Innovation’s new world order

The 2015 Global Innovation 1000

2 Strategy&

In the 2015 Global Innovation 1000 study, Strategy&, PwC’s strategy consulting business, analyzed the flows of R&D spending among companies and countries worldwide. We found that the geographic footprint of innovation has expanded dramatically in the years since our 2008 study, when we first charted the globalization of R&D. The new landscape reflects significant regional shifts, as more companies pursue innovation programs abroad in search of access to top talent and high-growth markets.

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Led by dynamic growth in China and India, Asia is now the number one region for corporate R&D spending.

• Morecorporatein-regionR&DisnowconductedinAsia(35percent)thaninNorthAmerica(33percent)andEurope(28percent),whichisachangefrom2007,whenEuropewasthetopregionforR&DspendingandAsiawasthird.

• MassivegrowthinChinaandIndiapropelledAsiatothetopposition.From2007to2015,R&DimportstoChinagrew79percent,helpingtomakeitthesecond-largestdestinationforin-countryR&D.Indiaalsosawimportsincrease116percent,makingitthethird-largestdestinationforimportedR&D.

The U.S. holds its position as the largest corporate in-country R&D spender, importer, and exporter.

• TheU.S.isthelargestspenderonin-countryR&D,butitsleadisnarrowingbecauseitsgrowthisn’tasrobustasthatofsomeAsiancountries,specificallyChina.From2007to2015,in-countryR&Dspendingincreased120percentforChinabutonly34percentfortheU.S.

• AlthoughtheU.S.isshiftingmoreofitsR&Dexportstolow-costcountriesinAsiasuchasChinaandIndia,mostR&DimportsarefromEurope,whichprovided63percentoftheU.S.totalin2015.

Europe falls from largest to third-largest region for corporate R&D spending.

• Alargeincrease(46percent)inR&DexportsoutofEurope,andlowgrowthindomesticandimportedR&Dspending(2percentand18percent,respectively),causedEuropetodropfromthelargesttothethird-largestregionforR&Dspending.

• MostofEurope’sdropinin-countryR&DspendingwasattributabletoWesternEurope,wherenetexports(exportsminusimports)grew352percentbetween2007and2015.

Globalization of R&D spending has paid dividends.

• CompanieswithdispersedglobalR&Dfootprintscontinuetoperformaswellasorbetterthancompanieswithafocusedfootprint,suggestingthattherearematerialadvantagestoexportingR&Dandthatmultinationalsareabletocoordinatesuccessfullyacrossmanyglobalsites.

R&D spending gets back on trend after its post–financial crisis dip.

• In2015,R&DspendingbytheGlobalInnovation1000increasedbymorethan5percenttoUS$680billion,thelargestyear-over-yearincreasesince2012.

• Software&Internethadthehighestyear-over-yeargrowthrate(27percent)ofalltheindustriesinouranalysis,whichpropelleditpasttheindustrialssectortobecomethefourth-largestindustrybyR&Dspendingin2015.

• In2015,AppleandGoogleremainedthetwomostinnovativecompanies,accordingtooursurveyrespondents,andTeslajumpedtothirdplace,pushingAmazondowntofifth.Toyotarejoinedtherankingatnumber10afteratwo-yearhiatus.

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The 2015 Global Innovation 1000 study maps R&D spending worldwide

In this year’s study, we wanted to examine where R&D is being conducted — and to determine whether those destinations have changed since our 2008 study, when we first charted the global flows of corporate R&D. To analyze these flows among regions and countries, we researched the innovation

activities of 207 companies in 23 countries conducting R&D at 2,041 R&D sites in more than 60 countries. This sample of major innovators accounts for 71 percent of the total Global Innovation 1000 R&D spending. The following are the results of this analysis.

