Rings of Defense Around R&D Spending

"Companies by and large realize that large reductions in R&D are suicidal," says Jim Andrew, a senior partner at the Boston Consulting Group. "It is the last shoe to drop."

Between 1999 and 2002 Apple boosted its R&D spending 42%. The result? The iPod and iTunes. It takes two or three years for R&D investments to pay off.

Layoffs, capital spending cuts, falling revenue. Companies faced with today's recession know that if they want to get out not only alive but on top they need to protect their R&D budget.

More companies that can't afford to increase their R&D expenditure are focusing on spending wisely. They're doing more with less by outsourcing R&D overseas.

The Battelle Memorial Institute predicts a cumulative 3% increase in R&D investment by companies, government, and universities. However, he also expects a decline in 2010.

By skimping out on advanced research between 2001 and 2003 GE hurt its lighting business. However, their $1.7 billion investment in commercial and military aircraft engines has been reeling in $20 million per GE90 engine. They've sold over 1,500 and counting. GE is also partnering with Japan's Honda Motor Co. to develop engines for business aircrafts even though that market has fallen.

IBM is investing in software to improve health-care record keeping and manage government computer systems. Its R&D spending has remained the same.

2008 R&D spending geographically (estimates by Booz & Co.):

7% China
4% North America
2% Japan
1% Europe

This lag will hurt the competitiveness of U.S. firms in the coming years.


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Brian Swann
VCU Brandcenter / Creative Brand Management / 804-690-7048
www.brandcenter.vcu.edu / swannbr@gmail.com