Companies across the board are ramping up their research and development (R&D) efforts to keep ahead of their competition, and develop products and services for the post-pandemic age.

Digital economy heavyweights have intensified their R&D efforts to maintain their dominance as Covid-19 disrupts industries worldwide and accelerates macro trends. Amazon stood out as the world’s biggest R&D spender, followed by other big techs, as well as companies in the pharmaceutical and biotechnology, communications and automotive industries.

Advertisement

“People thought that Covid-19 was going to stop R&D expense and innovation, and what we’ve seen is the opposite,” says Ramón Baeza, a managing director and senior partner in Boston Consulting Group’s Madrid office, who co-authors the consultancy’s annual survey of global innovation experts.

“Disruption is much bigger than in the past and is becoming more and more important, [and this] makes innovation more necessary. The way for companies to differentiate themselves and to gain competitive advantage is through innovation,” he adds.

With disruption and innovation high on the agenda, fDi has undertaken an analysis of R&D spending in publicly-listed companies based on their latest published annual reports and, where data is unavailable, from investment research platform YCharts (see methodology and table at bottom of article).

This analysis explores the world’s top 100 companies by R&D expenses during the calendar year of 2020.

Big tech dominates top five

Amazon ranked as the leading R&D spender in 2020, investing a massive $42.7bn — a figure 18.95% higher than a year earlier. This has helped it maintain its leading position within the e-commerce, cloud and logistics industries, where it has had a profound impact on global foreign direct investment (FDI).

While Amazon won the race for the global top spot, there is some debate around its $42.7bn figure, which the company reports as “technology and content”. Observers have claimed this could lead to an overestimate of its annual R&D expenses and points to downsides of comparing companies with different accounting practices. Nonetheless, Amazon’s reported spend on “technology and content” was 55% more than the $28.57bn by the next closest company, Alphabet, the parent company of Google. Apple and Microsoft were both also in the top six.

“Based on our assessment of key technology trends, we maintain our long-term commitment to R&D across a wide spectrum of technologies, tools and platforms spanning digital work and life experiences, cloud computing, artificial intelligence [AI], devices and operating systems,” Microsoft’s 2020 annual report reads. The US technology company has R&D facilities in countries around the world, including Canada, China, Czech Republic, India, Israel and the UK.

Meanwhile, at 35.6%, Facebook increased its R&D spending by the most out of the US big tech firms between 2019 and 2020. The social media giant continues to focus on research areas including AI, blockchain, computer vision and natural language processing.

East Asian giants

Outside of the US, Chinese private telecommunications giant Huawei made it into the top five, spending more than $21.7bn in 2020, an increase of 7.8% from a year earlier, according to fDi calculations based on their 2020 annual report. The company has been the largest cross-border investor into R&D for several years — between 2015 and 2020, Huawei announced 76 greenfield FDI projects into R&D operations, according to investment tracker fDi Markets.

In terms of annual R&D spend, the next-largest Chinese company was Jack Ma’s e-commerce empire Alibaba, with more than $7.9bn on R&D expenses in 2020, according to YCharts figures.

Meanwhile, South Korean Samsung Electronics was the second largest R&D investor outside the US, with more than $19bn spent during 2020, according to fDi calculations based on company figures. 

The research arm of the electronics hardware giant collaborates with 14 overseas R&D centres in 12 countries worldwide and seven global AI centres to help enhance its R&D capacity, in areas including AI, data intelligence, robotics and security.

“It is very important to have your R&D ecosystem ready. Talent is the most important factor and can be located anywhere in the world. Many of the latest developments in R&D and innovation are done by joint ventures and collaboration amongst companies,” explains Mr Baeza.

Across the semiconductor industry, several companies join Samsung in their pursuit of developing more advanced and energy efficient chips. Taiwanese rival TSMC, the world’s largest contract chipmaker, spent more than $3.7bn on R&D in 2020, according to YCharts figures. 

Meanwhile, US-based Intel spent more than $13.5bn on R&D in 2020 as it tries to catch-up with its east Asian counterparts, followed by Texas Instruments ($9.27bn), Qualcomm ($6.22bn) and Broadcom ($4.89bn). NVIDIA increased its annual spending on R&D more than any other semiconductor company in the top 100, raising expenses from $2.8bn to $3.9bn, according to company figures.

An ongoing chip supply crunch, and demands for more advanced chip technology, is pushing semiconductor companies to increase R&D expenditure and announce significant investments into production capacity.