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Exhibit 1 Change in Corporate R&D Spending by Region, 2007–15 (US$ Billions)

Source: Strategy& 2015 Global Innovation 1000 analysis

Asia becomes the number one region for corporate R&D spending; Europe falls to third

2015

9%

32%

73%

+37%

$480

2007

$351

35%($121)

34%($119)

4%($15)

27%($96)

35%($166)

33%($157)

5%($25)

28%($133)

Europe

Rest of World

North AmericaAsia

Asia experienced the most dramatic change in innovation spending, as companies sought out high-growth markets and geographic advantages such as proximity to manufacturers and suppliers.

• In2015,Asiaaccountedfor35percentoftotalcorporatein-regionR&Dspending,surpassingbothNorthAmerica(33percent)andEurope(28percent)(see Exhibit 1).Thisisacompletereversalfrom2007,whenEuropewasthetopregionandAsiarankedthird.

• Asia’sriseasthetopin-regionR&Dspenderwasdrivenbystrongdomesticspending,whichincreased60percentto$79billionbetween2007and2015,andimports,whichincreasedby86percentto$86billion.

• ChinaandIndiawerethemaindriversof

Asia’srise:China’sstronggrowthinimportshelpedpropelitpastGermanyandJapantobecomethesecond-largestdestinationforin-countryR&D($55billion).India’s115percentincreaseinin-countryR&Dspendingto$28billionwaspoweredbya116percentincreaseinimports.1BothcountriesreceivedimportsmainlyfromtheU.S.

• OursurveyrespondentsstatedthatthemostimportantadvantagesofmovingR&DfunctionstoAsia,specificallyChina,areproximitytoahigh-growthmarket(71percent),followedbyproximitytokeymanufacturingsites(59percent),proximitytokeysuppliers(54percent),andlowerdevelopmentcosts(53percent).

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The U.S. remains the largest corporate R&D spender, importer, and exporter, as companies continue to be attracted to its steady economic environment and strong innovative culture.

• TheU.S.helditspositionasthetoplocationforinnovation,within-countryR&Dspendingof$145billionin2015.However,othercountries(i.e.,China)increasedtheirR&DspendingbygreaterproportionsthantheU.S.,whichcausedittolosesomeofitsrelativeadvantage(see Exhibit 2).

• TheU.S.increasedimportsby23percentto$53billionin2015.Butthesecond-largestimporter,China,increasedimportsby79percent,bringingitstotalto$44billion—narrowingtheU.S.’slead.

• TheU.S.isseeinganincreaseinimportsfromEurope,specificallyfromcompaniesheadquarteredinGermany,Switzerland,andFrance,whichareseekingalargemarketandaccesstoSiliconValley.

• Theincreaseinimportsisbalancedoutbytheincreaseinexports,asU.S.-headquarteredcompaniesincreasedexportsby51percent,to$121billion,between2007and2015.

• TheU.S.isexportingmoreR&Dtolow-costcountrieslikeChinaandIndia,whicheachaccountfor15percentofU.S.exportsin2015.Thisisachangefrom2007,whentheUKwasthetopdestinationforU.S.R&Dexports(accountingfor10percent).2

Exhibit 2 Change in Corporate In-Country (Domestic and Imported) R&D Spending Relative to the U.S. U.S., 2007–15.

2 All countries with an average engineering wage of less than or equal to $35,000/year, such as China and India, are low-cost countries (LCCs). Countries with an average engineering wage that is greater than $35,000/year, such as Japan and the U.S., are high-cost countries (HCCs).

