Taiwanese firms should spend more on research and development (R&D) to boost their profitability, as global companies are shifting resources away from physical products to software and services and the change is paying off, accounting firm PricewaterhouseCoopers LLP (PwC) said in a report yesterday.
Thirty-two Taiwanese firms made this year’s Global Innovation 1000 Study — two fewer than last year’s report — with R&D spending totaling NT$392.8 billion (US$12.44 billion), or 3 percent of their combined revenues, PwC Taiwan said.
The figure represents a 0.1 percent year-on-year increase in R&D investment, but the nation still lags behind the 3.5 percent investment seen in South Korea, 4.1 percent in Japan, 6.1 percent in the US and Switzerland’s 8.3 percent, the report said.
“The figures suggest room for improvement on the part of the nation’s firms, given the close and positive relationship between spending on R&D and profitability,” PwC Taiwan executive vice president Paul Liu (劉鏡清) said.
The total R&D spending by the 1,000 firms cited increased 0.04 percent to US$679.8 billion, essentially unchanged from the previous year due to fluctuations in foreign currencies, the report said.
However, over the past five years R&D spending on software and services increased from 54 percent to 59 percent of the total, with the proportion expected to reach 63 percent by 2020, the report said.
In contrast, R&D spending on product-based offerings fell from 46 percent to 41 percent over the five-year-period and might fall to 37 percent by 2020, the report said.
Companies that reported faster revenue growth than their competitors allocated more R&D investment to software and services, Liu said.
Software-oriented firms should raise their R&D spending to 7 percent of revenue because the innovation-driven business model is increasingly replacing the cost efficiency approach, Liu said.
R&D spending hit 9 percent of revenue at industrial computer maker Advantech Co (研華科技), 8.25 percent at machine toolmaker Hiwin Technologies Corp (上銀科技) and 23.2 percent at handset chip designer MediaTek Inc (聯發科), Liu said.
Worldwide, Apple Inc retained its top position in R&D spending, with Alphabet Inc, owner of Google, coming second in the rankings of most innovative companies, the report said.
As R&D resources move to software and services, talent has shifted as well, the report said.
By 2020, the number of electrical engineers might fall 35 percent while demand for data engineers could double, the report said.
Local firms should reconsider their position on the world stage rather than limiting themselves to being “followers” of technological developments, Liu said.
R&D spending for the healthcare industry might grow more than quickly than other sectors, rising to US$165 billion in 2018, overtaking the estimated US$159 billion spending of the computer and electronics industry, PwC said.
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