Innovation from rising R&D

2012-11-19 02:57:05 GMT2012-11-19 10:57:05(Beijing Time)  China Daily
PetroChina Co's oil tanks in Shenyang, the capital city of Northeast China's Liaoning province. For the first time the company has entered the top 100 of a worldwide innovation list conducted by global management consulting firm Booz & Co. This was the eighth annual analysis of corporate research and development spending by Booz & Co.(Photo/China Daily)PetroChina Co's oil tanks in Shenyang, the capital city of Northeast China's Liaoning province. For the first time the company has entered the top 100 of a worldwide innovation list conducted by global management consulting firm Booz & Co. This was the eighth annual analysis of corporate research and development spending by Booz & Co.(Photo/China Daily)

This was the eighth annual analysis of corporate R&D spending by Booz & Co.

"It is noteworthy that although the study only includes listed companies, a few Chinese private companies have invested tremendous innovation spending in recent years," said Steven Veldhoen, a partner at Booz & Co and head of its China Innovation Practice,

Huawei Technologies Co, for instance, spent 23.7 billion yuan ($3.8 billion) in R&D last year. It is ranked 40th in the Global Innovation 1,000 list, surpassing PetroChina to claim the position of the largest R&D spender among Chinese companies.

According to Bill Peng, principal at Booz & Co, Chinese public companies have increased their R&D spending greatly.

The total R&D spent by 2011 Innovation 1,000 companies headquartered in China was $14.8 billion. That compares with $11 billion the previous year. This is an increase of 34.5 percent over 2010.

The R&D spent by companies headquartered in China represents 2.5 percent of this year's total Innovation 1,000 R&D spent, according to the study.

PetroChina Co, with its R&D spending in 2011 reaching nearly $2 billion, compared with $1.75 billion in 2010, ranked the top among the 47 Chinese companies and ranked 70 in the global innovation list.

A total of 13 Chinese companies were added to the list this year, including China National Chemical Engineering Co, China Shipbuilding Industry Co and Huayu Automotive Systems Co.

Analysts said Chinese enterprises' fast growing investment in R&D is an indication of a shift in their business strategy that is aimed at strengthening their core competitiveness.

Oliver Rootsey, an account manager with Lenovo (Germany), has been with the company for seven years and now is in the company's commercial business sector.

He said that after acquiring the IBM PC division, some of their clients did have a question: could Lenovo deliver high quality products?

"We lost some of our clients at the very beginning but most of them came back later when they recognized that it was a 'soft' merger and we lived up to their expectations for high quality products," said Rootsey.

"There is a gradual shift in the perception among people in the EU: China is moving from imitation to innovation."

Globally, the innovation spending from the top 1,000 public companies that spent the most on R&D in 2011 increased 9.6 percent to $603 billion - an all-time record, according to the survey.

This is the second consecutive year of growth. The rebound comes after spending dropped 3.5 percent between 2008 and 2009 during the height of the global financial crisis.

Booz & Co also surveyed nearly 700 innovation leaders from companies worldwide to determine which they see as the most innovative companies in the world.

Apple, Google and 3M topped the list for the third consecutive year. The most innovative companies are seldom the biggest spenders, the study confirmed.

When compared with the 10 companies that spent the most on R&D, the top 10 most innovative companies outperformed across key financial metrics, including revenue growth, market cap growth and profit as a percentage of revenue.

"Consistent with our study findings from previous years, there is no long-term correlation between the amount spent on innovation and an organization's overall financial success," said Veldhoen. "What really matters is not the amount spent but how those R&D funds are invested in talent, process and tools."

The three industries with the greatest R&D investment were computing and electronics, health and autos, the survey showed.

In addition to the R&D spending data trend analysis, this year's study also examined the early stages of innovation, specifically looking at the tools, processes and mechanisms companies use to generate ideas and how they take those ideas to market.

Nearly half of those surveyed said their organizations were just average or marginally effective at generating new ideas and converting them into potential future products.

Meanwhile, the 25 percent of companies that reported being "highly effective" at both idea generation and conversion outperformed their peers in three important financial measures - revenue, market cap growth and earnings before interest, taxes, depreciation and amortization as a percentage of revenue.

Although innovation tools such as social network data mining, crowd sourcing and seed funding have been much hyped in recent years, companies themselves reported a much greater focus on traditional idea-generation tools.

The most common mechanism for developing new ideas, by a substantial margin, was direct observation of customers, which was ranked number one by 42 percent of all respondents. Traditional market research was ranked second, with 31 percent of respondents ranking it among their top five mechanisms.

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