Top multinational corporations increased their spending on research and development (R&D) in 2022 as innovation continues to be a key driver of their organic growth and competitive advantage. 

Long-term forces like digitisation, the energy transition and ageing populations make the development and improvement of products, services and processes important to companies and society alike. 

To understand and benchmark how industry is responding to these trends, fDi Intelligence has compiled a list of the world’s top 100 innovation leaders based on their reported R&D expenditure in calendar year 2022 (see methodology at bottom of article). 

These 100 companies collectively invested a whopping $720bn, an increase of 15.3% from 2021. Compared to the pre-pandemic year of 2019, this latest annual R&D expenditure figure was almost 40% higher.

Just under half (47) of the top 100 innovation leaders in 2022 are broadly defined as technology companies, which include those that sell software, computer services, hardware and equipment. About a quarter (24) of the top 100 were in healthcare, encompassing companies engaged in pharmaceuticals, biotechnology and medical devices. The top 100 is rounded out by companies in the automotive (16), energy, infrastructure and industrial (12) and financial services (1) sectors.

Reasons to innovate differ across industries. But the potential to apply pervasive foundational technologies like artificial intelligence (AI) to improve efficiency and delivery of products to customers has created a new impetus among companies. Indeed, as the complexity of products has increased — with the blending of hardware and software — so too has the need for investment into R&D capabilities.

André Rocha, a Madrid-based partner at McKinsey, says that complexity has increased faster than productivity at R&D organisations, meaning they need to invest in more researchers to achieve the same outcomes.

“The product development process is also more complex and more difficult to manage,” he explains. This dynamic is reflected by the fact that increasing R&D investment in recent decades has not been followed by a similar increase in the number of patents. 

Macroeconomic forces are playing a role too. Labour shortages are leading companies to try to automate their operations through the use of robotics and other technologies. Supply chain disruption has also focused R&D efforts on finding alternatives, and developing new materials and inputs for companies to avoid future bottlenecks.

In short, there are a mounting number of reasons for companies to innovate and address global challenges. As they aim to leverage technological advancements and ensure their future competitiveness, R&D spending has been increasing across the board.

Private R&D data limitations

fDi’s analysis shows each of the top 100 innovation leaders spent at least $2.15bn on R&D in 2022. To feature in the top 10, companies needed to spend more than $14.7bn. Amazon, which classifies its R&D expenses as ‘technology and content’ in its filings, was the world’s largest spender, reporting $73.2bn for the 2022 calendar year. This represented an increase of 30% compared with the previous year. 

Amazon said the uptick was primarily due to higher spending on technology infrastructure and increased payroll and related costs associated with its technical teams, which work on everything from software to electronic devices, satellite networks and autonomous vehicles. 

Amazon’s noticeable lead over other companies is explained by the fact the cost to operate its cloud computing arm, Amazon Web Services, is included within its technology and content figures. 

Its approach to R&D accounting has typically raised a few eyebrows. Amazon is not included within the EU’s annual scoreboard of the top 2500 industrial R&D spenders due to a lack of “sufficient or audited information on the R&D investment component” within its ‘technology and content’ disclosures.

This underlines the limitations of comparisons between private companies’ R&D spending due to different definitions and reporting standards. Even with guidelines, including generally accepted accounting practices (GAAP) and international financial reporting standards (IFRS), there remain discrepancies between some companies’ figures.

“Fundamentally we all have a different idea of what we mean by R&D,” explains Jenny Tragner, director and head of policy at ForrestBrown, which advises companies in the UK on R&D tax incentives. 

US Big Tech dominance

Despite limitations, publicly reported R&D figures still give a strong indication of the companies dedicating the most resources to innovation, hiring new engineers and investing in new research facilities. US companies stand out in this regard.

In 2022, US-headquartered companies made up almost half (45) of the top 100, collectively spending $420bn on R&D. Aside from Amazon, the four other ‘Big Tech’ companies — Alphabet, Meta, Apple and Microsoft — collectively accounted for almost 18% of the $720bn spent by the top 100 innovation leaders in 2022.

All have invested heavily in the development of software and hardware, including generative AI, cloud computing, augmented reality and personal electronic devices. Over the past five years, Google’s parent Alphabet has invested more than $100bn into R&D for building new products and features, almost $40bn of which was spent in 2022 alone. 

