View of the Global economic environment in relation to R&D with analysis for forward development
By: Andrew Bolton
Director of Business Development
Intent Solutions Group Llc.
On July 16th, 1969 at exactly 09:32:01 Apollo 11 fired its massive Saturn V rockets shaking the very ground people stood on for miles as onlookers stared in wonder and awe. As these brave men climbed slowly off launch pad “A” they began their ascent into the heavens and eventually immortality. We have all heard and seen the footage of Commander Neil Armstrong, Commander Michael Collins, and Colonel Edwin "Buzz" Aldrin make history that morning. But what was later discussed and revealed from declassified documents and video, was the decades of grueling research, analysis, experimentations that lead to the development of some of the most revolutionary technologies we now in the 21st-century view as ordinary.
We once stared into the heavens and dreamt, we then looked into microscopes and truly opened our eyes. We have created an entirely new existence with the invention of computers and the internet. We did these things, we pushed the envelope
We are now in 2020 and we are faced with a different challenge that is called the COVID pandemic. The view of the world for at least the next 3-5 years will be changed. Compared to previous fiscal years, it seems we are walking in the dark guided by the light of a single candle.
After the Apollo missions, NASA partnered with many organizations to share the data and technology that was developed. From the Research and Development done at NASA, the world was introduced to CAT Scans, Microchips, cordless power tools, Ear thermometers, freeze-dried food, insulation, memory foam, Satellite television and broadcast, smoke detectors, water filters, rechargeable batteries, velcro, and even the insoles in sneakers (Otto). All developed and invented at NASA.
But decades since that historical day, we have turned our eyes away from the work of discovery and development. Since the 1980s, U.S. companies have slashed spending on basic, exploratory science and engineering research, largely because they believed these investments wouldn’t be rewarded in the market. We have focused entirely on wealth, and the obsession of generating alpha; and the numbers are proving it.
In a 2020 journal, the National Science Federation stated: “The 28 nations that make up the EU collectively have the highest output of Science & Engineering (S&E) publications globally. China’s S&E publication output ranks next, followed by the United States. The citation impact of China’s publications is rising rapidly, although it is currently lower than that of the United States and the EU. With respect to industrial output between 2003 and 2018, the U.S. share of worldwide value-added output declined for R&D-intensive industries'' (Robbins). As shown in the figure below The United States has fallen behind, and is losing ground.
The United States, shown above is falling behind, and unless there is a dramatic change in R&D spending not only at a federal level but at the corporate level, we will be facing 3rd place behind Europe. According to the White House budget report This year the Federal government is setting aside $134.1 Billion in R&D. That is an increase of 12.614% over the previous year. And although it is an increase, it still falls short of 8.02% from the previous administration (Office of Management and Budget).
As the federal budget tightens the belt around R&D projects, corporate America has a different problem. In the Harvard Business Review, Gina O’Connor sights a Mckinsey study polling top executives and their Development initiatives. “A McKinsey survey from 2008 found that 84% of executives believed that innovation was critical to their business’s growth, but only 6% were satisfied with their company’s current innovation performance” (O’Connor).
There is a change in the wind. Countries in the EU are taking bold initiatives to put forth efforts to not only combat the COVID epidemic but to seriously address issues affecting the planet, such as education, energy, and climate change. Announced by Rt Hon Alok Sharma MP, Secretary of State for Business, Energy and Industrial Strategy, “In March, the Chancellor announced a record increase in public investment in research and development (R&D) – committing to reaching £22 billion per year by 2024 to 2025. This means revitalizing our whole system of science, research and innovation to release its potential – to unlock and embrace talent, diversity, resilience, and adaptability, and to tackle our biggest challenges, such as achieving net-zero carbon emissions by 2050” (Department for Business, Energy & Industrial Strategy).
This thinking is what the Prime Minister of The UK is calling a new resurgence of growth and innovation. “We have a once-in-a-generation opportunity to strengthen our global position in research, unleash a new wave of innovation, enhance our national security, and revitalize our international ties. We will use this opportunity to pursue ambitious new goals – the ‘moonshots’ that will define the next decade and beyond" (Boris Johnson). With this optimistic attitude, The UK plans on increasing investment in R&D to 2.4% of Gross Domestic Product (GDP) by 2027 and to increase public funding for R&D to £22 billion per year by 2024 to 2025. The UKRI Future Leaders Fellowships is a £900 million fund that is helping to establish the careers of world-class research and innovation leaders across UK business and academia (UKRI Future Leaders Fellowships).