Asia, North America, and Europe are continuing to send R&D to low-cost Asian countries, but Europe is now also sending it to high-cost countries like the United States. Executives tell us that they want to tap into the more innovative culture of the U.S., as well as its more flexible operating environment.— Barry Jaruzelski, Principal, Strategy&, PwC’s strategy consulting business

The U.S. continues to dominate, but with a narrowing lead

* Eastern Europe includes: Bulgaria,Croatia, Czech Republic, Estonia, Hungary, Latvia, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Turkey Source: Strategy& 2015 Global Innovation 1000 analysis

Height of bar = 2015 In-Country R&D Spending ($US, Billion)

Europe

Rest of WorldNorth America

Asia

60%40%-60% 0%-20%-40% 20% 80%

-7%Japan

China

$22

64%

$13

61%

$11Eastern Europe*

Italy

-41%

Canada

$16

48%

India

-14%

South Korea

$50

26%$11$14

Germany

5%

U.K.$10

$28

15%Israel

-29%-16%

$32

$55

France

U.S. = 0 Gained Advantage Lost Advantage

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Domestic R&DExported R&D

20%($3)

80%($11)

33%($6)

67%($12)

U.K.

50%($10)

50%($10)

35%($8)

65%($14)

France

65%($20)

35%($11)

69%($35)

31%($16)

Germany

2007

2015

European companies send corporate R&D offshore in search of higher growth markets, skilled labor, and more flexible operating environments.3

• Europe’sfallwastheresultoflowgrowthindomesticR&D(2percentcomparedto40percentinNorthAmericaand60percentinAsia),lowgrowthinimportedR&D(18percent),andhighgrowthinexportedR&D(46percent).

• TheR&DflowsoutofEuropearehappeningmostlyinWesternEurope,wherenetexportsofR&Dtoothercountries(exportsminusimports)grew352percent.ThethreelargesteconomiesinEurope—theU.K.,France,andGermany—allincreasedtheirshareofexportedR&D(see Exhibit 3).

• R&DismostnoticeablyflowingoutofFranceandGermany.TheformersawbothdomesticandimportedR&Ddecrease(20percentand21percent,respectively)between2007and2015,andexportsincrease46percent.WhileGermanydidincreaseitsdomesticR&D(48percent),importsdeclined(2percent)andexportsincreasedastaggering76percentfrom2007to2015.

• AlthoughsomeEuropeancountriesaresendingexportstolow-costcountries(LCCs)inAsiaandEasternEurope,themajorityofexportsaregoingtohigh-costcountries(HCCs)suchastheU.S.andJapan,asEuropeseeksamoreflexibleoperatingenvironment,accordingtosomeseniorexecutives.

Exhibit 3 Corporate R&D Allocation of Europe’s Three Largest Economies

2 All countries with an average engineering wage of less than or equal to $35,000/year, such as China and India, are low-cost countries (LCCs). Countries with an average engineering wage that is greater than $35,000/year, such as Japan and the U.S., are high-cost countries (HCCs).

Europe went from being the number one location for the execution of corporate R&D to number three, falling behind Asia and North America — it’s the hollowing out of Europe.Barry Jaruzelski, Principal, Strategy&, PwC’s strategy consulting business

Europe falls to third place among the top destinations for corporate in-region R&D spending

Source: Strategy& 2015 Global Innovation 1000 analysis

R&D Allocation by Country 2007 vs. 2015, US$ Billions

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• OutofthethreelargestindustriesbyR&Dspending—auto,healthcare,andcomputingandelectronics(C&E)—theonethatwasthestrongestdriverofexportgrowthgloballywastheautoindustry.From2007to2015,companiesinthissectorincreasedexportedR&Dby45percent,whilethehealthcareandcomputingandelectronicsindustriesincreasedexportsbyonly23percenteach.

• TheautoandhealthcareindustriesincreasedexportsthemosttotheU.S.andChina;thecomputingandelectronicsindustryincreasedexportstoChinaandIndia.

• WhiletheU.S.remainsthelargestimporterofautoR&D,accountingfor34percentoftotalimportsin2015,China(14percent)hasreplacedGermany(6percent)asthesecond-largestimporter.

• ChinaisthelargestimporterofC&ER&D,accountingfor20percentoftotalimportsin2015.India(13percent)replacedtheU.S.(10percent)asthesecond-largestimporter.

