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Chapter 6. Industry, Technology, and the Global Marketplace

Worldwide Distribution of Knowledge- and Technology-Intensive Industries


As national and regional economies change, the worldwide centers of KTI industries shift in importance. Shifts take place both for this entire group of industries and for individual service and manufacturing industries within the group.

The global value-added output of knowledge-intensive service industries and high-technology manufacturing industries accounted for an estimated $15.7 trillion in 2007, of which $5.0 trillion was for the largely location-bound, publicly funded knowledge-intensive services: $2.8 trillion for health and $2.2 trillion for education (figure 6-9 ; appendix tables 6-8 and 6-9 ). The total for tradable knowledge-intensive services and high-technology manufactures amounted to $10.7 trillion—$9.5 trillion for services and $1.2 trillion for manufacturing—out of an estimated total world economic output of $54.8 trillion (IMF 2009).


Health and Education Services

The health and education sectors generated an estimated global value added of $2.8 and $2.2 trillion, respectively, in 2007 (appendix tables 6-8 and 6-9 ). International comparison of these two sectors is complicated by variations in the size and distribution of each country's population and the degree of government involvement and regulation. As a result, differences in market-generated value added may not accurately reflect differences in the relative value of these services.

The health sector of the United States, which has more private sector involvement than many countries, is the second largest in the world as measured by share of global value added (35%), behind the EU's 37% share (figure 6-10 ; appendix table 6-9 ). The U.S. and EU shares fluctuated considerably over the past decade but were roughly stable at the beginning and end of the period. Japan's world share fell from 12% in 1995 to 7% in 2007. China's share was stable and the Asia-9's share rose from 3% to 4% during this period.

The United States is also the second largest provider of education at a 32% share, placing it behind the EU's 34% share, with little change in these shares over the period (figure 6-10 ; appendix table 6-8 ). Third-ranked Japan's share declined from 15% in 1995 to 6% in 2007, China's share rose from 2% to 5%, and the Asia-9's share rose from 4% to 5%, largely because of strong growth in education spending in India, the Philippines, South Korea, Taiwan, and Thailand. Gains by China, India, and other Asian countries coincided with the rapid expansion of university enrollments and graduation of new degree holders. (See "Global Trends in Higher Education in S&E" in chapter 2 for a discussion of trends in S&E higher education in Asia and other regions/countries/economies.)


Commercial Knowledge-Intensive Service Industries

Business services is the largest of the three commercial knowledge-intensive service industries ($5.1 trillion value added); it includes computer and data processing services and commercial R&D services (appendix table 6-10 ). Financial services, the next largest industry, generated $3.2 trillion (appendix table 6-11 ). Communications ($1.3 trillion), the smallest of the knowledge-intensive industries, is arguably the most technology driven of the commercial knowledge-intensive services (appendix table 6-12 ).

Worldwide, the volume of commercial knowledge-intensive services more than doubled over a decade, from $4.5 trillion in 1995 to $9.5 trillion in 2007 (appendix table 6-3 ). The United States remains the largest provider of commercial knowledge-intensive services, with $3.3 trillion of the value added globally in 2007 (figure 6-11 ). The EU maintained second place at $2.9 trillion, trailed by Japan with $0.8 trillion. The volume of value added for commercial knowledge-intensive services in China and the Asia-9 is growing but remains low, at half a trillion dollars each.

Three distinct growth patterns marked the commercial knowledge-intensive service industries of these regions. However, trends in these services are probably influenced by the level and growth of per capita income and changing consumption patterns of these economies rather than by advances in technology. The United States, the EU, and the Asia-9 grew at a pace similar to the world average (appendix table 6-3 ). (Fluctuations in growth for the U.S. and the EU during the past decade may partially reflect fluctuations in the dollar/euro exchange rate.[11]) Japan's output stagnated over the decade, causing its world share to drop from 17% in 1995 to 8% in 2007 (figure 6-11 ). China's output expanded more than two times the world's average growth rate but began from a low base, reaching 5% of the 2007 world total.