As Rt Hon Alok Sharma MP, Secretary of State for Business, Energy, and Industrial Strategy stated: “Research and development will be critical to economic and social recovery from the impacts of COVID-19, enabling us to build a greener, healthier and more resilient UK. Science and innovation have helped drive major progress in global development over the past 2 decades and are vital to achievement of the UN’s Sustainable Development Goals. Our goal is to further strengthen science, research and innovation across the UK, making them central to tackling the major challenges we face, and taking advantage of opportunities. To unlock these benefits in more areas of the UK, we should do more to build on a wider range of R&D strengths. We should also do more to enable places all over the UK to thrive and to fulfil their potential in R&D. Our R&D system will have a bigger impact on the recovery and long-term 4 economic growth and prosperity if it can unlock the potential found in more areas of the UK!” (Gov.UK)
With the UK using this pandemic to evaluate its national spending and interest in pivoting on a heavier focus on R&D across all sectors, it leads some organizations across the globe to take stock and determine a new course of direction.
So does the US stand up to its competitors? Do we have the capability to push ourselves to the forefront of science, and the limits of our imagination? In a hearing in January Rep. Eddie Bernice Johnson (D-Texas) contumely addressed his fellow lawmakers stating “U.S. has dropped the ball by failing to increase spending to support research on emerging technologies, lamenting that "other countries have implemented strategies and invested significantly in their science and technology capacity."(Johnson) going through the budgetary plans, and looking at the overall expansion initiatives from other nations including the EU, and China’s outrageous budget; China's R&D expenditure saw a year-on-year increase of 11%. He finished combatively stating "Your predecessors made these incredibly smart decisions 50 years ago … and we seem to have forgotten how fundamental this is," (Johnson)
The past decade studies show the “New Arms” race isn’t for weapons, but for knowledge. A report recently published by the Atlantic Council ( Atlantic Council is an American Atlanticist think tank in the field of international affairs) this month shows The United States has not prepared to combat our newest threat, in an old arena. As the Atlantic Council reported: The United States’ innovative edge has been ebbing for several years now. In total yearly research and development (R&D) spending for 2018 (the most recently tallied year), the United States still narrowly led China at $582 billion to $554 billion. However, there are vast differences in growth: China’s R&D spending has been growing by about 17% annually since 2000, while the United States’ annual R&D growth has been stuck at about 4%. US federal government R&D funding has shrunk steadily both as a percentage of GDP and in relation to private sector R&D, which now accounts for nearly 70% of all R&D spending. Notably, only 17% of all US R&D spending is for basic research (Bray).
China, who has surpassed the United States should have many executives asking where they can start to look for footholds. Where is the greatest value for R&D dollars going to return in the future? In a Forbes article, one of the top areas of concern is security. The University of Maryland did a study showcasing a cyber attack occurs every 39 seconds. It continued to elaborate from sources such as IBM who released data showing that The average time to detect and contain a breach is 279 days, each data breach costs $3.92 million, or on average $152 per second. Most companies have 534,465 files exposed, and more importantly, Most companies have more than 1,000 sensitive files open to every employee, even the lowest level (Morgan). There is however an interesting twist. In the article published by PwC (PriceWaterhouseCoopers) polled the average consumer they discovered: 92% of consumers say companies must be proactive about data protection & 64% of Americans would blame the company—not the hacker—for the loss of personal data (Barr).
*(Note) As of 7/15/2020 writing this paper, Twitter was hacked. The former President of the United States Barack Obama and many well-known leaders, and celebrities had their accounts compromised.
PwC explains how the pandemic has reshaped how we are now focusing on our purchasing power. The average American has spent 100 days in isolation (CDC) and there has been some shifting of perspectives since then. Pre-made food deliveries have dramatically increased. Cooking, and chef type apps and subscription-based services have increased by 43% since last quarter. The consumer poll revealed: 86% of buyers are willing to pay more for great customer experience. With nowhere to go because of Government shutdowns and from what recent indexes show it may reoccur customers are willing to pay a price premium of up to 13% (and as high as 18%) for luxury and indulgence services, simply by receiving a great customer experience (PwC). The report also describes the very nature in which business interaction with customers is more important than ever. PWC found that the number of companies investing in the omnichannel experience has jumped from 20% to more than 80%.
