For companies, spending on research and development is an investment in the future – the money invested is something like life insurance. Because only if there are good and innovative products in the future will companies, regardless of their industry, be successful. Saving on this during a crisis can have particularly negative consequences. In this respect, what a new report from the management consultancy EY now shows is quite alarming: in 2023, American companies increased research spending twice as much as German ones.
According to EY, the research and development budgets of the 500 companies worldwide with the highest innovation spending increased by a total of twelve percent in 2023 – even though sales only increased by two percent and overall profits even shrank by nine percent. According to the numbers, the largest investors in innovation are still based in the United States: 169 of the top 500 investors worldwide are US companies. This is followed by Japan (86 companies), China and Germany. Since 2018, the number of US companies in the ranking has increased significantly: from 140 to 169. Asia in particular has lost weight: the number of Asian companies in the ranking fell from 213 to 180.
“Innovations are the profits of the day after tomorrow”
Interesting: The online retailer Amazon invests by far the most in research worldwide, almost 80 billion euros per year. This is followed by companies such as Alphabet (Google), Meta (Facebook, Instagram), Merck (Pharma) and Apple. Volkswagen is in eighth place as the first European company, ahead of Intel (semiconductors) and Roche (pharmaceuticals). In Germany, BMW, SAP, Mercedes, Siemens and Bayer are also investing particularly heavily in innovations.
“The gap between the USA and Europe and Asia threatens to widen further. Because today’s R&D investments are tomorrow’s innovations and the profits of the day after tomorrow,” warns Henrik Ahlers, CEO at EY Germany. The fact that the budgets for research and development were further increased last year despite the economic headwind is also due to the bitter competition for technological leadership. Companies would have to save money given the global economic uncertainty and the difficult situation. “But the majority resist the temptation to cut spending on research and development,” says Ahlers.
Pharmaceutical companies invest the most in research worldwide, especially in Europe, but also car manufacturers such as Volkswagen, BMW and Mercedes. On average, around six percent of sales are invested in research and development. “Innovation efforts often only pay off after several years – failures can also cost a lot of money,” says Ahlers. However, high R&D investments per se do not guarantee long-term market success.
For 2023, German companies paid record dividends to their shareholders despite declining profits. Given the technological upheavals, for example in the automotive industry, the money could also be better invested in innovations.