The Global 1,250 R&D Scorecard 2006 that was published today, Oct. 30th, by the UK Department of Trade and Industry, highlights that large companies are pouring money into research and development at an unprecedented rate, in response to growing global competition. The Scoreboard, shows a 7 per cent increase in spending by the world’s top 1,250 companies.

“In many sectors profits are growing strongly and companies can afford to spend more on R&D,” says Norman Price, an industrialist at the UK Department of Trade and Industry. “Where profits are weak, such as the automotive industry, the competition is so fierce that companies dare not cut their investment.”

European companies spent 5.6 per cent more in 2005-6 than the average of the previous four years. The comparable increase for US companies was 15.4 per cent. The two Irish companies on on the Scorecard - Elan and Kerry Group - increased their spending by 26 and 12 per percent respectively.

The biggest rise was in Asia. The 44 Taiwanese companies in the scoreboard increased their R&D investment by 30.5 per cent last year, while the 17 South Korean companies posted 11.9 per cent R&D investment growth.

While Taiwanese R&D is spread among a number of electronics and computer companies, the Korean  R&D spending is dominated by three corporate groups: Samsung and LG in electronics, and Hyundai in cars.

Samsung’s R&D spending surged to $5.44bn (€4.3bn, £2.9bn) from $1.88bn over the past four years. “The way Samsung has poured resources into R&D has had an impact elsewhere in the electronics industry, with other companies increasing spending so as not to be left behind,” says Norman Price.

In Japan, companies raised spending by 4 per cent in 2005-6 and their investment was only 5.9 per cent above the average of the previous four years.

Chinese and Indian companies are spending little on their own R&D. Three Indian companies appear on the scoreboard: Ranbaxy and Dr Reddys in pharmaceuticals and Tata Motors. Indian tech companies such as Wipro, Infosys and Biocon, spent less on R&D than the $33m minimum required to make the global top 1,250.

The biggest sectoral change in the scoreboard since its launch in 1992 has been the rise in pharmaceuticals, which provided no companies among the top 20 R&D spenders 14 years ago and has six entries now. In contrast, the telecoms and chemicals industries, each of which had two top-20 companies in 1992, have none now.

The automotive sector continues to head the rankings, which General Motors headed for most of the 1990's and Ford or DaimlerChrysler since then.

Aerospace and defence are the sectors which had the fastest R&D growth of any sector in 2005-6 (13.5 per cent), as governments’ raised defence budgets. Oil and gas (11.8 per cent) was next in line, in response to rising energy prices. Software (8.9 per cent) and pharmaceuticals (8.3 per cent) also had above average growth.

R&D spending in the chemicals sector fell 0.9 per cent in 2005-6 and is 3.3 per cent below the average of the previous four years.

Global 1250

The 2006 R&D Scoreboard contains extensive data on the top 1250 global R&D investing companies and the top 800 from the UK.

• The Global 1250 is dominated by companies based in a few major economies (82% of R&D is from companies based in the USA, Japan, Germany, France and the UK), by large companies (61% of the R&D is done by the top 100 companies) and by companies in major R&D sectors (70% of R&D is in the top 5 sectors: technology hardware, pharmaceuticals, automotive, electronics and software).
• Growth trends apparent in the Global 1250 as a whole include: Further increases in company profitability and R&D growth over those reported in 2005. Pharmaceuticals and software R&D growing faster than other large sectors (technology hardware, automotive and electronics) and showing the highest profitability of the top 15 sectors. Aerospace & defence growing R&D fastest of the top 15 sectors (+13.5%). Continued high growth of R&D from companies in South Korea and Taiwan.
• The Global 1250 companies from different countries have very different sector mixes, with automotive dominating in Germany, pharmaceuticals in the UK and electronics in South Korea, for example. The proportion of R&D-intensive, Capex-intensive and service companies also varies considerably by country. These large sector mix differences are the key determinant of average profitability, of average R&D intensity and of the patents-to-R&D ratio by country.
• Almost one quarter of the Global 1250 companies are middlesized (sales £50m to £500m); over three quarters of these are from pharmaceuticals, software and technology hardware. The USA has the largest proportion of its companies in the middle-sized category. The UK has the second largest proportion amongst the top 7 R&D nations.
• Middle-sized R&D-active companies can become large very quickly – several have grown from sales of £300m to over £1bn in just 3 years. There are also several examples of profitable UK R&D-intensive companies that have grown sales fast over the last 2 years.

UK R&D and the UK800

• There are 72 UK-owned companies in the Global 1250, the third largest country group (equal to Germany) which have total R&D of £13.1bn, an increase over the previous year of over 8%.
• The total R&D of the separate UK 800 (which contains the 72 companies in the Global 1250) is £19.2bn compared to £17bn reported in the 2005 Scoreboard. The increase is due both to greater disclosure of R&D under IFRS by companies in sectors such as banks, insurance, media and retail and to an increase in R&D more generally (up 4% in 2006 compared to a decrease of 1% in 2005). Listed UK companies have grown their R&D by over 8%.
• UK R&D is particularly strong in pharmaceuticals and aerospace and contains a growing software sector (119 companies in 2006). The proportion of UK companies with R&D above £2.9m and with high R&D intensity (over 10%) is rising and is significantly above that of the rest of the EU although still below the USA.
• The top ten foreign-owned UK companies account for just over half of the £4.4bn of R&D performed by foreign-owned UK companies. Eight of these 10 have higher R&D intensities than their overseas parents and this emphasises the attractions of the UK as a location for R&D.

R&D investment and company success

• R&D is a major investment contributing to company success along with other factors like excellent operations and good strategic choices. There are well-established links between R&D growth and intensity and sales growth, wealth creation efficiency and market value.
• The Scoreboard contains several technology companies that increased R&D from 2001 to 2002 even though sales declined following the 2000 high in technology stocks. These companies continued to increase R&D after 2002, and had strong sales growth in later years and are showing good profitability in 2005/06. Some UK companies showed similar behaviour from 2000 to 2005 and then also increased sales in the latter part of this period with good profitability in 2005/06.