Geek lightning

The Price of Knowledge

Crashtestdummy-computersimulation
In the know: German car firms are spending more to find out more.
  • Why it matters

    Why it matters

    • A new study shows that R&D spending is strong among major German companies. Germany is also a world leader in research spending growth, second only to China.
    •  
    •  
  • Facts

    Facts

    • Germany’s top 45 companies increased their R&D spending by 11.3 percent in the 2013-2014 fiscal year, compared to only a 1.4-percent increase in research spending worldwide.
    • Half of the research spending among the top 45 companies came from carmakers VW, Daimler and BMW.
    • According to a study by consulting firm Strategy&, major global companies spent a total of $647 billion (€509 billion) on research into new technologies on products last year.
  • Audio

    Audio

  • Pdf

Sigmar Gabriel’s campaign against corporate Germany’s alleged unwillingness to invest came to a head in September.

The German economics minister complained: “The net investment rate in private companies isn’t strong enough.”

He promptly set up an expert commission to “strengthen investment in Germany.”

But Mr. Gabriel’s criticism is misdirected, as least when it comes to large, publicly traded German companies, which are spending more than ever on their long-term futures.

Germany’s top 45 companies upped spending on research and development (R&D) from July 2013 to June 2014 by 11.3 percent over the same period last year.

 

Who Invests the Most-02

 

They spent $55.1 billion, or €43.4 billion, on future-oriented products such as electric cars and new drugs, according to a new study by the consulting firm Strategy&, to which Handelsblatt has gained exclusive access. The study examines the investment activities of 1,000 companies with the highest R&D expenditure worldwide.

The record investment levels by the 45 German companies are especially noteworthy because they run counter to the global trend. Globally, the increase in research spending declined from 3.8 to only 1.4 percent. “Classic industry is making Germany a world leader in innovation,” said Klaus-Peter Gushurts, a spokesman for Strategy&.

The German automobile industry, in particular, is investing heavily in research. Three carmakers alone, VW, Daimler and BMW, spend $26 billion on research, or half of all R&D expenditure among the 45 German companies studied. VW boosted its research spending by 18.9 percent, to $13.5 billion, making it the world’s largest source of R&D spending. Samsung is in second place with $13.4 billion, following by U.S. chip giant Intel, which is investing $10.6 billion.

It is auto industry investment that puts Germany ahead of its European neighbors in research spending.

The development of electric engines and hybrid vehicles, along with laws dictating reductions in carbon dioxide emissions, consume billions. Last year, the three major German automakers pumped a total of $28.6 billion into their research departments, or almost half of the entire German share of R&D spending within the study. At VW, some 44,000 employees worldwide are involved in technical development.

The record investment levels by 45 German companies are noteworthy because they run counter to the global trend.

Beyond the automobile industry, there are seven other companies in Germany that spend more than $1 billion on research: Siemens, Bayer, SAP, Continental, BASF, Merck and Deutsche Telekom. Other players include Infineon (€591 million) and chemical products manufacturer Henkel (€525 million).

Outside Germany, spending on research is rising.

According to the study by Strategy&, major global companies, from Google to Samsung to Volkswagen, spent a total of $647 billion, or €509 billion, on research into new technologies on products last year.

Proportionally, Germany’s spending puts it ahead of the curve. The 45 German companies’ spending of $55.1 billion on research made up 8.5 percent of spending among the major global firms studied, an increase compared to last year’s share of 7.8 percent.

 

39987324 4 logos cars invest action press
Knowledge is power. Source: Action press

 

China is the only country with even higher growth rates, with its research spending growing by 30 percent last year and by a factor of 15 in the last decade. Nevertheless, even after such rapid growth, Chinese companies still account for only 4.6 percent of worldwide research spending – a drop in the bucket compared with China’s economic might.

Within Europe, Germany is the clear frontrunner. With their research budget of $55.1 billion, the 45 German companies are ahead of the French companies included in the study, which invested only $35.8 billion. The Swiss spent $30.8 billion while the British spent only $20.6 billion on R&D. This is the case despite the fact that Germany’s neighboring countries are home to such major corporations as Novartis and Roche, in Switzerland; LVMH and Total, in France; and BP and Glaxo in the United Kingdom; meaning they are home to significantly more exceptionally large, publicly traded companies than Germany.

Still, German carmakers’ strong focus on research cannot conceal a serious deficit in the German economy: Aside from software maker SAP and semiconductor producer Infineon, there is a lack of large, research-intensive companies in the future-oriented Internet and communication sectors in Germany.

The Innovation Indicator 2014, compiled by the Deutsche Telekom Foundation and the Federation of German Industry, or BDI, to which Handelsblatt has gained exclusive access, finds that the German economy is in a good position worldwide when it comes to innovation. Germany ranks sixth in an international comparison of 35 industrialized nations.

But despite the strong result, the authors are calling for improvements in the underlying tax conditions. “High innovative performance among companies is not a no-brainer,” said Dieter Schweer, a representative from the BDI.

 

Who Invests the Most-01

 

Germany pales by comparison to the United States, where companies spent $254.2 billion, or almost five times as much as their German counterparts, on research. Some 40 percent of the global research budget comes from US corporations. Three technology giants alone, Intel, Microsoft and Google, invested $29 billion in their research last year, or more than half of the entire German budget. Besides, many U.S. companies are positioned more broadly. “Leading Internet companies like Google are doing research on technologies that could soon become a top priority for consumers in a wide range of economic sectors,” said Klaus-Peter Gushurts, a management spokesman for Strategy&. An example is the intelligent car, a trend that threatens to bypass German automakers.

From automobile research in Germany to IT development in the United States, R&D investments are a bet on the future. Whether companies’ efforts will pay off becomes apparent only several years later. Some projects fail, so that those investments become total losses. But it’s a risk that doesn’t seem to deter investors. On the contrary, with the exception of Samsung, the stock prices of the world’s 10 most research-intensive companies performed better this year than the benchmark index MSCI World. And that’s saying a lot, because the MSCI itself saw a healthy increase of 20 percent.

 

Ulf Sommer writes about firms and industries for Handelsblatt; Thomas Sigmund is the bureau chief in Berlin, where he directs political coverage. To contact the authors: sommer@handelsblatt.com, sigmund@handelsblatt.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!