• TheU.S.isthelargesthealthcareR&Dimporter,accountingfor21percentoftotalimportsin2015.ChinareplacedtheUKasthesecond-largestimporter(14percent)andJapanpassedGermanyandCanadatomoveintothird(9percent).

Auto industry shows strongest increases in corporate R&D exports

A lot of the major automotive players still have a central product development approach — everything still goes out of their headquarters country. However, some are starting to recognize the benefit of a globalized footprint by sending R&D to other locations and are building up regional R&D centers.— Volker Staack, Principal, Strategy&, PwC’s strategy consulting business

• Companiesthatdeployed60percentormoreofcorporateR&Dspendingabroadin2015earnedapremiumof30percentonoperatingmarginandreturnonassets,and20percentongrowthinoperatingincome,overtheirlessoutwardlookingcompetitors.Thisfindingwassimilartotheresultsofour2008study,suggestingthattherecontinuestobeapayofffromthedeploymentofcapabilitiesandcapacityonaglobalscale,andgreatersuccessinunderstandingandmeetinglocalmarketneeds(see Exhibit 4).

• CompaniesthatallocateagreatershareofcorporateR&DspendingtoLCCsoutperformtheircompetitorsby20percentongrossprofitand10percentonsalesgrowth.

• CompanieswithdispersedglobalR&Dfootprintsperformaswellasorbetterthancompanieswithafocusedfootprint,suggestingthatmultinationalshaveimprovedcoordinationacrossmanyglobalsites.

The global advantage

Exhibit 4The Performance Payoff from a Global R&D Footprint

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Gro

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Sal

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110

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120

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Ret

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Ass

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120O

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Tota

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Ret

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Mar

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Cap

110

130

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Global-Driven Footprint

Companies that deploy 60% or more of their R&D outside their home countries tend to outper-form their less-global peers.

Broad Allocation in Low-Cost Countries

Companies that invest more than 20% of their total R&D spending in LCCs (e.g. China, India) do better than other companies.

Dispersed Global Footprint

Companies with a more dispersed global R&D footprint perform better than those with a more concentrated and focused footprint.

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Source: Strategy& 2015 Global Innovation 1000 analysis, Bloomberg data, Capital IQ data

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Although clear advantages exists for globalizing a company’s R&D footprint, companies must consider numerous factors when deciding where to conduct R&D.

• Accordingtosurveyrespondents,accesstotechnicaltalent(71percent),beingclosetocustomers(68percent),andgaininginsightintolocalmarketneeds(64percent)arethemostimportantfactorswhenchoosingwheretoconductR&D,allofwhichhelpinthebetterdesignofproductsforlocalcustomers.

• ThemostchallengingaspectsofconductingR&Doutsidethehomecountryarefinding/

retainingtalent(accordingto53percentofsurveyrespondents),protectingintellectualproperty(51percent),andmaintainingqualityandacustomerfocus(47percent)(see Exhibit 5).

• Almosthalf(49percent)ofsurveyrespondentsthinksoftwaredesignisthebestfunctionforR&DcentersinLCCstoperform,followedbydataanalysis/gathering(34percent)andcustomerservice(30percent);however,almostone-quarter(24percent)donotthinkR&DfunctionsarebestperformedinLCCs.

The global challenge

Exhibit 5Most Challenging Attributes When Conducting R&D Outside Home Country

* Focus on profitability includes those who voted for “Currency risk” and “Return on investment”n=369Based on a scale of 1-5 where 1 = Not at all challenging and 5 = Extremely challenging. Percentages based on those who rated a “4” = Challenging and “5” = Extremely challenging.Source: Strategy& 2015 Global Innovation 1000 survey data and analysis

Strategic reasons, such as access to local market insights and global talent, are what determine where R&D is conducted. Labor cost savings and tax advantages, though not irrelevant, are secondary considerations.— Kevin Schwartz, Principal, PwC US Management Consulting