The same patterns can be seen in the individual service industries, with the shares for the United States and the EU consistently near 25% of global value added, steeply declining shares for Japan, and modest to rapid growth from low bases for China (moving from 2%–3% to 4%–7% of the world total over the decade) and the Asia-9, depending on the industry (figure 6-12 ; appendix tables 6-10 through 6-12). Within the EU, the Eastern European countries and Ireland generally grew at least twice as fast as the EU average in all three industries. Among the Asia-9 countries/economies, India was the second largest producer behind South Korea; its share rose from 0.8% to 1.4% as a result of strong growth in all three industries.

In other developing regions, Central Europe/Asia's commercial knowledge-intensive services expanded more than twice as fast as the world's average growth rate, led by growth in Russia and Turkey (appendix table 6-3 ). Its share of global value added increased from 1% to 3% because of strong growth in business and financial service industries. The Middle East expanded slightly faster than the world average rate, led by very rapid growth by Iran. Although Latin America grew at the world average, Mexico's output expanded 50% faster than the world average and Brazil's output more than doubled between 2003 and 2007 because of strong growth in business services and communications (appendix tables 6-10 through 6-12).


High-Technology Manufacturing Industries

Five manufacturing industries constitute the high-technology manufacturing sector, as defined by the OECD. In decreasing order of 2007 global value added, they are communications and semiconductors ($445 billion), pharmaceuticals ($319 billion), scientific instruments ($189 billion), aerospace ($153 billion), and computers and office machinery ($114 billion) (appendix tables 6-13 through 6-17 ).

The United States, the EU, Japan, China, and the Asia-9 dominate high-technology manufacturing industries. In 2007, their collective shares accounted for 90% of the $1.2 trillion global total (figure 6-13 ; appendix table 6-5 ). U.S. high-technology manufacturers continued to rank first with $374 billion value added, followed by the EU at $306 billion and China at $167 billion. However, the EU ranks first in domestic consumption of high-technology manufactured goods, followed by the United States (see sidebar, "Consumption of High-Technology Manufactured Goods"). Since 1995, the high-technology share of total U.S. manufacturing has increased modestly from 17% to 21% (appendix tables 6-5 and 6-18 ). In contrast, for all manufacturing industries, the EU is the global leader (29% of value added) and the United States ranks second (20%).

From 1995 to 2007, high-technology manufacturing output rose faster (69%) than total manufacturing (59%) (appendix tables 6-5 and 6-18 ). The United States, the EU, and the Asia-9 experienced growth in high-technology manufacturing close to the world average, whereas Japan's output declined, resulting in a drop in its world share from 27% to 11% (figure 6-13 ). China's growth in high-technology manufacturing output greatly exceeded the world average, expanding ninefold over the decade, from $19 billion to $167 billion, and its world share more than quadrupled from 3% to 14%. The high-technology share of the Chinese manufacturing sector jumped from 7% to 13% during this period. These country patterns were broadly similar to the output growth trends in domestic consumption of high-technology manufactured goods and knowledge-intensive services (figures 6-11 and 6-A ).

In 2007, the United States was the world leader in global value added in three high-technology manufacturing industries: communications and semiconductors (29%), pharmaceuticals (32%), and aerospace (52%) (figure 6-14 ; appendix tables 6-13 , 6-14 , and 6-16 ). The United States ranked behind the EU in scientific instruments (19% vs. 44%) and well behind China in computers and office machinery (25% vs. 39%) (appendix tables 6-15 and 6-17 ).

The U.S. share of global value-added in high-technology manufacturing remained roughly stable over the decade (figure 6-13 ; appendix tables 6-5 and 6-18 ). (Fluctuations in U.S. growth may be partially due to changes in the value of the U.S. dollar.) The U.S. share of global value added was relatively stable in the aerospace, communications and semiconductors, computers and office machinery, and pharmaceutical industries (figure 6-14 ; appendix tables 6-14 through 6-17). The U.S. share in scientific instruments, however, fell significantly from 29% to 19% during this period.

