Now celebrating its 13th year, the Global Innovation 1000 Study by PwC’s Strategy& is an examination of trends among the world’s thousand largest corporate R&D spenders. PwC’s Digital Pulse looks at what the study tells us about today’s successful drivers of innovation – and the challenges that may be on the horizon.

Funding allocated to innovation at some of the world’s leading corporates is on the up. In the last year, total R&D spending among the Global Innovation 1000 – those companies that already invest the most in research and development – grew by 3.2%, exceeding US$700bn for the first time.

But economic nationalist policies – those that favour domestic control of industries, labour and capital – could have a big impact on how research is conducted going forward.

Tech companies lead
the R&D charge

Continuing the tradition of recent years, computer and software industries still shine in the R&D stakes, outperforming all other organisations in terms of billions spent.

Computing, electronics, software and internet firms take up nine of the top 20 places and are responsible for almost half of the total spend – with a high tech firm, Amazon, perhaps unsurprisingly putting the most money behind its innovation efforts.

Dollars didn’t necessarily equate to performance this year, with Google’s parent company, Alphabet, ranked the most innovative company in the world, knocking Apple out of its long-held lead spot.

While computing and electronics companies (for example Samsung or Intel) spend the most on R&D, it’s software and internet firms (such as Alphabet and Microsoft) that are growing the fastest, with 16.1% year-on-year growth.

Healthcare is vigorously
rising up the charts

Pharmaceutical and biotech companies also placed a heavy focus on innovation in 2017, making up a quarter of the top 20 spenders. In Australia, medical device producer Cochlear and biotechnology company CSL form two of the top four R&D spenders.

This is a trend that’s set to continue. By 2018, it is estimated that healthcare will surpass computing and electronics to become the biggest industry in the Global 1000. Currently, it remains a close second in terms of dollar amounts but even so, healthcare contributes a robust 22.7% of R&D spending of all the surveyed companies.

Inward-looking economic policies
may prove disruptive for innovation

A key takeaway of this year’s survey is the effect of economic nationalism on innovation. The Global 1000 are concerned about the effects of major economies such as the US, China and the UK turning to more insular and protective policies and stronger borders.

Ninety-four percent of the companies in our study follow global innovation models, meaning they pursue the free flow of information, money and talent across borders. Previous results from the PwC Global Innovation 1000 indicated that businesses were continuing to look for talent outside of their headquartered country and that they tend to set up R&D centres close to target markets.

Restrictions on visas, talent and the sharing of knowledge could prove both disruptive and costly to these companies. The United States in particular will find this hard, with immigrants to the US holding a large share of jobs in high-tech, science and engineering sectors. International and immigrant students looking to study postgraduate programs in the US will also face significant barriers.

Eighty percent of China’s R&D spend in 2015 came from companies headquartered outside of its borders, predominantly in the US, so it is particularly vulnerable to US policy change.

Finally, the UK’s exit from the European Union will not only mean a shortage of skilled workers at home, but it’s predicted that weaker R&D programs will have a ripple effect across EU countries.

New economic models
mean new systems for R&D

Some countries are expected to gain from the economic nationalism sweeping the globe, such as Canada and its focus on international university student acquisition, Germany with its pro-globalisation stance and France with President Macron’s pro-innovation platform, including things such as a tech-specific visas. Others, meanwhile, will need to adapt their R&D systems to remain competitive.

Generally, this will mean moving away from the favoured integrated and interdependent network model of innovation. This model, which looks for talent outside of the headquartered country and sets up decentralised R&D centres in or near target markets with strong links to the central organisation.

Instead, innovation may need to move to autonomous R&D hubs. Setting up self-sufficient innovation centres that are staffed locally is costly and it will be important for these companies to invest in digital tools to enable and maintain communication and efficiency with HQ. The reality may be, however, that such a scenario will be inefficient and create redundancies in the quest for overall innovation goals[1].

Highest performers are more sensitive
to nationalism

More than half of all respondents in the study said that economic nationalism will have a moderate or significant impact on their R&D efforts.

Of the Global 1000, it’s the highest performing companies that see the risk of nationalist change. They’re also the most likely to take action to weather the storm. Companies that are low to middling performers are less likely to view economic nationalism as a potential problem and therefore also less likely to prepare for it to happen.

One of the areas that will be impacted in the spread of this political climate is human resources. Companies will need to hire specialised talent in local markets and create self-contained nodes for them to work in.

This won’t be an easy task. Current employees will be lost as visa restrictions are enforced and there will be less available talent to hire from.

If economic nationalism as a political trend is one that continues, the effect on innovation could be hardfelt.

Organisations, particularly ones that operate across borders, need to be aware, if not open to, the changes that this could have on their research and development efforts going forward.


To access the latest findings on innovation spend, visit PwC’s 2017 Global Innovation 1000 Study.