53% 51%47%

43% 41% 39%

Finding/RetainingTalent

IntellectualProperty Protection

Quality andCustomer Focus

Risk/ProjectManagement

Managing CulturalDifferences

Focus onProfitability*

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When comparing the advantages and challenges of a global R&D footprint across the three innovation models used in prior Global Innovation 1000 studies, Need Seekers , Market Readers, and Technology Drivers agreed across most attributes, with only a few exceptions:

• NeedSeekers(85percent)andTechnologyDrivers(68percent)agreethemostimportantattributeindeterminingwheretoconductR&Disaccesstotalent,whereasMarketReadersbelieveit’sproximityto

customers(73percent)—reflectingtheadvancedtechnologicalneedsoftheformerinnovationmodels.

• NeedSeekerssaythetopchallengesofconductingR&Doutsidethehomecountryareintellectualpropertyprotection(56percent)andqualitycontrol(56percent),whichareofvitalimportancetothefirst-to-marketinnovationmodel;TechnologyDriversandMarketReaderssayitisfinding/retainingtalent,namedasthetopchallengeby55percentand51percent,respectively.

The three innovation models

Our study classifies companies into one of three groups based on behaviors:

• Need Seekers: CompaniesthatareNeedSeekerstendtoengageconsumersdirectlytogeneratenewideas,andthendeveloporiginalproductsandservicesaddressingunarticulatedneedsandgetthemtomarketfirst.

• Market Readers:CompaniesdefinedasMarketReadersarefastfollowers.Theytypicallygenerateideasbycloselymonitoringtheirmarkets,customers,andcompetitors,focusinglargelyoncreatingvaluethroughincrementalinnovationstocurrentproducts.

• Technology Drivers:CompaniesthatareTechnologyDriversdependheavilyontheirinternaltechnologicalexpertisetodevelopnewproductsandservices,drivingbothbreakthroughinnovationandincrementalchangetomeettheneedsoftheircustomersvianewtechnology.

Exhibit 6Total Global Innovation 1000 R&D Spending, US$ Billions

Source: Strategy& 2015 Global Innovation 1000 analysis, Bloomberg data, Capital IQ data

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• In2015,R&DspendingbytheGlobalInnovation1000increased5.1percentto$680billion,thelargestyear-over-yearincreasesince2012(see Exhibit 6).

• Revenuesdeclined1.0percent—mostlyowingtodeclinesinthechemicalsand

energysectorfromfallingoilprices—causingR&Dspendingasapercentofrevenue(intensity)tohaveaone-yeargrowthrateof6.1percent,thehighestsince2005.

Global R&D spending and R&D intensity experience record gains, but revenue declines

$680$647$638

$614$560

$508$538

$501$447

$409$400

2006 2015

+70%

20132005 2014201220112010200920082007

YoYGrowth 2.2% 9.3% 12.2%

10-year CAGR = 5.4%

7.3% -5.6% 10.3% 9.7% 3.8% 1.4% 5.1%

Exhibit 7Corporate R&D Spending by Industry (US$ Billions)

Source: Strategy& 2015 Global Innovation 1000 analysis, Bloomberg data, Capital IQ data

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The computing and electronics industry remains the largest spender on R&D, but it is losing ground.

• Thecomputingandelectronics(C&E)industryaccountsforthelargestamountofR&Dspending(25percent)bytheGlobalInnovation1000,spending$166billion;however,growthdeclined0.7percentin2015.

• ThehealthcareindustryisclosingitsgaponC&E,growing6percentin2015to$145billion.GivenC&E’snegativegrowth,we

believehealthcarecouldbecomethelargestindustrybasedonR&Dspendingby2019(see Exhibit 7).

• SoftwareandInternet(27percent)hadthehighestgrowthrateofalltheindustriesbetween2014and2015;thiswasunsurprisingasthethirstfordigitaltechnologiesdrivesdemand.ThisgrowthpropelledsoftwareandInternetpasttheindustrialssectortobecomethefourth-largestindustrybyR&Dspendingin2015.

