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Chapter 6. Industry, Technology, and the Global Marketplace

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Knowledge- and Technology-Intensive Industries in the World Economy

Worldwide Distribution of Knowledge- and Technology-Intensive Industries

Trade and Other Globalization Indicators

Innovation-Related Indicators of U.S. and Other Major Economies

Knowledge- and Technology-Intensive Industries in the World Economy

Comparison of Data Classification Systems Used

System Type of data Basis Coverage Data source Data preparation
High-technology manufacturing industries Production and value added Industry by International Standard Industrial Classification Aerospace, pharmaceuticals, office and computing equipment, communications equipment, scientific instruments United Nations Commodity Trade Statistics and IHS Global Insight IHS Global Insight, proprietary special tabulations
Knowledge-intensive service industries Industry production (revenues from services), in current dollars Industry by International Standard Industrial Classification Business, financial, communications, health, and education services United Nations Commodity Trade Statistics and IHS Global Insight IHS Global Insight, proprietary special tabulations
Trade in high-technology products Product exports and imports, in current dollars Product by technology area, harmonized code, country of origin and destination Aerospace, pharmaceuticals, office and computing equipment, communications equipment and scientific instruments United Nations Commodity Trade Statistics and IHS Global Insight IHS Global Insight, proprietary special tabulations
U.S. trade in advanced technology products U.S. product exports and imports, in current dollars Product by technology area, harmonized code, country of origin and destination Biotechnology, life sciences, optoelectronics, information and communications, electronics, flexible manufacturing, advanced materials, aerospace, weapons, nuclear technology, software U.S. Census Bureau, Foreign Trade Division U.S. Census Bureau, Foreign Trade Division, special tabulations
U.S. trade in commercial knowledge-intensive services U.S. exports and imports, in current dollars Type of service, country of origin Business, financial, and communications services U.S. Bureau of Economic Analysis U.S. Bureau of Economic Analysis
Globalization of U.S. multinationals Value added and direct investment position, in current dollars North American Industry Classification, in country of origin and destination Business, financial, and communications services, aerospace, pharmaceuticals, office and computing equipment, communications equipment, scientific instruments manufacturing U.S. Bureau of Economic Analysis U.S. Bureau of Economic Analysis
U.S. trade in intangibles U.S. receipts and payments, in current dollars Type of intangibles and industrial processes Total intangibles and industrial processes U.S. Bureau of Economic Analysis U.S. Bureau of Economic Analysis
Patents Number of patents for inventions, triadic patents (invention with patent granted or applied for in U.S., European, and Japanese patent offices) Technology class, country of origin More than 400 U.S. patent classes, inventions classified according to technology disclosed in application U.S. Patent and Trademark Office (USPTO) and Organisation for Economic Cooperation and Development (OECD) USPTO, The Patent Board, and OECD
Angel capital Funds invested by U.S. angel investors Technology Biotechnology, electronics, financial services, health care, industrial/energy, information technology, media, telecommunications Center for Venture Research, University of New Hampshire Center for Venture Research, University of New Hampshire
Venture capital Funds invested by U.S. venture capital funds Technology area defined by data provider Biotechnology, communications, computer hardware, consumer related, industrial/energy, medical/health, semiconductors, computer software, Internet specific National Venture Capital Association Thomson Financial Services, special tabulations
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Industry Data and Terminology

The industry production and trade data used in this chapter come from a proprietary data set developed by IHS Global Insight that covers a consistent set of industries across 70 countries. IHS Global Insight's data set uses data from the United Nations, the Organisation for Economic Co-operation and Development, and other sources, combined with IHS Global Insight's proprietary forecasting and estimation for missing data in some developing countries.

Two measures of industry activity are used in this chapter: value added and exports and imports. Value added and exports and imports are expressed in current (not adjusted for inflation) dollars. These measures are not compatible with past editions of this chapter, which expressed value added and exports and imports in constant (adjusted for inflation) dollars.