With collaboration with KANTAR Retail, the survey reports 57% of customers won’t recommend a business with a poorly designed website on mobile. And if a website isn’t mobile-friendly, 50% of customers will stop visiting it, even if they like the business. 52% of all internet traffic now comes from mobile, with desktop usage on a trending decline. 84% of companies who claim to be customer-centric are now focusing on the mobile customer experience. For companies that aren’t, they’ve been slow to adapt to this trend; especially when it comes to customer support. An overwhelming 90% of customers report having a poor experience when seeking customer support on mobile devices (PwC). The main take away from PwC’s report; the most important action any organization regardless of size, should be to first address their web, and mobile capabilities and experience immediately. And Second, reinvest in customer support and consumer response. And third according to (Davidson Consulting Group) companies that are investing in social causes, ethical motives, and inclusive campaigns are finding traffic influx and an increase in sales by at least 7% ( Davidson).
At Intent Solutions Group (ISG) a global software engineering and R&D consultancy located in Boston they are using recent world situations to focus on what their clientele are responding to and working on creating solutions to support them in their efforts.
These small pivots are crucial for the clients that have partnered ISG. The changes made from requests by clients seem to be the ones echoing throughout the industry as well. Each thought out modification and realignment is the difference between possible survival, losing millions of dollars, or shutting down completely.
There are areas strong in the market that need guidance, possibly a new perspective, and an extra set of hands. A study published last month from McKinsey & Company shows semiconductors might have a promising future after their painful recovery. PCs will be hit hard in the next quarter but will see a resurgence as many companies such as Twitter will now allow their employees to work from home on a continuous basis if they so choose. The automotive segment sees year-on-year growth of 28 to 36 percent in 2021. And wired and wireless communication will be successful since continued remote work and homeschooling will stimulate demand for wired communication (Bauer). Wall Street Journal reports International Energy Agency (IEA) forecasts demand in 2021 will rebound by a record of 5.7 million barrels a day ( Hodari). With the increase in oil futures, supply chain and logistics will inevitably enjoy a revamp to the tune of an increase of 17.6%. “Global Logistics & Supply Chain Industry Market - Post COVID-19 the Market is Projected to Grow from USD 2,734 Billion in 2020 to USD 3,215 Billion by 2021” (Wood).
But with areas that have great potential and others that are in dire need of help; what does that look like and mean for our future? With the US election weeks away, what happens in the next proceeding months will determine the shape of our country’s economic, technical, and development status in the world. According to the Congressional Budget Office “CBO projects that from 2020 to 2030, annual real GDP will be 3.4 percent lower, on average, than it projected in January. The annual unemployment rate, which was projected to average 4.2 percent, is now projected to average 6.1 percent” ( Shackleton). With the first-quarter 2020 GDP down to -5.0 percent (annualized) over the last quarter of 2019, the National Bureau of Economic Research (NBER) recently declared that the US economy officially entered recession in February. Current 8 estimates supported by (The Conference Board Economic Forecast for the US Economy) concur with estimates of Real inflation-adjusted gross domestic product (GDP) is expected to grow at a 12.4 percent annual rate in the second half of 2020 and to recover to its pre-pandemic level by the middle of 2022. The economy continues to expand during the second half of the decade. Output grows at an average annual rate of 2.1 percent over the 2025–2030 period—faster than the 1.8 percent average annual growth of potential output (Van Ark).
We are facing the greatest Global threat in over a century. We have a disconnect with facts and science, relationships, and most importantly individually. During the writing of this piece, a movie that I think speaks to the nature of our Country’s situation in a manner that we need to hear right now. Eight-time Academy Award winner Al Pacino reaches down into the darkness and helps raise his team’s broken spirit in a manner that only Al Pacino can do. His words and intensity shakes the very core of the viewer. It will be best if Mr. Pacino himself leads us out of this discussion. “I don't know what to say really. Three minutes to the biggest battle of our professional lives all comes down to today. Either we heal as a team or we are going to crumble. Inch by inch, play by play till we're finished. We are in hell right now, gentlemen believe me and we can stay here and get the snuff kicked out of us or we can fight our way back into the light. We can climb out of hell. One inch, at a time” (Any Given Sunday 1999) (Donner)
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