R&D spending rises for most industries

Computing and Electronics

Healthcare

Auto

Industrials

Chemicals and Energy

Software and Internet

ConsumerTelecom

Aerospace and Defense

Other

166.4

144.9

109.3

42.0

76.1

22.420.512.3

0

20

40

60

80

100

120

140

160

180

$

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

10.3

75.3

Although software and Internet surpassing industrials as the fourth-largest industry in terms of R&D spending is not a surprise, it is a milestone. It is software (the new economy) and rust-belt industrials (the old economy) trading places.— Barry Jaruzelski, Principal, Strategy&, PwC’s strategy consulting business

14 Strategy&

Exhibit 8The 2015 Top 20 R&D Spenders

• Leadingthe2015GlobalInnovation1000Top20R&DSpenderswereVolkswagen,Samsung,Intel,Microsoft,andRoche,whichheldthesamefirstfivepositionsaslastyear.

• Applemakesitsfirstappearanceeverinthe

Top20R&DSpenderslistin2015,despitebeinganefficientinnovatorandspendingonly3.3percentofitsrevenuesonR&D,comparedwithanaverage12.5percentfortheother19companiesonthelist(see Exhibit 8).

Companies shift positions in Global Innovation 1000 rankings

Increase or decrease within Top 20 ranking compared to 2014

NEW

NEW

CompanyRank 2015 R&D Spending(US$ billion)

Volkswagen

Samsung

Intel

Microsoft

Roche

Google

Amazon

Toyota

Novartis

Johnson & Johnson

Industry

Auto

Computing and electronics

Computing and electronics

Software and Internet

Software and Internet

Software and Internet

Healthcare

Auto

Healthcare

Healthcare

$15.3

$14.1

$11.5

$11.4

$10.8

$9.8

$9.3

$9.2

$9.1

$8.5

Intensity(R&D spending as a % of revenue)

5.7%

7.2%

20.6%

13.1%

20.8%

14.9%

10.4%

3.7%

17.3%

11.4%

Pfizer Healthcare $8.4 16.9%

Daimler Auto $7.6 4.4%

General Motors Auto $7.4 4.7%

Merck Healthcare $7.2 17.0%

Ford Auto $6.9 4.8%

Sanofi Healthcare $6.4 14.1%

Cisco Systems Computing and electronics $6.3 13.4%

Apple Computing and electronics $6.0 3.3%

GlaxoSmithKline Healthcare $5.7 15.0%

AstraZeneca Healthcare $5.6 21.4%

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

Source: Strategy& 2015 Global Innovation 1000 analysis, Bloomberg data, Capital IQ data

Exhibit 9The 10 Most Innovative Companies

Increase or decrease within Top 10 ranking compared with 2014

Company

Apple

Google

Industry

Computing and electronics

Computing and electronics

Computing and electronics

Software and Internet

Software and Internet

Software and Internet

2015 R&D Spending(US$ billion)

6.0

9.8

Amazon 9.3

Samsung 14.1

Tesla Auto 0.5

3M Industrials 1.8

General Electric Industrials 4.2

Microsoft 11.4

IBM 5.4

Toyota Auto 9.2NEW

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• In2015,AppleandGoogleremainthetwomostinnovativecompanies.Teslajumpstothirdplace,pushingAmazondowntofifth.Toyotarejoinstherankingforthefirsttimesince2012atnumber10(see Exhibit 9).

• Thisyearmarksthefirsttimetwoautomotivecompaniesareinthe10MostInnovativeCompanieslist(Teslaatnumberthree,Toyota,number10).

