Companies headquartered in the developing world represent just 5 percent of overall corporate spending on R&D in 2006, but their five-year average growth rate suggests a desire to catch up quickly.

Booz Allen Hamilton’s third annual analysis of the world’s 1,000 largest corporate R&D spenders finds that these corporations increased their R&D investment last year by twice the dollar amount of 2005’s spending rise.
As reported by Business.Maktoob.com, for the first time in three years, the pace of R&D spending in 2006 caught up to the rate of sales growth among these companies. North American-headquartered companies led the way with the largest increase in absolute spending; R&D investment in emerging markets continues to grow rapidly, but remains a relatively small percentage of the global total.
Booz Allen also identified three distinct corporate innovation strategies, but concluded that the most significant performance differences lay not in which innovation strategy was used, but in how tightly it was aligned with overall corporate strategy. Companies that get the greatest return from their R&D investment also attributed much of their success to their focus on customer insight throughout the innovation process.
In fact, companies that emphasize direct customer engagement reported three times higher operating income growth, 65 percent higher total shareholder return, and two times greater return on assets than companies less focused on customer feedback.
Booz Allen analyzed the world’s top 1,000 public corporate research and development spenders--the Booz Allen Global Innovation 1000--in what continues to be the most comprehensive effort to assess the influence of R&D on corporate performance. The study looked at spending on innovation and corporate performance, and uncovered insights into how organizations can get the greatest return on their innovation investment. New to the study this year is an in-depth examination of a subset of this year’s Global Innovation 1000 companies representing $68 billion in 2006 R&D spending, to better understand the connection between innovation and strategy, and between strategy and the role of the customer across the innovation value chain.

Key Findings
R&D spending by the Global Innovation 1000 rose last year by $40 billion to $447 billion, a 10-percent increase. The gain is double the group’s five-year compound annual growth rate and an amount more than twice the 2006 Gross Domestic Product of the Republic of Ireland. And for the first time in four years, the ratio of R&D-to-sales leveled off, ending a sustained four-year decline, with R&D spending matching sales growth (which was also 10 percent).
Companies headquartered in North America increased their absolute R&D spending by 13 percent, representing the largest source of dollar growth among the Global Innovation 1000. North American headquartered firms sustained their lead in innovation spending, having increased their absolute R&D spending by $21 billion in 2006, as compared with China and India which increased spending by only $400 million during the same period.
Companies headquartered in China, India and the rest of the developing world represent just 5 percent of overall corporate spending on R&D in 2006, but their five-year average growth rate suggests a desire to catch up quickly. China and India grew their 2006 spending by 25.7 percent over last year, in keeping with a five-year average rate of growth of 25 percent.
Most companies adopt one of three strategies for effective innovation. Booz Allen identified three distinct corporate innovation strategies, through analysis of a subset of this year’s 1,000 top R&D spenders, surveys and follow-up interviews with C-level executives. However, none of these three strategies consistently outperforms the others:
Need Seekers: Actively engage current and potential customers to shape new products, services and processes, and strive to be first-to-market with those products.
Market Readers: Watch their markets carefully, but prefer to maintain a more cautious approach, focusing largely on driving value through incremental change.
Technology Drivers: Generate product ideas by deploying their technological skill and relying on unarticulated customer needs for product inspiration, rather than following the market or direct customer input, to drive both breakthrough innovation and incremental change.
And companies that more closely align their innovation model with their corporate strategy perform better. Companies that align their corporate and innovation strategies have superior financial performance, with 40 percent higher operating income growth and twice the shareholder returns over the last three years than companies with strategies that are less well-aligned.

Since agriculture is a local activity, solutions need to be local, but most impoverished regions do not have the financial or research capacity to make improvements.

Climate change will cause major disruptions in the global food system, and adaptation to those changes needs to begin immediately, experts say.
Otherwise one-fifth of the world’s population could starve and millions of others become climate refugees, forced by heat and drought to abandon their lands and hunt for food elsewhere in the coming decades.
To prevent this nightmarish future, researcher David Lobell says the world community should focus its efforts where climate threats are likely to make the greatest impacts.
“We used historical data to determine what food-producing regions of the world were most sensitive to changes in temperature and rainfall,“ said Lobell, author of the study published in the journal Science.
“Impoverished regions of Southern Africa and South Asia will be hit first and hardest by climate change,“ Lobell told Ipsnews.net from his office at Stanford University’s Program on Food Security and the Environment.
Other climate risk hot spots include Central America and Brazil. The analysis compared 20 climate change models for those areas and determined that average temperatures would rise one-degree Celsius in most areas by 2030.
An already hungry Southern Africa could face a 30-percent decline in maize production in the next two decades. Production of other staples like millet and rice are projected to fall by at least 10 percent, the analysis found.
“Rainfall and temperatures in the region are changing quite fast,“ Lobell said.
Maize requires a great deal of water and rich soils (or lots of fertilizer) so it is not the best crop for regions that will get drier. Drought-resistant sorghum might be a better choice for farmers to plant from now on, Lobell suggested. In other areas, crops could be planted earlier than normal to avoid heat-related losses in summer.
Still, these strategies won’t be enough for some regions and they’ll require more expensive remedies, including new crop varieties and expanded irrigation.
Knowing these regions will only become hotter and drier provides a target for adaptation. However, making changes in agriculture and food production is difficult and complex.
“Innovations in policy are needed--not in technology,“ said Geoff Tansey, a food policy researcher, writer and editor of a number of books on food policy, including the forthcoming “The Future Control of Food“.
“Extreme weather events are already reducing crop yields,“ Tansey told IPS.
Because agriculture is a local activity, solutions need to be local, but most impoverished regions don’t have the financial or research capacity to make improvements. Solutions imposed from outside are unlikely to work. Efforts to use crop varieties or production methods from North America or Europe have largely failed.
Those systems are heavily reliant on cheap fossil fuels for fertilizers and large machinery and are widely considered unsustainable.
With climate change, the best strategy for agriculture is diversity not monocultures, says Tansey, who has worked in many parts of Africa. And by diversity he means not only diversity of crops but of information and knowledge, approaches to farming and diversity of income.
“A marriage of traditional, local knowledge with modern science offers the best hope,“ Tansey said.
Much of the current agricultural research has been privatized and produces only products that can be patented and sold. There has been a major shift in the past two decades away from public research in agriculture, he warns.
The most effective improvements needed to adapt to climate change could be as simple as finding ways for farmers to share their knowledge with each other or by increasing organic matter in soils with manures and crop residues.
“I was intrigued that the Stanford analysis didn’t consider soil quality,“ said Dan Richter, a soil scientist at Duke University in North Carolina.
Soil, temperature and water are the main factors in agriculture.

