A huge global shift in corporate R&D spending

Last Updated Oct 27, 2015 10:40 AM EDT

Where will the next new products, and the ideas behind those products, originate?

The concept of corporate research and development may sound rather dry, but R&D is responsible for the creation, development, distribution and marketing of the products and devices that many of us depend on daily. And a major shift is occurring in global R&D centers: Over the past several years, they've moved away from Europe to Asia, with North America remaining as the No. 2 region.

According to the 2015 Global Innovation 1000 study from Strategy&, PwC's strategic consulting business, Asia was the top destination for corporate R&D spending this year. It accounted for more than one-third of total regional spending for both domestic and imported R&D.

That contrasts greatly with a PwC report on the issue in 2007 that determined Europe was the leader in R&D.

Barry Jaruzelski, the current study's creator, lead author and a principal with Strategy&, said he was struck at how rapidly Europe and Asia traded positions in global R&D rankings. But just as significant, he told CBS MoneyWatch that R&D work "is not just leaving Europe for Asia, it's also leaving Europe for high-cost countries like the United States."

The study looked at the 1,000 public companies around the world that spent the most on R&D during the last fiscal year. And while many companies won't divulge their R&D numbers, Jaruzelski said some of the data made available in the report starkly outlines the changes taking place.

The Strategy& study found China and India recorded R&D spending growth of 79 percent and 116 percent, respectively, between 2007 and 2015. In comparison, France decreased its domestic R&D allocations by 20 percent during that period. Germany, Europe's economic powerhouse, did increase, however, by 48 percent.

Jaruzelski attributed what he calls the "hollowing-out" of European R&D to several interlocking factors. A growing middle class in many Asian countries, especially in India and China, he said, calls for businesses to bring their R&D closer to their customers and markets.

"It's a lot easier to move a product from the development stage to the manufacturing stage if the engineers are in close proximity where it's being made," he added, "or the engineers are in close proximity to key suppliers who are making important components and products."

The study found R&D remains strong in the U.S., and it noted that a trio of American-based companies, Apple (AAPL), Google (GOOG) and Tesla (TSLA), were ranked as the three most innovative in the world for 2015.

Among individual countries, according to the report, the U.S. is still the largest spender of domestic corporate R&D with both domestic and imported research and development allocations coming in at $145 billion this year, up 34 percent since 2007.

"While the U.S. lead may be tapering, it still remains the biggest global market. And despite the high cost of labor, it offers a more agile and sophisticated workforce," Jaruzelski commented. "Companies look at the U.S. as a desirable market with a capable workforce, an innovative culture and a more flexible business environment that cultivates top talent, all of which are conducive to R&D functions."