Meanwhile, Facebook’s parent Meta increased its R&D spending by 43% to $35.3bn last year, primarily due to its massive bet on the metaverse, a new immersive version of the internet. Through Reality Labs, its research unit, Meta has dedicated many of its investments  towards long-term R&D for products that “may only be fully realised in the next decade”, according to its 2022 annual report.

“We may be unsuccessful in our research and product development efforts,” the company added. This highlights that despite R&D being risky and expensive, companies are willing to dedicate significant resources to gain a technological edge over their competitors.

In the calendar year 2022, Apple spent about $27bn on R&D based on fDi calculations of the company’s quarterly financial reports. Due to its 2022 fiscal year ending on September 24, a figure was calculated for the calendar year to make it more comparable with other companies.

The same was done for Microsoft, which has a fiscal year ending on June 30. It spent $26.6bn on R&D in calendar year 2022, an increase of 19.7% on the previous year. The company’s research has focused on AI innovation and development efforts spanning infrastructure, services and applications, according to its 2022 annual report.

Regional dynamics

Just behind the US tech giants was Chinese telecoms specialist Huawei with almost $24bn spent on R&D, equivalent to about 25% of the firm’s global revenue. More than half of its 114,000 employees work in R&D in areas including 5G wireless networks and cybersecurity.

Some 17 Chinese companies made it into the top 100 innovation leaders, accounting for about 12.2% of the $720bn spent in 2022. Research spending in China has increased by 21.9% since the turn of the century, according to Philipp Böing, a researcher at the Leibniz Centre for European Economic Research, who has written extensively on R&D in China. 

“China’s future economy plans to significantly increase its R&D inputs to raise the country’s innovation capacity,” he says. He continues that “foreign businesses and governments would be well advised to prepare” for innovation made in China should these efforts be successful.

By comparison, there were 28 European companies in the top 100, which accounted for 21% of the total R&D spending. The largest Europe-based spender on R&D was Volkswagen (VW). 

The German carmaker invested $19.8bn into R&D in 2022, an increase of 21% on the previous year, placing it seventh overall. As it has pivoted towards producing electric vehicles (EVs), VW has focused on developing its software and electrification capabilities.

“For Europe, it will be highly relevant to keep on monitoring the transformation of the automotive sector as its main R&D stronghold,” says an official at the European Commission.

Some 10 years ago, most of the R&D operations of big automotive original equipment manufacturers (OEMs) were focused on hardware, including mechanical and system engineering, according to Mr Rocha. 

“Now, most of the big OEMs are making very significant investments in building their own software capabilities,” he says.

The remainder of the top 10 was made up by South Korean electronics giant Samsung, which increased its R&D spending by about 10% to $19.3bn in 2022, followed by US chipmaker Intel (up 15% to $17.5bn) and Swiss pharmaceuticals group Roche (up 2.5% to $14.7bn).

Biggest risers 

Aside from the biggest spenders in absolute terms, some 87% of the top 100 companies increased their spending on R&D in 2022, compared with the preceding year. All of the companies have aimed to develop cutting-edge technologies for their respective industries.

The largest increase was recorded by BYD, the Chinese battery and EV producer, which expanded its R&D spending by 133% in 2022. In recent years, it has invested heavily into new technologies, including its “DM-i hybrid system” and “Blade Battery”. The latter is a cheap and powerful lithium iron phosphate battery which the company claims holds 50% more energy than similar battery chemistries.

“The automotive industry will consistently invest in cleaner energy vehicles, safety and production as these demands increase from the end consumer,” says Jen Rohen, a US-based principal at professional services firm CliftonLarsonAllen, who is in charge of business incentives and tax.

Advanced Micro Devices posted the second largest gain, raising its R&D spending by 76% to about $5bn. The US-based fabless chip company has focused its R&D on areas including “delivering the next generation of processors” and designing new integrated circuits with improved performance.

The third largest (65%) increase in R&D was recorded by Moderna, the biotech company behind a messenger-RNA based vaccine for Covid-19. The company said in its 2022 annual report that it has massively increased its clinical trial-related expenses as it develops drugs for other respiratory diseases, including seasonal influenza and respiratory syncytial virus.