Anecdotal evidence suggests that assembly of computers and semiconductors shifted from the United States to China and other Asian countries, contributing to China's vigorous expansion of its output in these industries. However, U.S.-based firms such as Dell and Apple continued to grow and to be highly profitable, deriving much of their profits from high-value activities such as logistics, design, and marketing that remained in the United States (see Dedrick, Kraemer, and Linden 2008, and sidebar, "Tracing the Geography of the Value Chain of Products").

The EU's share stayed roughly stable in three industries: pharmaceuticals (31%), communications and semiconductors (15%), and aerospace (27%) (figure 6-14 ; appendix tables 6-13 , 6-14 , and 6-16 ). The EU increased its share of scientific instruments by 6 percentage points to 44% over the decade but experienced a significant decline in computers and office machinery (appendix tables 6-15 and 6-17 ). Output of several Eastern European member countries—the Czech Republic, Hungary, Poland, and the Slovak Republic—grew much more rapidly in these industries than output of other member countries. This is consistent with evidence that these countries have become assembly centers for high-technology industries based in more developed EU economies (Kaminski and Ng 2001).

The communications and semiconductors and computers and office machinery industries drove China's rapid expansion of high-technology manufacturing, coinciding with China becoming the world's low-cost assembler and exporter of these goods. China's communications and semiconductors industry grew nearly sixfold over the decade, its world share climbing from 4% to 15% (figure 6-14 and appendix table 6-13 ). Its computer industry grew at 45% annually between 1995 and 2007; its world share jumped from 1% to almost 40% over the same period (appendix table 6-17 ).

China's growth in other high-technology industries was also rapid—China at least quadrupled its world share in pharmaceuticals, scientific instruments, and aerospace (figure 6-14 and appendix tables 6-14 , 6-15 , and 6-16 ).

Japan's share loss, driven primarily by the communications and semiconductors and the computers and office machinery industries, also extended to the other three high-technology industries (figure 6-14 and appendix tables 6-13 through 6-17). This broad downward trend may reflect its lengthy economic stagnation and the shift of production to China and other Asian economies. The Asia-9's share of global value added edged up from 9% to 10%, reaching parity with Japan in 2007 (figure 6-13 ; appendix table 6-5 ). South Korea had very strong growth in communications and semiconductors, moving its share of global value added from 4% to 10% (appendix table 6-13 ).

India has a very limited high-technology manufacturing industry, but its value added grew more than twice as fast as the Asia-9's average (appendix table 6-5 ). India's growth was concentrated in pharmaceuticals, with gains in scientific instruments—industries in which the United States and other multinationals have established a presence in India (appendix tables 6-14 and 6-15 ).

In other developing regions, high-technology manufacturing output in Central Europe/Asia grew more than twice the world average over the 1995–2007 period, led by growth in Russia and Turkey (appendix table 6-5 ). The Middle East also gained, driven by Israel and Iran. Growth in both of these regions was led by scientific instruments and pharmaceuticals; communications and semiconductors also contributed to the Middle East's gain (appendix tables 6-13 , 6-14 , and 6-15 ). Latin America grew at a rate near the world average, the second slowest of the developing regions. However, Mexico, an important assembly center for high-technology goods, grew two times faster than the world average during this period, led by pharmaceuticals and communications and semiconductors. Brazil's growth was stagnant between 1995 and 2003; however, it has grown rapidly since 2003, surpassing Mexico in 2005 to become the largest Latin American producer. Brazil's aerospace industry grew by sevenfold and its computer industry registered strong gains.


Information and Communications Technology Industries

ICT as discussed here comprises both the communications and computer services industries and the computer, communications, and semiconductors manufacturing industries. In 2007, ICT generated an estimated total of $2.6 trillion in global value—$2.0 trillion in communications and computer services, and $0.6 trillion in the manufacturing industries (appendix table 6-4 ).

