Pushing innovation, Chinese firms lead world in R&D spending growth

Research and development spending growth by Chinese companies leads the global market as they shift their advantage from competitive costs to innovation to build up technology capabilities to win in the global market, according to research.

The 2016 Global Innovation 1000 Study from Strategy&, which identified the 1,000 public companies around the world that spent the most on R&D during the last fiscal year as of June 30, said that 130 Chinese companies among the top 1,000 spenders on R&D had spent a combined $46.8 billion on R&D, up 18.6 percent from $39.4 billion in last year.

As a result, the R&D spending contributed by Chinese companies is also on the rise, up from 5.8 percent in 2015 to 6.9 percent in 2016.

Huawei, a Chinese leader in telecommunication, although being excluded from the top spenders list due to its nonpublic status, is highlighted as the highest spender on R&D in China with 59.6 billion ($9.48 billion) on R&D in 2015, the ninth largest R&D spender behind Novartis but ahead of Johnson & Johnson among the top 1,000 global innovation enterprises.

"In light of the innovation-driven development strategy at a national level, Chinese companies have been increasing their investment in R&D year by year," said Adam Xu, partner and leader of digital practice with Strategy&.

Many of world's major innovators are transforming mostly driven by changing and rising customer expectations, and the fast pace of improvement in what software can do, including the increasing use of embedded software and sensors in products.

"Companies will recruit fewer mechanical engineers and more data and software engineers to build their capabilities, shifting from physical products to digital offerings including software and services," said Huw Andrews, partner and innovation group leader of PwC China.

Chinese companies have been allocating a great deal of R&D resources on optimizing production processes and the supply chain, which help to reduce costs and increase productivity, which are not directly visible to consumers but benefit companies, said Andrews.