In times of economic anxiety, there is a natural tendency to cut back and pull back. One has to do with economics, the other concerns attitude. Faced with slumping sales and declining stock prices, companies will naturally cut spending, a short term impulse that undermines long term thinking. People who have lost jobs or fear impending layoffs might blame global forces, especially if their employer moved operations overseas. Suddenly, “outsource” and “globalization” becomes four letter expletives.

But a recent report on global innovation by consulting firm Booz & Co. suggests companies should not skimp on R&D spending nor withdraw from the global scene. If anything, these companies should pursue innovation even more aggressively during an economic downturn.

Booz’s annual Global 1000 Innovation study tracks the peformance of the 1,000 public companies around the world that spend the most on R&D. Those companies spent $492 billion on R&D last year, up ten percent from 2006 and well above the compound growth rate of 6.7 percent since 1999.

While the study says there is no significant evidence that R&D spending guarantees better financial results, the report did contain this interesting nugget:

“Overall, our analysis suggests that companies taking a more aggressive posture in globalizing their R&D footprint enjoy stronger sustained financial performance. Of the 184 top senders that we studied closely, those that deployed more than 60 percent of the their R&D outside their home countries tended to perform better, over the past years, on several performance indicators, including operating margins, total shareholder return, market cap growth, and return on assets.”

Why? Lower labor costs certainly has something to do with it but less so than you think. According to the report, companies that send their R&D dollars overseas also get access to a broader pool of talent (i.e. engineers and scientists) around the world as well as proximity and insight into emerging local markets.

The report also notes that R&D is a two way street. While American companies spent $80.1 billion on R&D overseas, foreign companies poured $42.6 billion into R&D in the United States. In other words, 40 percent of all money invested in R&D on American soil came from foreign sources, making the United States the largest country in the world in terms where corporate R&D is actually conducted.

Surely, some of that foreign $40+ billion created jobs for Americans in the good ol’ U.S.A.

Here are the world’s top 20 companies as ranked by total R&D expenditures in 2007:

1. Toyota- $8.386 billion

2. General Motors- $8.1 billion

3. Pfizer- $8.089 billion

4. Nokia- $7.727 billion

5. Johnson & Johnson- $7.68 billion

6. Ford- $7.5 billlion

7. Microsoft- $7.121 billion

8. Roche Holding- $6.985 billion

9. Samsung- $6.536 billion

10. GlaxoSmithKline- $6.476 billion

11. Novartis- $6.43 billion

12. Sanofi-Aventis- $6.208 billion

13. IBM- $6.153 billion

14. Intel- $5.755 billion

15. AstraZeneca- $5.162 billion

16. Honda- $5.142 billion

17. Merck- $4.883 billion

18. Matsushita- $4.85 billion

19. Volkswagen- $4.757 billion

20. Sony- $4.553 billion

This entry was posted on Friday, November 28th, 2008 at 7:44 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.