New product development is top innovation activity, rapid implementation the biggest challenge.

Conducted in the spring, McGladrey’s 2010 Manufacturing and Wholesale Distribution National Survey asked leaders of U.S.-based manufacturing and wholesale distribution enterprises to provide perspectives on the current state of their companies and industry and the strategies they are implementing to sustain or grow profitability in the coming year. Participants responded to questions pertaining to current business conditions, domestic and global business strategies, cost structure, technology initiatives, operations, and other issues. The Innovation Report provides a broad market overview on the benefits and current challenges to U.S. innovation.

C-level executives from 1,061 companies participated in this year’s survey, which showed that company and leadership commitment to innovation is high. Fifty-two percent of survey respondents rank product development as this year’s top innovation activity. Rapid implementation from concept to market is the biggest challenge to innovation.

“While U.S. companies are clearly committed to innovation, according to the Manufacturers Alliance, within the last decade, R&D spending in emerging Asian economies has outpaced U.S. growth by at least a two-to-one margin,” said Tom Murphy, executive vice president of manufacturing and wholesale distribution at RSM McGladrey. “The modest 2.8-percent increase forecasted by R&D magazine for U.S. companies isn’t nearly enough to outpace consistent double-digit increases in China and emerging Asian nations.”

According to Murphy, shifts in government policy could provide an immediate boost to innovation investment. For example, the current U.S. R&D tax credit expired at the end of 2009, and it is unclear whether Congress will renew the program before the November mid-term elections. The lack of a permanent credit, which provides immediate write-offs for various research-related expenditures, is a sizable disincentive for U.S. companies to make long-term R&D investments.

“Globally, many national governments are taking aggressive action to spur innovation,” said Murphy. “In its 2009 Science, Technology and Industry Scoreboard, the Organization for Economic Cooperation and Development (OECD) reported a sharp rise in the number of countries offering refundable R&D credits or tax deductions. In the European Union, Spain offers the largest overall subsidy, while France provides R&D tax assistance to companies regardless of size. As a result of such active international programs, the U.S. R&D tax credit fell to 17th place on the OECD list last year.”

In addition to spurring private investment, a strong, permanent R&D credit will help U.S. companies overcome the critical innovation barrier of “speed to market”—a challenge to innovation noted by 38 percent of survey respondents. This issue is particularly troublesome for companies in the furniture industry (where 61 percent indicate that rapid implementation from concept to market is a current challenge), as well as the medical (60 percent) and electronics (52 percent) market segments.

Survey Research Methodology
McGladrey’s 2010 Manufacturing and Wholesale Distribution National Survey was conducted from March 2 to April 5, 2010. The survey analysis includes results of 1,061 executives and managers of U.S.-based manufacturing and wholesale distribution enterprises. The online survey was designed to assess the current state of the industry and to ascertain what steps CEOs, CFOs and other executives are taking to grow their businesses and to stay competitive. iBi