When I last compiled one of these lists five years ago,
mobile infrastructure and device maker Huawei Investment & Holding Co. was
in sixth place behind Microsoft, just as it is here, but it was the only
Chinese company in the global top 25. It has been joined by TikTok owner
ByteDance Ltd., WeChat owner and gaming giant Tencent Holdings Ltd. and
e-commerce, payments and cloud-computing purveyor Alibaba Group Holding Ltd.
The $14.6 billion figure for ByteDance is for 2021 and comes
from a report the privately held company shared with employees last year, which
the Wall Street Journal reported on in October. The Information reported on
April 1 that ByteDance has told investors revenue rose 30% in 2022, so I would
guess its 2022 R&D spending would rank even higher.
All the other numbers above come from publicly released
financial statements, but companies have a fair amount of leeway in determining
what constitutes R&D spending. Amazon.com Inc. doesn’t even report it,
instead including a line in its income statements for “technology and content”
that is probably mostly R&D but is opaque.
In 2017 and 2018, the US Securities and Exchange Commission
sent a series of letters to Amazon pressing it to report R&D as other
companies do but backed down after Amazon argued that “our business model
encourages the simultaneous research, design, development, and maintenance of
both new and existing products and services” and that separating out just the
R&D would be hard to do and meaningless to its investors.
It is possible that some other privately held company is
spending more on R&D than No. 25 Bayerische Motoren Werke AG’s $7.5
billion, but unlikely. Huawei is employee-owned but releases an annual report,
as does foundation-and-family-owned German auto-parts maker Robert Bosch GmbH,
which spent $6.7 billion in 2022, good for 34th place. (Like other European and
Japanese companies, it would be higher in a dollar-denominated ranking like
this if the euro and yen were stronger.) Among the world’s other biggest
private companies, most don’t seem to report their R&D spending, but most
also don’t fit the profile of a big R&D spender.
That profile involves being in tech, pharmaceuticals or auto
manufacturing. This has been true for decades. The number of tech companies has
grown, with relative newcomers Amazon, Google parent Alphabet Inc. and Facebook
parent Meta Platforms Inc. now occupying the top three spots and most of the
Chinese companies new to the list. But when I found a top 20 ranking from 2004,
compiled by Booz Allen Hamilton from Bloomberg data, I was struck by how many
familiar names it contained.
Of the companies listed here that aren’t in the current top
25, all but one remain in the top 50, with Matsushita Electric successor
Panasonic Holdings 61st. The combined R&D spending of Mercedes-Benz Group
AG and Stellantis NV, the products (with the addition of Fiat) of the 2007
DaimlerChrysler breakup, would put it in 16th place.
Also, if you’re wondering where semiconductor industry
leader Taiwan Semiconductor Manufacturing Co. fits in to all this, it comes in
41st in R&D but fourth in capital spending, behind only Amazon, Samsung
Electronics and Saudi Arabian Oil Co.
One thing that has changed since 2004 is how much further
ahead of the pack the top spenders are. Leaving Amazon and its unique
accounting aside, current No. 2 Alphabet is spending more than four times as
much on R&D as No. 20 Bristol-Myers Squibb. In 2004, No. 1 Microsoft spent
less than twice as much as No. 20 Merck.
Most of the top automakers are spending similar amounts on
R&D, adjusted for inflation, as in 2004. The exceptions are Volkswagen AG
and BMW, which are spending substantially more, and Ford Motor Co., which is
spending a third less. Pharma companies are generally spending a lot more, but
the most spectacular increases have been in tech, among what I guess we should
start calling the MAAAM companies (others have suggested MAMAA, but they’re
wrong), for Microsoft Corp., Apple Inc., Amazon, Alphabet and Meta. With the
exception of Apple, these companies’ R&D spending is going toward inventing
and improving not so much physical products as algorithms,
artificial-intelligence systems and the like — which goes for Chinese
counterparts ByteDance, Tencent and Alibaba as well. In the US, most of these companies
have been announcing big layoffs lately, but the effect on their R&D
spending is so far barely discernible.
For the companies themselves, these huge increases in
R&D spending could be of limited value. A 2020 study by accounting scholars
from the University of Washington and University of Texas found that while
there was once a strong relationship between R&D expenditure and future
profitability, it has become much weaker since the 1990s.
For national and regional economies, the evidence still points
to a payoff in terms of productivity gains and growth, although it’s too early
to know whether this will be true for the R&D boom of the past few years.
If it is, it looks as if the US and China are best positioned to benefit. -Bloomberg