In 2007, the United States and the EU tied as the largest ICT producers (about $700 billion), followed by second-ranked China ($315 billion). Japan and the Asia-9 converged in a range of approximately $205–$230 billion (figure 6-15 ; appendix table 6-4 ).

The U.S. and EU shares fluctuated over the decade but showed little change in 2007 compared with a decade ago (figure 6-15 ; appendix table 6-4 ). Japan's share fell steeply during this period, mirroring its downward trends in share in both high-technology and knowledge-intensive industries. China's share tripled from 4% to 12% because of strong gains across all ICT industries. The Asia-9's share was flat during this period, although India's share rose from 0.5% to 1.1%, driven by gains in communications and computer services.

In other developing regions, Central Europe/Asia and Latin America increased their world share by 1 percentage point over the decade, reaching 4% and 5%, respectively, in 2007 because of strong growth in ICT service industries (appendix table 6-4 ).


Industries That Are Not Knowledge or Technology Intensive

Science and technology are used in many industries besides high-technology manufacturing and services. Services not classified as knowledge intensive incorporate technology in their services or in the delivery of their services but at a lower intensity compared with the knowledge-intensive services discussed above. Manufacturing industries not classified as high technology by the OECD use advanced manufacturing techniques, incorporate technologically advanced inputs in manufacture, and/or perform or rely on R&D in applicable scientific fields. In addition, some industries not classified as either manufacturing or services use or incorporate science and technology to varying degrees in their products and processes (see sidebar, "Trends in Industries Not Classified as Services or Manufacturing").

Non-Knowledge-Intensive Commercial Services
Commercial services not classified as knowledge intensive include the wholesale and retail, restaurant and hotel, transportation and storage, and real estate industries. The United States leads the EU by a slim margin, as measured by share of global value added (29%) in the wholesale and retail industry—the largest of these industries ($5.9 trillion)—and is the second-ranked provider in the other three industries (table 6-1 ). Allowing for fluctuations, the national/regional shares remained stable or showed slight upward trends except for Japan, whose shares fell in all of these industries.

Non-High-Technology Manufacturing Industries
Non-high-technology manufacturing industries are divided into three categories, as classified by the OECD: medium-high technology, medium-low technology, and low technology. These industries include motor vehicle manufacturing and chemicals production, excluding pharmaceuticals (medium-high technology), rubber and plastic production and basic metals (medium-low technology), and paper and food product production (low technology).

The share trends in all of these industry segments are the same as for high technology—share losses for the United States and larger share losses for Japan, stable or slight declines for the EU, stable or slight increases for the Asia-9, and strong share gains across all segments for China.

  • Medium-high-technology industries: These industries produced $2.1 trillion in global value added in 2007. The U.S. share fell from 23% to 17% between 1995 and 2007 (table 6-2 ), and the EU share remained roughly stable (32%). Japan's share fell from 24% to 13%, China's more than quadrupled from 3% to 13%, and the Asia-9's share rose from 7% to 9%.
  • Medium-low-technology industries: The U.S. and EU shares of these industries ($2.5 trillion global value added) fell 3 percentage points each over the decade, reaching 16% and 28%, respectively (table 6-2 ). Japan's share fell from 24% to 10%, its steepest loss among these three segments.
  • Low-technology industries: These industries produced $2.6 trillion in global value added in 2007. The U.S. and EU shares fell slightly (table 6-2 ). The Asia-9's share remained stable, as opposed to its small gains in the other two segments.

Notes

[11] The U.S. dollar strengthened about 30% in value between 1995 and 2001 against a trade-weighted basket of European currencies (1995–98) and the euro (1999–2001) and subsequently lost more than 50% in value against the euro between 2001 and 2007. This exchange-rate movement lowered European industry output measured in U.S. current dollars between 1995 and 2001 and raised it between 2001 and 2007.
 

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

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