It is commonly known that research and development (R&D) is of outmost important for many companies in several different industries, such as high-tech, telecom, healthcare etc. For companies in such industries the ability to excel in R&D may have a direct impact on the company’s competitive position in the market and consequently also have a direct impact on possibilities to achieve profitable growth.
At 2by2 we are confident that also the context in which you operate your business matters a lot; for instance if you operate your business in a country with great access to highly skilled engineers then that in itself will improve your possibilities of excelling in R&D. To that end; we believe that companies that are based in countries where the collective R&D expenditure is high are better positioned compared to companies that try to operate the same line of business in countries with more limited investments, hence a R&D scale-advantage on a macro-economic level.
The level of R&D investments will have a direct influence of a country’s ability to secure availability of highly skilled engineers as investments in R&D are likely to fuel the higher education systems in the country and in addition also increase the share of highly skilled foreign engineers that choose to build a career in that specific country.
At 2by2 we wanted to assess different countries in regards to how well suited they are to support companies where R&D play and important role. In order to do that we looked specifically at total R&D spend in different countries, in absolute numbers and in addition we looked at total R&D spend related to GDP in each country (all of the data comes from The Economist).
We identified four types of countries:
1. R&D leaders; countries with an above average absolute R&D expenditure and an above average relative R&D expenditure. These are countries which that have the possibility to provide a very good context and support to companies that relies heavily on R&D.
2. R&D laggards; countries with a below average absolute R&D expenditure and a below average relative R&D expenditure. These are countries where companies heavily relying on R&D might experience challenges compared to their peers in other markets.
3. R&D scale-advantage; countries with an above average absolute R&D spend, but below average relative R&D expenditure. These countries is well positioned to support companies with intense R&D needs due to that they have been able to leverage the scale of the economy rather then a high relative R&D expenditure.
4. R&D sub-scaled; countries that typically have an above average relative R&D expenditure but below average absolute R&D expenditure. These countries might give R&D intense companies a challenge, because despite having a high relative R&D expenditure, the relative R&D expenditure does not sufficiently fuel for instance higher education systems well enough.
Below is the matrix showing how the different countries are matched to the four different categories. Japan and US sticks out as the R&D leaders in this comparison. Germany, France, UK, China and Canada represent the scale-advantage countries while countries like Israel, Sweden, Finland, South Korea and Switzerland represent countries that we believe to some extent are R&D sub-scaled.
If we exclude Japan and US from the comparison the relationship between the remaining countries changes slightly; difference here is that South Korea moves up to the R&D leaders quadrant and Italy moves up to the R&D scale advantage quadrant as average R&D expenditure decreases somewhat.