China spending on R&D is on sharp rise, but not enough

While the United States and Japan remain the most significant powers in the global IT R&D investment, China spending on R&D is rising sharply.

As the world’s largest manufacturer, China is not good enough in technological innovation, as it seldom boasts too many convincing products. An important source for corporations’ innovation, however, is R&D investment.

According to the “Top 30 Corporations with the Largest R&D Spending”, made by ZDNet China in September 2011 based on the annual reports of R&D cost of the global corporations of IT and electronic information, China’s corporations’ R&D cost is in rapid growth, however, a still larger percentage on R&D investment can be desired.

Below is the list:

Explanations for the list:
1.    The statistics in the list are from the 30 corporations’ annual reports, during the latest fiscal year before June 30, 2011.
2.    The unit for R&D expenses is USD. For the corporations outside the US, their R&D expenses have been converted into USD based on their annual average exchange rate.
3.    The changes in the R&D spending are calculated in the unit of home currency.
4.    IT companies include companies of semiconductors, software, hardware, IT services, electronics, and web communication.

From the list above, we notice three characteristics of the global IT R&D investment:
1. Geographically speaking, while the United States and Japan remain the most significant powers in the global IT R&D investment (12 American and 10 Japanese corporations take up more the 70 percent of all the members in the list.), China’s spending on R&D is on sharp rise.
Although Chinese corporations’ IT R&D is in its initial stage with only Huawei in the list, yet as China has surpassed Japan in GDP, its IT companies have taken great strides in R&D of all aspects.

According to the global PCT patent application, Chinese corporations have been speeding up in innovation as well. As for the number of PCT application published in 2010, Zhongxing ranked No.2 and Huawei No.4. (See the list below) Huawei’s R&D investment increased by 24.1%, after only Oracle?38.9%?, Apple?33.7%? and Google?32.2%?.

2. Companies of semiconductors, communication and software enjoy a larger R&D/Net Sales ratio, among them Broadcom, Qualcomm and STMicroelectronics’ratios over 20%, Alcatel-Lucent, Ericsson and Intel’s rations over 15%, and SAP, Nokia, Cisco, Microsoft, Google, EMC and Motorola Solutions and Oracle’s ratios over 10%.

In order to encourage the R&D on IT products, China continues to implement preferential policies in taxation and M&A for the corporations with higher R&D/Net Sales ratios, such as semiconductors and software corporations.

3. Generally speaking, while a corporation’s R&D spending is in direct proportion to its patent applications and patent licenses, its R&D spending is not necessarily related to its profit made in sales.

Apple, for example, with its $ 1.78 billions’ R&D spending, ranking only No. 29 globally, achieves remarkable success both in market capitalization and in profit. Other companies, such as most Japanese electronics tycoons and Nokia, though spending a large amount of money on R&D, haven’t made corresponding profit.

Despite this, many companies have noticed the invisible value brought by R&D and patents, as in the case of Google-Motorola-Merger.