Statistics hide true picture of where R&D spending takes place

INNOVATION TALK:Of all the large multinationals in the world, which of them spends the most on research and development? Maybe you would think Boeing, or perhaps Apple, or possibly one of the oil exploration companies? Which industry sector spends the most on RD globally – maybe the IT and telecommunication sectors? Which continent is most aggressively accelerating its industrial RD spend – perhaps Asia?

A fascinating analysis of the global spend by companies on RD, with a particular focus on European companies, was recently announced by EU Commissioner Maire Geoghegan-Quinn. Her team annually publish an “Industrial RD Investment Scoreboard”, and this year surveyed 1,500 companies worldwide (online at bit.ly/TXyYDL).

The comparison of RD investment by so many companies in so many jurisdictions is a truly daunting undertaking. The work is derived from an analysis of the published annual returns of the companies involved. Of course there are many caveats: companies vary the amount of information they disclose in their annual reports; fiscal year-ends vary from company to company; both mergers and divestments occur; accounting norms still vary tremendously in regulation and interpretation across the planet; exchange rates fluctuate; and so on.

But the very largest caveat, and which is amply stressed by the report’s authors, is that the report does NOT identify precisely where RD is undertaken, and instead merely attributes the entire global spend on RD by each company solely to its corporate location. As an example, Microsoft has many research centres worldwide (including Ireland), but the report simply notes that that Microsoft is headquartered in the US and spent an estimated €7.6 billion (in various locations) on RD during its fiscal 2011 year.

So, which company spent the most on RD? Answer: Toyota, with approximately €7.75 billion during 2011. Which industry sector spends the most on RD? Answer: the automobile sector – while Toyota was number one by RD spend in the world, Volkswagen was 3rd; General Motors 9th; Daimler 12th; Honda 14th; and Nissan 20th. The top IT companies were Microsoft 2nd; Samsung 5th; Intel 8th, and Nokia 15th. Google was 26th; Apple 59th, and Facebook 294th. This neatly illustrates that commercial success (at least in the IT sector) is not driven by the amount of RD spend, but rather by the focus of RD investment on judiciously chosen product initiatives: for example, Apple has 47 per cent higher revenues than Microsoft, but spends just 25 per cent of what Microsoft spends on RD.

Which continent is most aggressive in its growth of RD spend? The report notes that both the US and Europe grew their respective spends by about 9 per cent in 2011, ahead of the global average (of about 8 per cent). In absolute terms, the US is ahead of Europe: the former spent €178 billion and the latter €145 billion, on industrial RD. However, to repeat the point, these figures are only approximate since the report notes only where companies are headquartered, and not the various locations where their respective RD spends actually occur.