Sector dynamics and firms demographics of top EU R&D investors in the global economy Pietro MONCADA-PATERNÒ-CASTELLO European Commission, Joint Research Centre Institute for Prospective Technological Studies Knowledge for Growth Unit Sixth Industrial Research and Innovation Monitoring and Analysis (IRIMA) workshop: R&D Investment and Firm Dynamics" European Commission DGRTD and JRC Brussels, University Club Foundation - 3 December 2015
WHY THIS WORK? Motivations: Analyse the dynamics of corporate R&D investment in the main world economies (2005-2013) Investigate the relation between sectoral dynamics and firms' age Identify possible implication for policies. Aim: To understand better the reasons for EU corporate R&D intensity gap considering firms' demographics and sector dynamics To contribute to the literature of innovation, industrial dynamics and firms' heterogeneity 2
RESEARCH QUESTIONS 1. How do countries perform in corporate R&D? 2. Are there country specificities in the change of R&D investment across sectors? 3. How (if) does sector composition determine firms' age? 4. How does EU firms' demographics compare with respect to US in key R&D intensive sectors?
DATASET Sources: EU Industrial R&D Investment Scoreboard: economic & financial micro-data of top world R&D investors. Data from 9 R&D Scoreboard editions: 2006 to 2014; top 1,000 R&D firms in each edition Limitations: low representativeness of companies in Asian Tigers and China in the earliest EU R&D Scoreboards METHODOLOGICAL APPROACH Manhattan distance metrics (in "sectors shift" computation); OLS linear regression model with sector and country dummies (for the effects of sectors to firms' age); Descriptive statistical analysis (in the rest of analyses) 4
Main results (1) Shares of R&D investment (left) and firms (right)
Main results (2.1) Average shift across sectors, 2005-2013 R&D investment (left), number of companies (right) 0.30 0.30 0.25 0.25 0.20 0.20 0.15 0.15 0.10 0.10 0.05 0.05 0.00 USA EU Japan Asian Tigers Rest of the World China 0.00 USA EU Japan Asian Tigers Rest of the World China Note: Based on the top 1000 R&D investors worldwide for each of the years 6
Main results (2.2) Sectors with the highest changes in R&D shares for the economies considered (ICB-3 digits; 2005-2013) The 5 sectors with the highest increases in R&D shares The 5 sectors with the highest dencreases in R&D shares Region ICB Sector Tech. Group R&D Delta R&D Int. ICB Sector Tech. Group R&D Delta R&D Int. Banks Low 3.0% 2.1% Chemicals Medium/High -2.8% 2.1% Automobiles & parts Medium/High 1.8% 5.5% Technology & Hardware High -2.7% 14.6% EU General industrials Medium/High 1.6% 5.5% Leisure goods High -2.3% 2.6% Industrial engineering Medium/High 1.6% 4.3% Electronic Medium/High -1.9% 5.0% Software & computer High 1.0% 13.4% Aerospace & defence Medium/High -1.6% 5.8% Software & computer High 6.3% 12.4% Automobiles & parts Medium/High -4.9% 3.8% Industrial engineering Medium/High 1.1% 3.2% Pharma & biotech High -2.2% 15.8% USA General retailers Medium/Low 0.7% 3.2% Leisure goods High -1.2% 5.3% Electronic Medium/High 0.6% 4.2% General industrials Medium/High -0.6% 3.3% Fixed line telecom Medium/Low 0.6% 1.2% Aerospace & defence Medium/High -0.4% 3.4% Pharma & biotech High 5.6% 20.4% Technology & Hardware High -12.0% 5.3% General industrials Medium/High 4.1% 3.7% Leisure goods High -4.8% 8.8% Japan Software & computer High 2.5% 4.7% Fixed line telecom Medium/Low -1.3% 2.3% Automobiles & parts Medium/High 2.3% 4.2% Electricity Low -0.9% 4.8% Electronic Medium/High 1.7% 4.8% Construction & materials Low -0.4% 1.6% Leisure goods High 8.6% 5.5% Automobiles & parts Medium/High -6.1% 1.8% Technology & Hardware High 2.8% 3.6% Electronic Medium/High -4.9% 4.1% Asian Tigers Industrial engineering Medium/High 1.0% 0.5% Mobile telecom Low -2.9% 1.6% Oil & gas producers Low 0.9% 0.3% Electricity Low -0.8% 0.9% Fixed line telecom Medium/Low 0.8% 1.6% Industrial Transport Low -0.7% - Construction & materials Low 21.0% 1.2% Oil & gas producers Low -55.5% 0.4% Automobiles & parts Medium/High 10.8% 1.9% China Industrial engineering Medium/High 9.7% 2.7% General industrials Medium/High 2.6% 1.5% Banks Low 2.3% 2.4% Software & computer High 5.2% 10.2% Pharma & biotech High -6.2% 14.8% Aerospace & defence Medium/High 4.8% 8.1% General industrials Medium/High -4.1% 1.7% RoW Banks Low 3.2% 3.0% Electronic Medium/High -2.8% 4.5% Oil & gas producers Low 2.9% 0.4% Food producers Medium/Low -2.3% 1.8% Automobiles & parts Medium/High 2.1% 3.3% Technology & Hardware High -1.6% 10.4%