Value added, a measure of industry production, is the amount contributed by the country, firm, or other entity to the value of the good or service. It excludes the country, industry, firm, or other entity's purchases of domestic and imported supplies and inputs from other countries, industries, firms, and other entities.

Value added is credited to regions or countries on the basis of where the company reported the activity. This is likely to be an imperfect measure because globalization and fragmentation of production may mean that the activity occurred in a different region or country than was reported by the company. In addition, companies have different reporting and accounting conventions for crediting and allocating production performed by their subsidiaries or companies in foreign countries.

Value added of a company's activity is assigned to a single manufacturing or service industry on the basis of the largest share of the company's shipment of goods or delivery of services. This method of categorizing company activity is imperfect because an industry classified as manufacturing may include services, and a company classified as being within a service industry may include manufacturing or directly serve a manufacturing company. Furthermore, the single-industry classification is not a good measure for companies that have diversified activities in many categories of industry.

Exports and imports are valued as the sum (gross) of value added contributed by all countries, firms, or other entities involved in production. This measure is not compatible with the value-added measure of industry production. Exports and imports are credited to the country where the product was "substantially transformed" into final form. This is an imperfect measure for exports produced in multiple countries because the assigned country may not be the same location where the most value added took place.

Exports and imports are assigned to a single product category by the exporter or customs agent on the basis of the primary content of the good. This method is imperfect because the product may contain other products. The trade product classification is not directly compatible with the industry classification of company production. For example, exports classified as semiconductor products may have originated from a company classified as being in the computer industry.

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Worldwide Distribution of Knowledge- and Technology-Intensive Industries

Consumption of High-Technology Manufactured Goods

Production of high-technology goods feeds both domestic demand and foreign markets. A broad measure of domestic use is provided by adding domestic sales to imports and subtracting exports. However, use so defined encompasses two different concepts: consumption of final goods and capital investment for further production (intermediate goods). Available data series do not permit the examination of these two concepts separately.

Patterns of the world's use of high-technology manufactures have changed considerably over the past decade. The U.S. share of domestic use, so defined, fell from 28% in 1995 to 25% in 2004 and has largely stayed at that level (figure 6-A ). The EU's share stayed broadly the same at 26%–27% over the decade; it overtook the United States in 2003 to become the leading consumer of high-technology goods. Japan's share declined by more than half, from 21% to 8%; the Asia-9's share stayed essentially stable at 10% during this period.

China's share surged from 4% in 1995 to 16% in 2007. The Chinese trend underscores the difficulty of teasing out final consumption from use as intermediate goods. The strong rise in the Chinese trend is considered by many observers to reflect the rising flow of intermediate goods—often previously produced in China—from other Asian manufacturing centers into China for further assembly and ultimate export.

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Tracing the Geography of the Value Chain of Products

Several studies sponsored by the Sloan Foundation have attempted to estimate the value-added contribution of countries involved in the production of several electronic goods, including the Apple iPod and the Hewlett-Packard laptop computer. These studies essentially show that the big returns accrue to the firms and countries that harbor special design, engineering, and marketing expertise.

Because value-added data are not readily available at the product or firm level, these studies estimate the value capture of these goods. Value capture does not count the cost of direct labor (figure 6-B ) which, when included, could raise a country's share (if direct labor was performed in the country) or lower it (if direct labor was performed in another country). Thus, the estimates shown must be regarded as broadly indicative only.

The Apple iPod study estimates that the United States receives the largest share of value capture based on the factory price (39%), largely reflecting Apple's gross profit (36%) (table 6-A ). The study sorts iPod components into key and low-cost generic items. Key inputs account for 37% of the wholesale price, and value capture is estimated for their manufacturers. The estimated U.S. share is 3%, raising the total U.S. share to 39%. Asia's key inputs share is estimated at 14%, with Japan capturing 12% because of the expensive hard drive manufactured by Toshiba. (If direct labor costs were available, Japan's share of value added would be arguably lower because Toshiba manufactures its hard drives in China and the Philippines.) The value capture of the generic inputs is estimated at 10%, of which 3% is estimated as the value capture from manufacture of these components.

