R And D Spending Leads To Higher Company Growth, Report Suggests

by Robert Lee, Tax-News.com, London

29 November 2006

Research commissioned by KPMG International has found a clear link between higher spending on research and development and faster business growth.

According to KPMG's report, when the approach to innovation of Europe’s fastest growing mid-sized companies is compared against the average, it emerged that high growth businesses spend 50% more than average on R&D at 6.1% of turnover compared to 4.1%.

The research found several areas where the approach to and implementation of innovation differed between the average and the fast growing mid-sized companies:

• In the last two years 65% of fast growing companies have introduced new products compared to 56% across the board.
• During the same period 53% of fast growing companies introduced new processes compared to the 42% average.
• Fast growing companies place greater importance on innovation in order to improve product quality, add value and enable them to enter new markets rather than on cutting costs.
• Fast growing companies are more protective of their intellectual property, placing more importance on secrecy and are more likely to take external advice about protecting innovation for example through patents, trademarks and design registration.

The fastest growing companies are also far more likely to manage their R&D in-house compared with the average company, and less likely to partner with other organisations such as universities.

However, the reverse of this coin is that this stand-alone approach may be the reason why fewer fast growing companies are successful in acquiring public financial support for innovation, such as tax credits and grants, the report suggested.

Commenting on the findings, Steve Hollis, KPMG’s Head of Markets in the EMA Region, observed that: “On one hand it’s perhaps not surprising that the faster growing companies put more resource into innovation via R&D investment, but on the other it’s useful for those companies that aren’t experiencing high growth levels to have such a clear pointer that an unshakeable commitment to innovation should be at the heart of their business strategy to help deliver a growth rate step change.”

He added that: “Equally the faster growing companies could learn from the wider marketplace that seeking external advice in certain areas can even further improve their approach to innovation, for example by helping them to maximise the financial support available to boost investment in R&D.”

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