For many companies, their long-term success depends on research and development (R&D) as it plays a crucial role in contributing to a firm’s ability to innovate and fight obsolescence. Moreover, companies in emerging countries are investing heavily in R&D in the hope that their investment will help them reach the level of their competitors in the “West”. A 2016 report from a major accountancy firm revealed that Chinese firms had the most significant R&D expenditure, with some 130 Chinese companies listed in the report having invested a total of $48.6 billion in 2016.
Now, research published in the International Journal of Technology Management looks at the push and pull of investment in R&D to see which predominates. Xin Pan of the Southwestern University of Finance and Economics, in Chengdu working with Xuanjin Chen and Xibao Li of Tsinghua University, in Beijing, China, suggests that there are factors that pull on R&D reducing investment and factors that push, increase costs. They conclude that push effect causes almost 9 out of every ten companies in China to overinvest in R&D and leads to an average overinvestment of 41.33% above the optimal level.
“This R&D investment inefficiency is heterogeneous in terms of state ownership structures,” the team reports. “A higher percentage of state-owned firms suffer from severe overinvestment,” they add. The team offers managers and corporate policymakers advice and guidance on how they might ultimately reduce R&D investment inefficiency.
Pan, X., Chen, X. and Li, X. (2020) ‘The two faces of R&D investments: push and pull factors’, Int. J. Technology Management, Vol. 82, No. 1, pp.26–46.