Companies shift positions in Global Innovation 1000 rankings (Continued)

Source: Strategy& 2015 Global Innovation 1000 survey data and analysis

16 Strategy&

Asithasineachofthepast10editionsoftheGlobalInnovation1000,thisyearStrategy&,PwC’sstrategyconsultingbusiness,identifiedthe1,000publiccompaniesaroundtheworldthatspentthemostonR&Dduringthelastfiscalyear,asofJune30,2015.Tobeincluded,companieshadtomaketheirR&Dspendingnumberspublic.Subsidiariesthatweremorethan50percentownedbyasinglecorporateparentduringtheperiodwereexcludediftheirfinancialresultswereincludedintheparentcompany’sfinancials.TheGlobalInnovation1000companiescollectivelyaccountfor40percentoftheentireworld’sR&Dspending,fromallsources,includingcorporateandgovernmentsources.

In2013,Strategy&madesomeadjustmentstothedatacollectionprocessinordertogainamoreaccurateandcompletepictureofinnovationspending.Inprioryears,bothcapitalizedandamortizedR&Dexpenditureswereexcluded.Startingin2013,weincludedthemostrecentfiscalyear’samortizationofcapitalizedR&DexpendituresforrelevantcompaniesincalculatingthetotalR&Dinvestment,whilecontinuingtoexcludeanynon-amortizedcapitalizedcosts.Wehavenow

appliedthismethodologytoallpreviousyears’data;asaresult,historicaldatareferencedinthestudiesfrom2014onwardwillnotalwaysalignwithpreviouslypublishedfiguresforthe2005through2012studies.

Foreachofthetop1,000companies,weobtainedfromBloombergandCapitalIQthekeyfinancialmetricsfor2010through2015,includingsales,grossprofit,operatingprofit,netprofit,historicalR&Dexpenditures,andmarketcapitalization.AllsalesandR&DexpenditurefiguresinforeigncurrenciesweretranslatedintoU.S.dollarsaccordingtoanaverageoftheexchangerateovertherelevantperiod;fordataonshareprices,weusedtheexchangerateonthelastdayoftheperiod.

Allcompanieswerecodedintooneofnineindustrysectors(or“other”)accordingtoBloomberg’sindustrydesignations,andintooneoffiveregionaldesignations,asdeterminedbytheirreportedheadquarterslocations.Toenablemeaningfulcomparisonsacrossindustries,theR&Dspendinglevelsandfinancialperformancemetricsofeachcompanywereindexedagainsttheaveragevaluesinitsownindustry.

Methodology

17Strategy&

TounderstandtheglobaldistributionofR&Dspending,thedriversofthatdistribution,andhowthedistributionaffectstheperformanceofindividualcompanies,weresearchedtheglobalR&Dfootprintofthetop100companiesintermsoftheir2015R&Dspending,plusthetop50companiesinthelargestthreeindustries(auto,healthcare,andcomputingandelectronics)andthetop20companiesintheindustrialsandsoftwareandInternetsectors.ThetotalnumberofcompaniesforwhichweassessedthedistributionofR&Dspendingacrosscountrieswas207,reflectingoverlapinthetop100andthefiveselectedindustries.These207companiesareheadquarteredin23countriesandconductR&Dactivitiesat2,041R&Dsitesspanningmorethan60countries.

Whengeographicbreakdownswerenotpubliclyavailable,wecollecteddataonthelocationof

R&Dfacilities,theproductsegmentseachfacilitysupports,theyeareachfacilitywasestablished,thenumberofpeopleitemploys,itssalesbyproductsegment,andtheglobaldistributionofsales.ThisdatawasusedtoallocatetotalR&Ddollarstothecountrieswherefacilitieswerelocated.

Finally,tounderstandhowglobalR&Disandwillbeconductedatcompaniesacrossmultipleindustries,Strategy&conductedaseparateonlinesurveyof369innovationleadersaroundtheworld.ThecompaniesparticipatingrepresentedoverUS$106billioninR&Dspending,or16percentofthisyear’stotalGlobalInnovation1000R&Dspending,allnineoftheindustrysectors,andallfivegeographicregions.

