Igniting innovation: how hot companies fuel growth from within

Explore government incentives for innovation

  • Share

As the economic downturn deepened through late 2008 and into 2009, one of the most pressing concerns for many nations was that businesses would significantly reduce their R&D expenditures to improve their bottom line.

When looking at government incentives for R&D, it’s important to keep in mind that R&D work is typically much broader than many people think; it is not limited to people working in white lab coats.

Governments have been spending “stimulus” money to support industries and fund infrastructure and jobs to stabilize their economies, with the OECD estimating that 54% of the stimulus is occurring through the tax systems.

To provide added incentive for companies to maintain their investment in innovation, and to attract new R&D activity, many governments have enhanced their R&D tax credit provisions.

They’re also paying closer attention to the administration of large funds, including incentives and tax programs; officials want to make sure the money is going where it is intended to get the return on their investment.

Entrepreneurs in general tend to believe that government regulations stifle innovation, although this view is not consistent across geographic regions. Our survey of the world’s leading entrepreneurs found that overall, 51% of the respondents disagreed that their governments encouraged innovation.

Government support of innovation varies across countries

Only 35% of Asia-Pacific respondents held this view, though, compared to 64% in the Americas and 45% in the EMEIA region, perhaps reflecting the greater role that state capitalism plays in several Asian countries, including emerging-market giants China and India.

“The support from government in areas such as R&D and patent regulation varies significantly across Europe, the Middle East, India and Africa (EMEIA),” says Julie Teigland, EY’s Strategic Growth Markets Leader for EMEIA.

“For many companies in this region who operate cross-border, navigating patent applications and grants or incentives for R&D can be a challenge. It is not surprising, then, that respondents from this region chose simplifying the patent process as one of their top three ways for governments to encourage innovation. Attitudes to intellectual property in developing markets are also changing: for example, our survey indicated that nearly two-thirds of respondents from South Africa strongly agreed that the ability to protect intellectual property was increasingly important, compared to just 28% of overall responses.”

While the increasing role of government in the private sector continues to generate debate, companies shouldn’t ignore the many government-funded options for R&D and innovation, especially those that support intrapreneurial ventures.

R&D looks different than most might think

When looking at government incentives for R&D, it’s important to keep in mind that R&D work is typically much broader than many people think; it is not limited to people working in white lab coats and it often includes large elements of new product and process development, evolution and continuous improvement.

As such, corporations have considerable elbow room to lobby governments to support entrepreneurship through legislation.