Manufacturing a case for more R&D

It is an interesting sign of the times that a report on the state of manufacturing in Europe makes a big thing about R&D. The report, which comes from KPMG, actually has the title "Globalization and Manufacturing," but the firm's come on for the document says "Manufacturers in Western Europe must increase their investment in Research & Development (R&D) and improve their innovative capacity if they want to survive."

In his introduction to the report, commissioned by KPMG International from the Economist Intelligence Unit, Harald von Heynitz, "Global Chair Industrial & Automotive Products practice and partner in KPMG in Germany" warns that "With the exception of Germany, Sweden and Denmark, organizations in many of the developed economies show signs of serious under-investment in R&D and just 26 percent of survey respondents are hoping to improve profitability by becoming more innovative over the next three years."

This, the report adds, is despite the fact that for business in developed markets, "the continuous innovation is likely to be one of the primary defenses in maintaining their competitive position". And you don't get innovation without R&D.

The report singles out two countries for particular attention. "Of particular concern are Italy and Spain, which devote little more than 1 percent of GDP to expenditure on R&D."

The report also points out that R&D doesn't always happen back at home base. There is, it says, a growing propensity of big companies to globalise research as well as other bits of their operations.

Just doing R&D isn't good enough, it seems. "As important as expenditure on R&D is the efficiency with which it is spent. There needs to be a very good understanding of customer needs in order to ensure that research is concentrated in areas where the company can derive commercial benefits. This requires close liaison between the research function and the marketing and strategy functions."