R&D: Keeping the lights on in the ideas factories

UK chancellor Rishi Sunak’s moves, outlined in the Spring Statement, to improve the effectiveness of research and development are timely. The UK trails others when it comes to spending in the innovation labs and drawing boards. Spending on RD at the top-ranked 2,500 companies worldwide rose 6 per cent in 2020 to €908.9bn, according to the European Commission’s latest investment scoreboard — even as capital expenditure and sales dipped.

To be sure, RD’s big spenders are a more cosseted bunch. Closed schools, offices, shops and cinemas played into the hands of tech companies such as Alphabet, which leads the pack spending $27.6bn, or 15 per cent of sales, in 2020.

The tech sector is more geared towards ideas than factories. Alphabet’s spend was a quarter above its capital expenditure. Lines tend to blur. Equipment costs can frequently go in either bucket. Amazon, which bundles up “technology and content” at $42.7bn, is perforce excluded from the commission’s scoreboard.

Still, the upwards trend on spending, for the 11th year in a row, deserves plaudits. Putting money to work in innovation helps mankind. The past couple of years have proved the point in spades, with everything from vaccinations to virtual roadshows. It also helps investors, explaining the appeal of both high growth blue-chips and pre-revenue biotech wonders.

The tech-heavy US leads the way, accounting for nearly two-fifths of global RD spend, up 9 per cent in 2020. China, with a similar bent and a penchant for filing patents and academic papers, increased spending 18 per cent and accounts for a 15 per cent slice. However, the nation’s top spender, second-ranked Huawei, may find its place slipping as blacklisting by the US dented sales 29 per cent last year.

Europe is the slouch. Finland, France and Italy lead the downward dip in spending. Culprits include carmakers Renault and Peugeot as well as Leonardo in aerospace and telecoms hardware group Nokia. The continent’s focus on the auto sector — where companies invest three times as much as their US counterparts — puts it in a crowded field. China alone has hundreds of electric vehicle companies and Tesla of the US leads. Investing in innovation seems best done outside Europe.

Source: Financial Times