R&D retains appeal during the downturn

01 December 2009

NEW YORK: Companies such as Toyota, Intel and Kraft are continuing to invest in research and development, even at a time when sales in many sectors are slowing during the recession.

Research from Booz & Co. found that the 1,000 publicly-traded corporations with the biggest R&D budgets increased their outlay by 5.7%, to $532 billion (€354bn; £322bn), in 2008, despite the fact a third of the firms assessed had cut back.

By region, North America was up by 6.5%, to $215bn, as was Europe, by 6.3% to $170bn, while India and China delivered a cumulative uptick of around 25%, to $5bn, and Japan was largely flat.

Toyota, the Japanese automaker, spent the largest overall total, on $8.9bn, down by 5.7% on an annual basis, followed by Nokia, on $8.7bn, up by the same amount year-on-year.

Roche Holding, in third, boosted its funding by 5.5%, to $8.1bn, as did Microsoft, by 14.6% to $8.2bn, while General Motors posted a drop of 1.2%, to $8.0bn.

Booz also surveyed nearly 300 senior executives active in this field, and found that 90% of this cohort regarded such innovation initiatives as being vital to their preparations for the financial recovery.

Less positively, of the 522 organisations that had reported first-quarter figures, R&D expenditure was off by an average of 7.4%, although this compared with an 18.5% contraction in sales in this timeframe.

3M, the maker of Post-it products and Scotch Office tape, reduced its annual R&D outlay by 8.6% form January to September, but this amounted to an uptick from 5.4% to 5.7% as a percentage of sales.

George Buckley, its chief executive, suggested that "if we cut back on that, we'd damage and potentially ruin the company."

The office supplies-to-computing conglomerate has recently launched a new research centre in Singapore, with another set to be opened in India in the near future, both charged with developing products specifically for these markets.

Intel, the technology giant, also introduced the Intel Reader earlier this year, a mobile device which takes pictures of printed material, converts it to a digital form, and then plays it back in an audio format.
During the first three quarters of 2009, Intel's expenditure in this field slid by 8.1%, to $4.1bn, but as a share of sales, this amounted to an improvement of 1.5%, to 16.5% in all.

Caterpillar, the manufacturing and construction specialist, saw its R&D budget as a portion of revenue rise from 3.2% to 4.4% in this period, even though it trimmed its spending by 13%, to $1.4bn.

Tana Utley, its chief technology officer, said "if you don't invest in R&D during the downturn you'll feel like a hero during the day because you've saved money, but you'll be a heel in the history books."

These trends equally apply in emerging nations, where Alan Grant, svp for R&D in developing markets at Kraft Foods, said retailers and consumers "expect" new innovations at various times of year.

"Before the recession some of our developing-market businesses were considering some new premium initiatives ... In some cases we chose to delay their launch and focus instead on launching more price-sensitive products," he added.

Data sourced from Wall Street Journal/Booz & Co; additional content by Warc staff