PwC: Economic Nationalism Could Hinder Future R&D

Nationalistic government policies could reverse the recent trend toward global innovation and reduce future research and development spending by large carmakers and other conglomerates, PricewaterhouseCoopers concludes in its latest Global Innovation 1000 report.

The flow of talent, investment and ideas that has boosted global r&d efforts may be impeded by the rise of economic nationalism, PwC warns. This in turn could negatively impact new products and services needed to generate future jobs, growth and wealth.

Almost one-third of the study’s 562 respondents say their company’s r&d spending has already been affected by the trend. Just over half indicate they expect economic nationalism to have a "moderate or significant" impact on their r&d activities in coming years.

Companies recently have established regional r&d centers and benefited from a diverse talent pool. PwC says 94% of the top 1,000 r&d spenders have implemented such a global innovation model. The study adds that companies which allocate 60% of their r&d budget outside their home country boost their operating margin and return on assets by 30% compared with more domestically focused competitors.

Citing data from the Global Trade Alert, PwC says the U.S., India, Russia, and Argentina tied in implementing the most protectionist measures from November 2008 to June 2017. R&D spending in the U.S. is most at risk due to uncertainty created by the ongoing political rhetoric of the Trump administration, according to the authors. The assessment is based on the study’s Net Risk Index, which calculates a country’s “structural risk” in conjunction with forecasts from respondents.

The U.K. ranks second behind the four most protectionist countries as the impact of its decision to exit the European Union is sorted out. China is third because of its dependency on spending by foreign companies, PwC says. Rounding out the top r&d risk countries are Mexico and India. Conversely, the authors say Canada, Germany and France stand to benefit from global protectionist policies.

Companies likely still will pursue a global strategy, but nationalistic policies could result in less efficient operations with redundant resources. PwC says the structure and scale of automotive r&d makes affected companies more at risk than those in other industries. As a result, the authors recommend carmakers and suppliers devise contingency plans that allow for more autonomous r&d operations in multiple regions as needed.

The top 1,000 spenders are on track to increase r&d investments 3.2% this year to more than $702 billion. Amazon leads the way with estimated r&d expenditures of $16.1 billion, up 28% from 2016. The online retailer is followed by Alphabet ($13.9 billion), and Intel and Samsung ($12.7 billion each).

Volkswagen, which ranks fifth overall, is the top automotive company with an estimated $12.1 billion r&d budget this year. Five other carmakers made the top 25: Toyota (11th with $9.3 billion), General Motors (13th, $8.1 billion), Ford (15th, $7.3 billion), Daimler (16th, $6.9 billion) and Honda (19th, $6.2 billion).