China, the location of final assembly, receives an estimated 2% share of the Apple iPod's value capture (table 6-A ). The study estimates that China's value capture is very small because final assembly of an iPod requires about 10 minutes and the minimum monthly wage for a worker is about $100. Because final assembly of the iPod and other electronic goods yields little value for China, the authors claim that trade statistics are misleading because the U.S. trade deficit with China increases by about $150 plus the cost of shipping for every iPod sold in the United States, whereas the value added by China is estimated at only a few dollars. Table 6-A summarizes similar data for the Hewlett-Packard laptop computer.

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Trade and Other Globalization Indicators

Trends in Industries Not Classified as Services or Manufacturing

Agriculture, construction, mining, and utilities are not classified as either manufacturing or service industries and are not categorized by their level of technology or knowledge intensity. However, these industries are dependent on or use science and technology. For example, agriculture relies on breakthroughs in biotechnology, construction uses knowledge from materials science, mining is dependent on earth sciences, and utilities rely on advances in energy science.

The United States ranks first in mining, second in construction and utilities behind the EU, and fourth in agriculture as measured by share of global value added among the five major economies (table 6-B ). The U.S. share rose from 18% to 22% in construction over the decade, and its share in the other three industries remained stable. The EU's share rose or was steady in construction and utilities but fell substantially in mining and agriculture. Japan's share fell sharply in all of these industries. China had gains across all industries, particularly agriculture and utilities. The Asia-9's shares were stable or slightly higher.

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Product Classification and Determination of Country of Origin of Trade Goods

The characteristics of goods in international trade are determined from a product perspective. Data on product trade are first recorded at the country's ports of entry. Each type of product is assigned a product trade code by the customs agent according to the harmonized system.* Exporters generally identify the product being shipped and include its proper code. Because many imported products are assessed an import duty and these duties vary by product category, a customs agent for the receiving country inspects or reviews the shipment to make the final determination of the proper product code and country of origin. The value of products entering or exiting U.S. ports may include the value of components, inputs, or services classified in different product categories or originating from other countries than the country of origin.

Data on international product trade assign products to a single country of origin. For goods manufactured with international components, the country of origin is determined by where the product was "substantially transformed" into its final form. For example, a General Motors car that was assembled in the United States with components imported from Germany and Japan and that is destined for export to Canada will be labeled "Made in the USA." The country where the product was "substantially transformed" may not be the location where the most value was added.


*The Harmonized Commodity Description and Coding System, or Harmonized System (HS), is a system for classifying goods traded internationally that was developed under the auspices of the Customs Cooperation Council. Beginning on 1 January 1989, HS numbers replaced previously adhered-to schedules in more than 50 countries, including the United States.
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Innovation-Related Indicators of U.S. and Other Major Economies

U.S. Patents Granted, by Type of Ownership

Corporations own the majority of patents granted to U.S. entities, and their share has been steadily increasing since the early 1990s (figure 6-C ). In 2008, U.S. corporations owned 88% of patents issued to U.S. inventors, with individuals owning 11%; in 1992, the respective shares were 74% and 24%. The U.S. Patent and Trademark Office defines the corporate sector as including U.S. corporations, small businesses, and educational institutions. U.S. universities and colleges owned about 4% of U.S. utility patents granted to corporations in 2005. (For a further discussion of academic patenting, see "Academic Patents, Licenses, Royalties, and Startups" in chapter 5.)

Corporations also own the majority of U.S. patents issued to the rest of the world; that share has also been increasing over the past decade. The individual ownership share of patents issued to the rest of the world (which is about half the level in the United States) has fallen since the early 1990s.

 

Science and Engineering Indicators 2010   Arlington, VA (NSB 10-01) | January 2010

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