united kingdomen
Amazon smashes Italy on R&D

Amazon smashes Italy on R&D

23-02-2021 | Stunning statistics
US tech giant Amazon single-handedly spent more on research and development (R&D) than Italy in 2019, and even more so in 2020.
  • Jack  Neele
    Jack
    Neele
    Portfolio Manager
  • Richard  Speetjens
    Richard
    Speetjens
    Portfolio Manager

Speed read

  • European countries keep falling behind in terms of R&D
  • The future of tech is set to transpire outside Europe
  • Europe’s demise is not irreversible but will take time to overturn

What has happened?

Amazon’s spending spree on innovation continues unabated. Having reached USD 35.9 billion (roughly EUR 30 billion) in 2019, the group’s R&D expenses rose to USD 42.7 billion (or EUR 35 billion) in 2020, up 19.0% year-over-year.1  By contrast, Italy’s total R&D spending stood slightly below EUR 26 billion in 2019, according to recent Eurostat figures.2 

Accounting experts may debate at length whether everything the US tech giant considers as R&D falls within that bracket, and whether the headline figure should actually be brought down. Yet, these numbers clearly illustrate one thing: the extent to which most European countries have fallen behind many other regions in terms of innovation.

European Union (EU) member states spent 2.2% of their gross domestic product (GDP) on R&D in 2019, slightly up from 2.0% ten years before. Optimists will argue that the EU’s R&D effort has been on the rise and that, after all, the bloc is not too far behind the US (2.8% in 2018). But this would be ignoring that other countries have been catching up much faster, in particular emerging ones. 

Stay informed on our latest insights with monthly mail updates
Stay informed on our latest insights with monthly mail updates
Subscribe

Why is it important?

Underwhelming R&D spending is arguably one of the key reasons why European firms have been pushed into the global tech scene’s background, over the past couple of decades. Long gone are the days when companies such as Nokia, Ericsson, STMicroelectronics or Skype were stock market darlings.

This explains why the European tech sector accounts for such as small share of the continent’s equity markets today. At the end of 2020, the Information Technology and Communication Services sectors accounted for 11.5% of the MSCI Europe Index, versus 37.2% for the MSCI US Broad Market Index and 23.6% for the MSCI Japan Index, for example. 

Meanwhile, many emerging countries have been redoubling their efforts. China, for instance, has more than doubled its R&D spending as a share of – its fast growing – GDP since 2000, from 0.9% to 2.1% to in 2019. In the meantime, Chinese tech firms have spread their wings. For example, the number of Chinese ‘unicorns’ is more than double that of its EU counterparts collectively.

What does it mean for investors?

This means investors will durably look outside Europe in search for the winners of the digitalization trend shaping our world. From this perspective, emerging markets appear increasingly attractive. We see enormous opportunities at the intersection of two the trends upon which our Global Consumer Trends strategy in built: the digital consumer and the emerging consumer.

Of course, Europe’s descent may not be irreversible. For one, the EU’s EUR 100 billion R&D spending program, to be launched this year, is aimed at addressing the gap. But it will likely take many years, if not decades, to significantly catch up and witness a rise to a new generation of European global tech leaders.

1Amazon presents its R&D expenses as “technology and content” expenses in its quarterly earnings.
2See: 27 November 2020, “R&D expenditure in the EU at 2.19% of GDP in 2019”, Eurostat press release.

Subjects related to this article are:
Logo

Disclaimer

Please read this important information before proceeding further. It contains legal and regulatory notices relevant to the information contained on this website.

The information contained in the Website is NOT FOR RETAIL CLIENTS - The information contained in the Website is solely intended for professional investors, defined as investors which (1) qualify as professional clients within the meaning of the Markets in Financial Instruments Directive (MiFID), (2) have requested to be treated as professional clients within the meaning of the MiFID or (3) are authorized to receive such information under any other applicable laws. The value of the investments may fluctuate. Past performance is no guarantee of future results. Investors may not get back the amount originally invested. Neither Robeco Institutional Asset Management B.V. nor any of its affiliates guarantees the performance or the future returns of any investments. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency.

In the UK, Robeco Institutional Asset Management B.V. (“ROBECO”) only markets its funds to institutional clients and professional investors. Private investors seeking information about ROBECO should visit our corporate website www.robeco.com or contact their financial adviser. ROBECO will not be liable for any damages or losses suffered by private investors accessing these areas.

In the UK, ROBECO Funds has marketing approval for the funds listed on this website, all of which are UCITS funds. ROBECO is authorized by the AFM and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request.

Many of the protections provided by the United Kingdom regulatory framework may not apply to investments in ROBECO Funds, including access to the Financial Services Compensation Scheme and the Financial Ombudsman Service. No representation, warranty or undertaking is given as to the accuracy or completeness of the information on this website.

If you are not an institutional client or professional investor you should therefore not proceed. By proceeding please note that we will be treating you as a professional client for regulatory purposes and you agree to be bound by our terms and conditions.

If you do not accept these terms and conditions, as well as the terms of use of the website, please do not continue to use or access any pages on this website.

I Disagree