Methodology (Continued)

18 Strategy&

Endnotes

1 In-country includes both R&D spending by local companies (domestic) and R&D spending in other regions (imported).

2 All countries with an average engineering wage of less than or equal to $35,000/year, such as China and India, are low-cost countries (LCCs). Countries with an average engineering wage that is greater than $35,000/year, such as Japan and the U.S., are high-cost countries (HCCs).

3 Offshore refers to a geographic area outside the designated region’s geographic border.

19Strategy&

barry.jaruzelski@pwc.com

kevin.j.schwartz@pwc.com

volker.staack@pwc.com

Barry Jaruzelski

Barry Jaruzelski isathoughtleaderoninnovationforStrategy&,PwC’sstrategyconsultinggroup.BasedinFlorhamPark,N.J.,heisaprincipalwithPwCUS.Heworkswithhigh-techandindustrialclientsoncorporateandproductstrategyandthetransformationofcoreinnovationprocesses.HecreatedtheGlobalInnovation1000studyin2005,andin2013wasnamedoneofthe“Top25Consultants”byConsultingmagazine.

Kevin Schwartz

Kevin SchwartzisaprincipalwithPwCUS,andleadsthefirm’sinnovationanddevelopmentconsultingservices.BasedinSanFrancisco,hefocusesondrivingenterprise-wideinnovationandenablinggrowththroughnewproducts,services,andbusinessmodelinnovations.

Volker Staack

Volker StaackisaleadingpractitionerforStrategy&.HeisaprincipalwithPwCUS.Hefocusesonengineeredproductsandservices,particularlyintheautomotiveandheavyequipmentindustries,andspecializesinstrategicproductvaluemanagement,turnarounds,andimplementationofglobalM&A.

About the authors

Contacts

Americas, Asia-Pacific (APAC)

Claudia Diez Gutierrez+52-55-9178-4222claudia.diez.gutierrez@strategyand.mx.pwc.com

Tria Tedford+1-415-653-3533tria.tedford@us.pwc.com

Michelle Farhi+1-202-312-7926michelle.farhi@us.pwc.com

Michelle C. Wang+86-21-2323-5648michelle.c.wang@cn.pwc.com

Ayumi Suda+81-3-6757-8683ayumi.suda@jp.pwc.com

Europe, Middle East, Africa (EMEA)

Joanne Alam+961-1-985-655joanne.alam@strategyand.ae.pwc.com

Béatrice Malasset+33-1-44-34-3131beatrice.malasset@strategyand.fr.pwc.com

Deirdre Flynn+44-20-7393-3279deirdre.flynn@strategyand.uk.pwc.comSabine Deuschl+49-89-54525-520sabine.deuschl@strategyand.de.pwc.com

Meike Hegge+49-89-54525-644meike.hegge@strategyand.de.pwc.com

Strategy& is a global team of practical strategists committed to helping you seize essential advantage.

We do that by working alongside you to solve your toughest problems and helping you capture your greatest opportunities.

These are complex and high-stakes undertakings — often game-changing transformations. We bring 100 years of strategy consulting experience and the unrivaled industry and functional capabilities of the PwC network to the task. Whether you’re

charting your corporate strategy, transforming a function or business unit, or building critical capabilities, we’ll help you create the value you’re looking for with speed, confidence, and impact.

We are part of the PwC network of firms in 157 countries with more than 208,000 people committed to delivering quality in assurance, tax, and advisory services. Tell us what matters to you and find out more by visiting us at strategyand.pwc.com.

© 2015 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. Mentions of Strategy& refer to the global team of practical strategists that is integrated within the PwC network of firms. For more about Strategy&, see www.strategyand.pwc.com. No reproduction is permitted in whole or part without written permission of PwC. Disclaimer: This content is for general purposes only, and should not be used as a substitute for consultation with professional advisors.

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