Brands like Lego, Ikea, Nokia, Ericsson, and Kone are popular worldwide. In recent years, the global popularity of apps like Spotify and weight loss drugs (particularly Ozempic) has made Nordic brands household names.
But few know how these global entities compare to the tiny economic size of their country of origin. The Nordic countries of Norway, Sweden, Denmark, and Finland are admired for having achieved the impossible.
These tiny countries have produced businesses that dominate their respective industries at a global scale.
In the early 1990s, Finland faced a severe economic recession following the collapse of the Soviet Union, its main trading partner. The country’s traditional industries were struggling, and unemployment was high.
The Finnish government and industry made a concerted effort to invest in R&D, particularly intelecommunications. This was a strategic bet on a new technology.
A key player was Nokia, which had been a conglomerate of traditional industries but pivoted to become a global leader in mobile phones.
This R&D-driven shift to a knowledge-intensive, high-tech economy was a major factor in Finland’s recovery. Nokia’s success generated a massive amount of wealth and created a skilled workforce, fostering a vibrant ecosystem of new companies and technologies.
While Nokia’s dominance eventually waned, the R&D culture and talent it fostered continued to drive the country’s innovation.
Meanwhile, to address economic challenges and competition from other global players, the European Union invested in large-scale, multi-year R&D and innovation programs.
Programs like Horizon 2020 and its successor, Horizon Europe, were designed to fund research projects and foster collaboration across member states. The goal was to address major societal challenges like climate change and public health while boosting economic competitiveness.
These programs reportedly created jobs, accelerated learning, and pushed young people into scientific research careers.
Going back in history, R&D spend on military technology has been a cornerstone of American economic prosperity, particularly in the post-World War II era.
While the primary goal of this funding was national security, it has consistently generated significant spillover effects that have fuelled innovation, created new industries, and strengthened the civilian economy.
Defence R&D contracts at universities and private firms created a demand for highly skilled scientists, engineers, and researchers. This built a pipeline of talent that later flowed into the civilian sector.
Regions like Silicon Valley have deep historical ties to military and aerospace research.
The internet (ARPANET), GPS (Global Positioning System), semiconductors and integrated circuits, aerospace and space tech for projects like the Apollo moon landing and missile defence are all the result of R&D in military technology.
They helped create the initial market for computing technology for companies like IBM.
Investments in biotechnology R&D helped establish the foundation for the big pharma and biotechnology industries.
Indian companies spend less than 1% of their net sales on R&D on average, a figure that has remained largely unchanged for several years.
The low R&D spending by Indian companies is a major reason why India’s overall Gross Expenditure on R&D (GERD) as a percentage of GDP remains low. It hovers around 0.6% to 0.7%. This contrasts sharply with countries like China (2.4%), the US (3.5%), and Israel (5.4%), where private sector contribution to R&D is much higher.
But this scenario is set to change. The Indian government has established the Research, Development, and Innovation (RDI) Scheme with a massive ₹1 trillion corpus. This scheme provides long-term, low or nil-interest loans to the private sector and deep-tech startups.
Such a fund directly addresses one of the biggest deterrents to private sector R&D. Companies can now bear the high cost of R&D and risk of long-term projects.
The Anusandhan National Research Foundation (ANRF) is an apex body designed to streamline research funding and foster collaboration between academia, research institutions, and industry.
Further, the number of startups in India has grown exponentially. Many of these startups are focused on cutting-edge fields like artificial intelligence, biotech, and fintech. These companies are inherently R&D-intensive and will contribute significantly to the private sector’s overall R&D spending.
So, drawing parallels from the phase of peak economic prosperity of certain developed economies, this research fund is expected to be one of the key catalysts for ‘Peak India’.
The focus on research and innovation is just one of the factors that catalyse the peak phase.
History offers a compelling blueprint for economic ascendancy. Through the past century, several nations have experienced extraordinary ‘peak phases’ – periods of hyper-growth that transformed their economies, elevated living standards, and created unprecedented wealth.
This wasn’t accidental. It was the confluence of three powerful drivers: surging exports, visionary government policies, and a booming consumer class.
Rising exports create jobs, bring in FDI and encourage innovation. Visionary government policies lead to building of critical physical infrastructure, reduces red tape in businesses, promotes skill development and facilitates capital funding.
Booming consumer demand leads to additional capacities, investments in technology and brands and diversification into new markets.
A confluence of all such factors eventually leads to both economic prosperity and corporate wealth creation, which reflects on the stock market indices as well.
Understanding this blueprint reveals a fascinating parallel with India’s current trajectory, suggesting the nation is poised for its own remarkable ascent.
Happy Investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
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