Published this month by the European Commission (EC), the 2015 EU Industrial R&D Scoreboard tracked the spending of 2,500 publicly held companies in 44 countries across 41 industries that are the world’s largest R&D spenders. Together, these companies represented an estimated 90% of global business R&D and 55% of total R&D spending in fiscal 2014 (or the latest fiscal year for which public information was available), according to the EC. The results indicate the concentration of R&D spending among the largest companies; fast growth in China; and a rebound in R&D spending by the Pharmaceutical & Biotechnology sector.

In fiscal 2014, R&D spending by the 2,500 Scoreboard firms grew 6.8% to €607.2 billion ($809.6 billion = €0.75 = $1), up from 5.0% growth in the previous year. However, combined sales grew only 2.5% to €17,972.6 billion ($23,963.5 billion). The slower growth was due to declines in commodities prices, according to the EC. R&D intensity, or the percentage of R&D per sales, was 3.4%.

These increases are in line with the three-year compound annual growth rates (CAGR) for R&D and sales. The CAGR for R&D spending for the 2,500 firms grew 6.1%, but the CAGR for sales increased only 2.9%. As these figures illustrate, in total, R&D growth outpaced sales growth, driven by spending by high R&D-intensity sectors, such as Pharmaceutical and Biotechnology, Technology Hardware & Equipment, and Software & Computer Services. Pharmaceutical & Biotech, Technology Hardware & Equipment, and Automobiles & Parts companies represented 49% of Scoreboard companies’ R&D investments.

R&D spending kept rising in fiscal 2014 in spite of constraints on other company results. Capital spending for Scoreboard companies declined 0.1% to €1,131.2 billion ($1,508.3 billion) in fiscal 2014, after growing 2.8% the year before. Consequently, capital spending as a percentage of sales remained at 7.1%. Similarly, operating profit growth for Scoreboard companies stalled at €1,735.4 billion ($2,313.9 billion), up 0.5%. As a percentage of sales, operating profits were 9.7%.

Annual R&D growth was largely influenced by the Scoreboard’s top 100 companies, which made up 53% of the total R&D spending in fiscal 2014. Sixty percent of the top 100 firms are in one of four industries: Pharmaceutical & Biotech, Automobiles & Parts, Technology Hardware & Equipment, and Software & Computer Services. These 100 companies also represented 29% of the Scoreboard’s annual sales.

By Region

R&D spending by the 829 US companies in the Scoreboard grew 8.1% to €232.3 billion in fiscal 2014 ($309.7 billion) to account for 39% of Scoreboard total R&D spending. The three-year CAGR for US companies’ R&D spending rose 6.9%. Annual sales for US firms grew 3.6% to €4,397.6 billion ($5,863.5 billion). In contrast, operating profits declined 0.8% to €1,735.4 billion ($2,313.9 billion). However, capital expenditures rose 5.7% to €1,131.2 billion ($1,508.3 billion). The growth in R&D and capital expenditure both indicate investments in future sales and profitability. The largest percentage of R&D spending was by US companies in Technology Hardware & Equipment (26% of US firms) and Pharmaceutical & Biotech (21%).

The 608 EU firms’ R&D spending rose 3.3% to €170.9 billion ($227.9 billion) to represent 28% of Scoreboard R&D. R&D growth accelerated in fiscal 2014, up from 2.5% growth the year before. For EU firms, the three-year R&D CAGR was 4.2%. Sales growth lagged R&D, as EU companies’ sales declined 1.0% to €6,042.8 billion ($8,057.1 billion). Although EU companies’ operating profits grew 8.3%, capital expenditures fell 5.1% as the EU firms were heavily affected by weak commodities markets. Automobiles & Parts (27%) and Pharmaceutical & Biotech firms (18%) accounted for the largest share of EU companies’ R&D spending.

Within the EU, the 136 German companies in the Scoreboard exhibited a disproportionate effect, representing 37% of EU companies’ R&D spending and 27% of their sales.

For the Japanese companies, which represented 14% of Scoreboard R&D spending, R&D expenditures grew 2.6% to €86.6 billion ($115.5 billion) in fiscal 2014. Surprisingly, sales outpaced R&D spending, increasing 4.3% to €2,644.5 billion ($3,526.0 billion). Japanese companies’ three-year CAGR for R&D was 6.8%. Like EU firms, Japanese companies’ operating profits climbed 8.2% in fiscal 2014, but capital expenditures declined 2.1%. The two largest R&D spenders by sector among Japanese firms were Automobiles & Parts (29%) and Electronic Equipment (13%).

However, the largest increases in annual R&D spending collectively were exhibited by companies outside the US, EU and Japan. For these Rest of World (ROW) countries, R&D spending grew 13.1% to €117.5 billion ($156.7 billion) in fiscal 2014 to make up 20% of Scoreboard company spending, or a higher percentage than Japan. The three-year CAGR for ROW R&D spending was 10.5%. In contrast, sales for these firms grew only 2.7% to €4,887.7 billion ($6,516.9 billion),operating profit declined 4.7% and capital expenditures barely increased, up 0.8%.

It was three Asian countries whose companies recorded the fastest R&D growth. Chinese firms recorded the fastest growth for R&D spending among Scoreboard companies’ countries. R&D spending for the 301 Chinese companies in the Scoreboard jumped 23.6% in fiscal 2014 to €36.1 billion ($48.1 billion) to make up 6% of the total. The three-year CAGR also grew in double digits, rising 17.8%. Sales for these companies grew 5.9% to €1,894.7 billion ($2,526.3 billion), but operating profit declined 2.1% to €129.6 billion ($172.8 billion). Capital expenditure information was unavailable. For the Scoreboard’s Chinese companies, the largest sectors in terms of R&D spending were Technology Hardware & Equipment (13%), and Automobiles & Parts (10%).

Taiwanese companies showed the next fastest increase in R&D spending, at 12.4%, to €12.2 billion ($16.3 billion) and a three-year CAGR of 9.8%. Taiwan was followed by South Korea, whose firms’ R&D spending rose 10.6% to €23.8 billion ($31.7 billion), with a three-year CAGR of 13.3%.

Pharmaceutical & Biotech

Collectively, R&D spending by Pharmaceutical and Biotech companies in the Scoreboard rose 7.2% in fiscal 2014 to €110.2 billion ($146.9 billion), 18% of total Scoreboard R&D spending. R&D intensity was 14.2%. The growth was driven by Biotech companies’ spending which increased 21.3%, as opposed to R&D spending by traditional pharmaceutical firms, which increased only 4.8%. Total Pharmaceutical & Biotech company spending rose 4.6%.

Spending by US Pharmaceutical & Biotech firms grew 10.7%, compared to 0.4% growth in the prior year, and had an R&D intensity of 17.1%. Similarly, EU Pharmaceutical & Biotech firms’ R&D spending increased 6.5%, following 0.9% growth the year before. R&D intensity for this group of companies was 13.3%. In contrast, Japanese companies’ Pharmaceutical & Biotech spending declined 1.0% in fiscal 2014, compared to 9.3% growth in fiscal 2013. R&D intensity for these companies was 13.3%.