What's fueling the global R&D spends growth?

BANGALORE, INDIA: Zinnov's recent findings says that the total R&D investment by Global 500 companies grew by 4.31 percent from 2013 (USD 604 Billion) and reached a USD 614 Billion mark in FY2014.

The number of companies that spend more than USD 1 Billion in R&D Expenditure has also increased though the share of R&D spending has not seen any significant change.

“Technology and market disruptions are having large scale impact on Global 500 companies with a much faster churn being witnessed than ever before. New age companies like Tesla, Garmin, Facebook are threatening the incumbents with large R&D spends," said Preeti Anand, Associate Director, Zinnov.

The study highlighted that over 65% of the overall R&D spend was contributed by the top 100 R&D spenders, with majority of this growth coming from North American and APAC based firms.

Growth led by APAC countries:

It is interesting to note that the Billion Dollar club is gaining more companies from the APAC region. In terms of geography, China saw the maximum amount of growth of 20 percent in R&D spend from 2012 to 2014; even higher when compared with Europe (consistent over last 3 yrs) and North America (steady at 4-5% growth) and Japan (which is on a recovery after a strong decline the previous year).

Consumer/Web 2.0 and E-commerce companies such as Baidu, Tencent, Ctrip.com etc. led the growth in R&D in China, while the contribution by Telecommunication (Huawei, ZTE) and Automotive segment (Great Wall Motors, Byd Co Ltd-H, Dongfeng Motor) is also on a rise. It also brought to light that companies based out of Beijing, Shanghai and Shenzhen contribute to more than 95% of the total R&D spending in China. The Global 500 R&D spend in China stood at USD 26Bn in 2014.

"China is visibly and firmly establishing itself as an R&D powerhouse with 4x the growth in R&D spend as compared to even US West coast companies. This is good news for Asia overall as the region will continue to attract more R&D investments across key industry segments such as Web 2.0/Ecommerce, Automotive and Telecom from both home-grown and multinational companies,” said Anand.

R&D spend trend in various verticals:

Automotive- USD 109bn

Semiconductor- USD 51bn

Software / Internet- USD 71bn

Consumer Electronics- USD 46bn

Telecommunication- USD 41bn

As for industry specific R&D trends, the released Zinnov study showcased that companies from the Consumer / Web 2.0 & E-Commerce vertical registered a 35% growth in R&D spend in FY 2014 largely due to increased focus on machine learning, mobility and data driven decision making.

Semiconductor companies had a 7% growth in R&D spend (driven by IoT, emerging market demand for smartphones etc.)

Automotive segment with a 2% growth (driven by driverless cars, demand for high end electronics etc.)

Companies from Hi-Tech verticals like Software, Internet and Semiconductor have an average R&D intensity(% of revenue spent on R&D) of more than 10 percent as compared to other segments such as medical devices, consumer electronics and telecommunications which has an average R&D intensity of 4-5 percent – indicating the increased relevance of R&D in these companies.