The remainder of the top 10 was made up by companies spread across these three industries. They include US tech giants like Meta (up 43%), Uber (36%) and Amazon (31%), as well as major chip companies like Nvidia (39%) and TSMC (31%). The remainder are life sciences companies, including Denmark’s Novo Nordisk (35%) and Vertex Pharmaceuticals (31%).

Biggest fallers

On the flipside, a number of companies reduced their spending on R&D in 2022, compared with 2021. Legacy Japanese automaker Honda Motor reduced its R&D expenditure by 13.4% to $6.34bn.

Another two major carmakers — France’s Renault Group and Chinese state-owned SAIC Motor — also both decreased their R&D spending by 8% compared with the previous year.

The other greatest fallers were pharmaceuticals and biotechnology companies, including Biogen (down 11%), Amgen (8%) and Bristol-Myers Squibb (7%).

Location drivers

This analysis of R&D expenses does not give an indication of where these activities are undertaken. But decisions as to where companies undertake their innovation activities and invest are fundamental.

Foreign direct investment into R&D activities worldwide topped $48bn in 2022, an increase of about 67% on the preceding year, according to greenfield investment monitor fDi Markets. This was the highest annual total recorded over the past two decades.

“Global companies are more mobile than ever and will base their R&D functions where there is the right environment for them,” says Carrie Rutland, a UK-based partner for innovations and incentives at accounting firm BDO. She explains that talent is the main draw for companies to set up their R&D facilities, followed by infrastructure and financial support from governments.

The use of incentives by governments to encourage companies to engage in R&D in their jurisdictions are widespread. They generally come in the form of direct subsidies or tax credits. These carrots offered by governments are critically important to ensure countries are at the forefront of science-based industrial innovation in fields such as nanotechnology, biotechnology, new materials, photonics, micro-electronics, nano-electronics and quantum computing. 

“For a society to progress, it must either innovate itself or import the fruits of innovation from elsewhere in the form of foreign-made technologies,” says Susan Schneegans, editor in chief of the 2021 Unesco science report, which tracks global scientific endeavour and governance worldwide over the previous five years.

But there remain significant socioeconomic and societal challenges and risks associated with the “high concentration of industrial R&D and market power in a few players”, says the official at the European Commission. They cite competition, security, autonomy, consumer privacy and inequality as examples of these challenges.

Despite the risks presented by the technological race between companies and nations — notably the US and China — spending even more on R&D has become more necessary than ever before.

“Investment in research will become, if it has not already become, as essential to business as an investment in utilities, personnel, and raw materials to enable the business to survive,” says Ms Rohen of CliftonLarsonAllen.

Methodology

This list of the top 100 investors in R&D worldwide relies on companies’ latest published annual reports and financial statements for calendar years 2022 and 2021, where data is available. The 2022 EU Industrial R&D Investment Scoreboard, which analyses the 2500 companies that invested the largest sums in R&D in 2021, was used as a reference to compile this list. 

In the case that data was unavailable, or the company’s fiscal years did not end on December 31, every effort was made to reflect the closest possible comparison through quarterly reports. In several cases, investment platform YCharts was used to find quarterly figures, which were totalled to make up the full calendar year. For some companies the closest comparable 12-month periods to the full 2022 calendar year ended in either November 2022 or January 2023.

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. Japanese companies were particularly underrepresented in the analysis owing to a lack of available data on company websites and YCharts. 

When R&D and revenue figures were quoted in a foreign currency (such as yen, euros or renminbi) on company reports, these were converted into US dollars using the average exchange rate during 2022. There may be discrepancies as a result 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, exchange rates and fiscal years between the companies included, this list can be assumed to not be comprehensive. Despite GAAP and IFRS, there is no global standard definition of R&D and the way it is reported.

The R&D spending data included in the top 100 list 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.

Adjustments to R&D figures are made across years in public disclosures by companies to take into account additions or reductions due to capitalisations, impairments, discontinued operations and depreciations. Furthermore, the accounting figures in this analysis are at the headquarter level of the company investing in R&D and therefore do not take into account where the R&D investment is taking place. Discontinued operations or mergers and acquisitions are also treated as reported in the financial accounts of these companies.

This article first appeared in the June/July 2023 print edition of fDi Intelligence