Most research and development (R&D) in the world is done in universities or research institutes, but by businesses – big businesses can do more R&D than medium size countries. A useful snapshot of this world is provided by the 2024 EU Industrial R&D Investment Scoreboard, which came out in December. The scoreboard lists the top 2000 companies in the world by their annual R&D expenditure, classifying them by sector and nationality of headquarters. In total, this amounts to total R&D spend of €1257.7 billion (converted at market rates), which the authors believe accounts for 85% to 90% of worldwide R&D funded by the business enterprise sector.
Unsurprisingly, the top companies are US tech firms – Alphabet, Meta, Apple and Microsoft – which between them spend €127 billion. Number 5 is the German auto firm Volkswagen, Asia provides numbers 6 and 7 in the shape of China’s Huawei and Korea’s Samsung.
Taking the world as a whole, the top sectors are Software, accounting for 19% of the total, Pharma at 18%, Automobiles at 15%. Tech hardware accounts for 16% and Electronic & Electrical hardware another 7%. These last two categories do have some overlap – the former includes Apple, Huawei, Intel, Qualcomm, Nvidia, Cisco and TSMC, while the latter includes Samsung, Siemens and Hon Hai (aka Foxconn).
How does the UK do? The share of world business R&D done by UK domiciled firms is 2.8%, and there are just two UK companies in the top 100 – the pharmaceutical companies AstraZeneca and GSK.
Of course, where a company is domiciled and where it does its R&D aren’t necessarily the same. Roughly half of UK business R&D is done by overseas owned companies – for example, the significant R&D carried out in the UK by the auto company Jaguar LandRover is ascribed in these statistics to its Indian parent, Tata Motors. This is a very high fraction of R&D done by overseas firms, by comparison with other countries of a similar size. The positive interpretation of this is that it is a testament to the attractiveness of the UK as a place to do R&D. But control matters, and this exposes the UK to the risk that this R&D may be more footloose than R&D done my domestically owned firms.
We can get a sense of the sectors that the UK focuses on by comparing the UK shares with the global fraction.
Pharmaceuticals is a clear leader for the UK – it accounts for 49% of the UK owned business R&D, which amounts to 7.5% of the world total. There is an interesting aspect to this, however – it is completely dominated by the two giants, AstraZeneca and GSK. This is in contrast to the USA, where there is a significant tier of relatively recently founded companies that have emerged from the biotech revolution – such as Gilead, Amgen, Moderna, Regeneron and Vertex, all with € multibillion R&D spend. UK pharma scale-ups – like Bicycle Therapeutics and Immunocore – are still an order of magnitude smaller.
The other area of specialism for the UK is Banking – this accounts for 17% of the UK’s R&D; this represents 41% of the world R&D in this sector. Of course, there may be issues of what is classified as R&D in different companies.
Where UK firms are largely absent is in Software, Tech hardware and Electronic & Electrical hardware. Between them, these sectors dominate global business R&D, accounting for 42% of all business R&D. But the UK accounts for just 0.6% of world Software R&D, 0.45% in Electronic & Electrical hardware, and a tiny 0.046% of world R&D in Tech hardware. Once again, this doesn’t take into account of R&D carried out in the UK by overseas firms – for example, DeepMind’s work will be ascribed to its US owner, Alphabet. But it does suggest that the UK has largely missed out on innovation in the fastest moving areas of new technology in its domestically owned firms.
Finally, one might ask how effective markets are at allocating resources to the areas where the need for innovation is greatest. Given the urgency of climate change, and the need for innovation to drive down the costs of low carbon energy, it’s depressing to see that business R&D in the Alternative Energy sector accounts for just 0.23% of the world total, with Oil and Gas still accounting for 1.05%.