit E, page 38). Innovation spending in companies headquartered in North America outpaced that of companies based in Europe and Japan (as well as the Global Innovation 1000 average), growing by 8.6 percent, although the number of companies in the Global Innovation 1000 from North America keeps decreasing- by nine this year, and there has been a decrease of 100 since 2008. In a promising turn of events, European companies increased spending by 4.5 percent despite the region's continuing economic struggles. Spending in Japan, however, fell this year by 3.6 percent. The rest of the world, which includes India (but not China, which was counted separately this year), grew by an impressive 17.5 percent, although the group continues to make up a relatively small portion of the total Global Innovation 1000.
China saw a net gain of 15 companies on the list this year. In fact, since 2008, the number of Chinese companies in the Global Innovation 1000 has risen from 10 to 75, and the total amount spent on R&D by Chinese companies on the list rose from $1.7 billion in 2008 to $20.5 billion in 2013. Yet China's increase in innovation spending slowed considerably in 2013, to 35.8 percent-a little more than half of its five-year compound annualized growth rate of 63. 9 percent. That's a reflection of the country's rate of economic expansion, which is down considerably from recent years. Indeed, no region can be expected to sustain such high growth rates over the long term.
Although we've returned to the status quo in terms of overall R&D spending growth, certain companies, industries, and regions are clearly making waves this year.