Healthcare pushes spending

While big tech and semiconductor firms ramped up their investments, another notable group of major R&D spenders were in the life sciences — particularly those focused on pharmaceuticals and biotechnology. In 2020, US-based Merck & Co spent $13.56bn on R&D, followed by other major drug manufacturers including Switzerland-based Roche Holdings ($13.53bn), and US-based Johnson & Johnson ($12.15bn), Bristol-Myers Squibb ($11.14bn) and Pfizer ($9.41bn).

As the world has rushed to develop efficacious vaccines in the fight against Covid-19, R&D efforts to discover drugs to fight coronavirus and existing diseases have been increased. US-based biopharmaceutical company Incyte increased its annual R&D expenses by 92% between 2019 and 2020, the most out of any company in the top 100 list. It was followed by two other life sciences companies, Bristol-Myers Squibb (81.25%) and Biogen (74.99%).

Delaware-based Incyte also ranked as the highest R&D spender relative to its annual revenue, having spent 83% of the $2.67bn brought in by the company last year.

At the end of 2020, Incyte had 1173 employees globally, of which 930 worked in R&D, where they focus on drug discovery within oncology, inflammation and autoimmunity. Such R&D intensity is expected to be rolled out across the industry too. Between 2019 and 2026, global pharmaceutical R&D spend is forecast to grow at an average annual rate of 3.2% to reach $233bn, according to EvaluatePharma.

Digital and environmental drive

Innovation is also being scaled up in other industries that are striving to produce more sustainable products and reduce their environmental impact.

As the automotive industry continues to electrify and digitalise, several major players, such as Germany’s Volkswagen ($16.96bn), Daimler ($7.47bn) and BMW ($6.95bn), as well as US competitors Ford ($7.1bn) and General Motors ($6.2bn), maintained big R&D budgets in 2020.

Owing to a lack of available R&D figures, several Japanese carmakers were not included in this analysis. Nonetheless, Honda stood out with an R&D spend of $6.7bn, according to YCharts data. However, all but automotive companies Tesla ($1.49bn) and Valeo ($2.07bn) in the top 100 reduced their spending on R&D in 2020 compared with the previous year.

Telecommunications and digital hardware providers, including Cisco systems ($6.25bn) and Dell Technologies ($5.2bn), have also continued their R&D to get ahead of their competition and meet increasing client demands.

Finland-based communications giant Nokia followed with $4.99bn spent on R&D in 2020, according to fDi calculations based on their annual report, as they continued their "commitment to invest in R&D to drive product leadership", reads the company's annual report. Nokia's CTO Marcus Weldon has previously told fDi that their global strategy for product development is to balance the "minimum number of sites for maximum resonance."

The same drive to innovate is seen in the industrial space, with Siemens AG spending more than $5bn on R&D in 2020, followed closely by engineering companies such as China Railway Group ($3.16bn), according to YCharts data.

“We are in a boom of R&D and innovation across many industries ... the churn of companies that are not being considered attractive companies by [financial] investors is now more important and frequent than ever,” says Mr Baeza.

“Either you are able to innovate and demonstrate you can reinvent yourself, or you are going to fall out of this race of being a top company,” he concludes.

Methodology

This ranking of the world’s top 100 investors in R&D worldwide relies on companies’ latest published annual reports and accounts for calendar years 2019 and 2020, where data is available. In the case that data was unavailable, or the company’s fiscal years did not end on December 31st, investment platform YCharts was used to find quarterly figures, which were totalled to make up the full calendar year. 

Owing to different national accounting and disclosure practices, depending on the country in which a company is based, some companies are less likely to disclose R&D investment consistently. It is only a legal requirement to publish R&D investment in certain countries. Japanese companies were particularly underrepresented in the analysis owing to a lack of available data on YCharts. 

When R&D and revenue figures were quoted in a foreign currency (e.g. yen, euros or renminbi) on company reports, these were converted into US dollars using the exchange rate on December 31st 2020. There may be discrepancies owing to the differences in exchange rates used by YCharts versus the above method.

Every effort has been made to improve the comparability of the data, but owing to the diversity in accounting practices, exchanges rates and fiscal years between the companies included, this can be assumed to not be comprehensive.

The R&D spending data included in this analysis are R&D expenses. In short, this is the amount of money that a company spends to develop new products and services each year, which includes, for example, the salaries of researchers and the costs of running R&D centres. There is a continuous debate among accountants over whether R&D spending should be treated as an expense rather than an investment.

While R&D operations are global in nature, this data refers to R&D spending reported by the entire company, and thus does not take account of the actual location of the activity.

This article first appeared in the April/May print edition of fDi Intelligence. View a digital edition of the magazine here.