ETFs will zoom to $2 trillion in 2011 in the global market from almost $800 billion now, says Deborah Fuhr, a London-based managing director at Morgan Stanley who advises institutional investors on asset allocation, reiterating an earlier forecast.
No doubt, the forecast says a lot about one of the world’s fastest-growing asset classes. Yet its greater significance lies in the implied threat that Exchange Traded Funds (ETFs) pose to the global fund industry.
According to Bloomberg.com, lower expenses, the failure of most active-mutual fund managers to beat their benchmarks, the growing number of thematic and specialty ETFs, and the funds’ flexibility suggest they will attract investment that otherwise would flow to actively managed mutual and hedge funds.
To some degree, index-linked products are already eating active managers’ collective lunch. Based on the almost $1 trillion invested in index-based products in the US--up 2,610 percent since 1993--the active-management community is losing about $12 billion a year in management fees.
ETFs are essentially open-ended funds that track various equity, fixed-income, commodity and currency indexes.
They trade on exchanges and can be bought and sold like any stock.
January 29 marked the 15th anniversary of the first US-listed ETF, and this April will be the eighth year since the creation of Europe’s first instrument.
As of December 31, 2007, the number of ETFs worldwide rose 64 percent to 1,171 from a year earlier, with assets surging 41 percent to $797 billion, according to Morgan Stanley.
Currently, there are plans to introduce an additional 533 funds. The average daily trading volume last year more than doubled to $60 billion, compared with the previous 12 months.
It isn’t clear whether ETFs are benefiting from investors withdrawing money from active funds. But they are capturing more of the inflows.
The appetite for index- based funds is nearly insatiable. Once it becomes easier for US retirement plans to place funds in such vehicles, investors will transfer money from active managers to ETFs, he predicts. Bottom line: Indexing poses serious dangers to active managers.
The main reason for that hazard is that the average active manager charges more money for poorer results. Only 44 percent of active funds using the Standard & Poor’s 500 Index as a benchmark annually outperformed it in the five years to December 31, 2007, according to Morningstar Inc.
Moreover, those results exclude the higher fees paid to active managers.
The average actively managed US equity fund has an annual total expense ratio of 130 basis points, compared with 56 points for the average US ETF and 70 points for the average equity-index fund, according to Lipper and Morgan Stanley.
The comparable European costs are 171 basis points, 49 points and 91 points.

The stock market is always a strange animal to map, even one that appears to defy gravity. But it is tougher to explain the air of deja vu as the savage correction in stock prices hit India.
As panic increased, analysts and brokerages marching the Sensex to 25,000 suddenly turned somber, followed by soothing voices of support from the government, and the usual airings of I-told-you-so. If all this seems familiar, it is: be it January 2008, May 2006, April 2000, we have been there before. The final signal, as always, is unprecedented hype. The culprit, as always, is ill-informed greed. And the victims, as always, are the ones who joined the party late, reported Outlookindia.com.
After three years of an unprecedented bull run, there were clear signs that the market was burning rubber. For one, it rose by an alarming 25 percent over the past four months--with many smaller stocks zooming to unheard-of levels--completely disregarding concerns over an appreciating rupee, soaring crude prices and sluggish manufacturing numbers.
The market capitalization--the underlying value of all shares--was a staggering 170 percent of India’s GDP. Then there’s been only bad news from the US economy, which has been reflected in other emerging stock markets of late. Not in India, though. While India’s growth story is a great one, it’s wishful thinking to view it in complete isolation of events in an inter-connected global financial market.
Clearly, something had to give. If global turmoil (and some withdrawals by foreign institutions) was the trigger the market couldn’t ignore, the apparent lack of liquidity didn’t help matters. This, of course, is a potent reminder that our markets are shallow and driven by hype. What did deepen the crash was rampant speculation in the derivatives segment--where investors can take future positions on a stock by depositing only a part, or margin, of the contract.
As prices fell quickly, margins got wiped out, and then, so did portfolios. About eight million retail investors--with 5,00,000 being added in the last month alone--account for some 80 percent of trades. A high number of these have been speculating in derivatives and in intra-day trading; most of the heavy losses have been booked here.
While a majority of these investors will never return to the market, those still invested in mid- and small-cap stocks will also find the going tough. Sure, institutional support has lifted large stocks, but sentiment is poor elsewhere.
The focus now shifts to whether the US Reserve Bank will follow the Fed and cut interest rates next week. Even if it doesn’t, the overall picture is reassuring: corporate results are healthy and, US recession or not, the economy will grow at 8.5 percent levels--one of the most attractive markets in the world.
As the rebound shows, there is buying support at these levels. But for that to happen, investors must think long-term and not aim for the moon. Remember, it’s a balloon.