Chinese companies’ R&D spending growth leads the world

Shanghai, 1 November 2018 - PwC’s Strategy& today unveiled the 14th edition Global Innovation 1000 Study report. The report found that annual worldwide corporate R&D spending increased by 11.4% in 2018, totaling US$782 billion in annual investment, based on an annual analysis of the 1000 largest global public companies by R&D spend. Chinese companies’ R&D spending increased by 34.4% to reach US$60.08 billion, marking the largest growth globally. Amazon maintained the top spot as the largest corporate spender on R&D (US$22.6 billion) for the second year in a row. Alibaba remained the top R&D spender in China for the third consecutive year.

PwC’s Strategy& Global Innovation 1000 Study analyses spending at the world’s 1,000 largest publicly listed corporate R&D spenders in FY 2018 (1 July 2017 – 30 June 2018), which accounts for 40% of total R&D spending globally. The report classifies all companies into nine industries (including an “Other” industry classification for those that do not fall into the first eight industries) and five regions based on where their headquarters are located.

Globally, all regions saw an increase in R&D spend, most notably China (+34.4%) and Europe (+14%) where spending grew by double digit rates, while North America (+7.8%)  and Japan (+9.3%) saw only single digits increases in R&D. Overall R&D intensity – the measure of R&D spending relative to sales – remains at an all-time high of 4.5%. 

By industry, the consumer industry overtook the software & internet industry for the first time in five years, experiencing fastest year-on-year growth in R&D spending (+26.3%). The computing and electronics industry accounted for 22.5% of the total R&D spending, ranking first among all sectors. The study shows that the healthcare industry is on track to become the biggest R&D spending sector by 2020.

Huchu Xu, Managing Director of PwC Strategy& Greater China, said: “As companies become more competitive in the 21st century, the standards of innovation capability have been continuously raised. Our study found that the key to excellence in innovation is to ensure innovation strategies are highly aligned with business strategies, corporate culture and leadership team while increasing R&D spending. Companies need to have better understanding of customer insights and strictly execute these strategies throughout the innovation cycle.”

Chinese companies’ R&D expenditure accounted for 7.8% of the total for the 1,000 companies, up from 6.4% last year. The number of Chinese companies on the list rose from 125 to 145. For the third consecutive year, Alibaba topped the list of Chinese companies’ R&D spending, with R&D expenditure of US$3.6 billion.

Patrick Hui, PwC Mainland China & Hong Kong Consulting Partner, said: “As China forges ahead with its innovation-driven growth strategy, innovation will become the top driving force for development. This year’s report showed that China’s R&D spending has been increasing significantly. Twenty more Chinese companies entered the Global Innovation 1000 list compared with last year, thanks to the country’s strategic move to gear up developing an innovation-driven country. In addition, R&D spending has increased in all industries in China, especially in the software and internet as well as industrial sectors.”

In a five-year study of company performance and innovation investment relative to industry peers as part of this year’s report, 88 companies world-wide, across all regions and industries, were assessed as ‘high-leverage innovators’. These companies outperformed their industry groups on seven key measures of financial success in 2012-2017. The basket of seven metrics of financial success include revenue growth, market capitalization growth, and operating margin. For the five years ending in 2017, these 88 companies demonstrated sales growth which was 2.6 times greater than the other 912 companies on the Global Innovation 1000 list and with growth in market capitalization that was 2.9 times higher.

Regionally, the list reflects the continued dramatic rise of China-headquartered companies — from 3% in the first High-leverage Innovators assessment in 2007 to 17% in 2017. The number of high-leverage innovators fell 45% for North American companies. By industry, the number of high-leverage innovators in the healthcare sector was the highest, accounting for 26% of the total and surpassing the computing and electronics industry for the first time.

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