Main results (3.1) Age of top corporate R&D investors, differences among regions and sectors; 2005-2013 What "explains" age variance? Sector = 41.4% Region = 29.8% Other factors = 28.8% Regions: US companies are younger than EU and Japanese Chinese companies are the youngest Age (dummy region) All sectors Age (dummy region and sector) Regions EU = baseline Asian Tigers -34.91*** -31.21*** (4.44) (3.27) China -53.34*** -66.13*** (5.99) (4.32) Japan 2.94-1.48 (2.42) (1.77) Rest of the World -13.91*** -14.22*** (2.72) (1.99) USA -23.68*** -26.20*** (2.32) (1.73) Sector Dummies Included Constant 65.79*** 61.71*** (1.48) (4.76) Observations 578 578 R-squared 0.298 0.712 The substantial difference in the average age of firms is due to sectors specificities
Main results (3.2) Average year of foundation of top R&D firms and their years' variation by sectors (ICB-4 digits, 2013) 9
Main results (4) Number and size of top R&D firms, EU and US in Software and Computer Services sector; 2005-13 Software & Computer Services 2005 2006 2007 2008 2009 2010 2011 2012 2013 Companies - No. 14 19 17 16 17 16 13 13 14 EU R&D average - million 167 165 199 225 229 259 310 359 360 Employees - average No. 7939 9479 9538 12917 12287 12840 13447 14848 16852 Companies - No. 50 52 44 43 45 45 46 47 53 US R&D average - million 330 361 469 521 483 526 615 678 656 Employees - average No. 13889 14584 18297 19460 18912 19864 23051 21215 20178 Higher number of larger US firms in this young, growing and high R&D-intensive sector compared to the EU since the beginning of the period of observation
SUMMARY & CONCLUSIONS (i) EU maintained its R&D investment share vis-à-vis other world regions, and somewhat improved its position vs. US and Japan (ii) Slightly higher EU R&D shift over sectors compared to the US However, both economies show a slower pace of change compared to the emerging economies. Contrary to previous studies comparing EU vs US, based on data from 80ies and 90ies (e.g. Gambardella et al., 2007; Foray and Lhuillery, 2010) (iii) The typology of sectors determines the average age of top R&D investing firms Can be coupled with Cincera & Veugelers (2013) study, where most of the EU R&D investment gap vs US is due to a different sectoral composition of "yollies" (iv) EU's "follower behaviour" in new high-tech growing sectors ('software & computer s.'): less & smaller firms than the US Key role of the presence of young and growing innovative firms when new high-tech 11 markets emerge (Ackermann, 2012; Czarnitzki & Delanote, 2012).
IMPLICATIONS FOR R&I POLICY Aiming at a sectors mix with more knowledge-intensive sectors in the EU - to reduce the R&D intensity gap -: (a) Target new (more risky), strategic R&D-intensive sectors i.e. "young innovative emerging sectors" (YiES) (b) Favour entrepreneurship to create innovative EU firms in these new sectors and make them growing. This would increase the probability that the new champions of tomorrow will be European companies, ensuring in turn a better sectors mix and dynamics. 12
Thank you Pietro.Moncada-Paterno-Castello@ec.europa.eu Economics of Industrial Research & Innovation European Commission JRC-IPTS s Knowledge for Growth Unit Edf. Expo, Calle Inca Garcilaso n. 3 41092 Seville (Spain) Acknowledgements: - Antonio Vezzani, as well as Alex Coad and Nicola Grassano (European Commission, JRC-IPTS) - European Commission, DGRTD and JRC collaborative project "IRIMA" More information can be found here: Industrial Research and Innovation website: http://iri.jrc.ec.europa.eu/ IPTS - Institute for Prospective Technological Studies: http://ipts.jrc.ec.europa.eu/ JRC - Joint Research Centre: http://ec.europa.eu/dgs/jrc/index.cfm 13
Technological sector groups High R&D intensity sectors (R&D intensity above 5%) include e.g. Pharmaceuticals & biotechnology; Health care equipment & services; Technology hardware & equipment; Software & computer services; Aerospace & defence. Medium-high R&D intensity sectors (between 2% and 5%) include e.g. Electronics & electrical equipment; Automobiles & parts; Industrial engineering & machinery; Chemicals; Personal goods; Household goods; General industrials; Support services. Medium-low R&D intensity sectors (between 1% and 2%) include e.g. Food producers; Beverages; Travel & leisure; Media; Oil equipment; Electricity; Fixed line telecommunications. Low R&D intensity sectors (less than 1%) include e.g. Oil & gas producers; Industrial metals; Construction & materials; Food & drug retailers; Transportation; Mining; Tobacco; Multi-utilities; Banks. Source:European Commission (2014) following OECD (1997) approach Industry classification: ICB (Industry Classification Benchmark), 3-digit level 14
Descriptive statistics R&D investments of top 1000 companies ( million) region_analysis 2005 2006 2007 2008 2009 2010 2011 2012 2013 Asian Tigers 12117.9 12571.6 14154.8 17137.0 18442.4 21529.5 22952.2 24947.5 26944.3 China 984.0 1254.3 1562.5 2806.0 6030.9 7960.8 12727.3 14436.9 16261.8 EU 100980.8 108984.2 116324.3 121817.8 120667.1 127156.1 138392.3 148898.9 151524.7 Japan 65789.5 67959.0 76183.7 79924.2 79225.5 72184.0 96494.9 95808.4 78581.2 Rest of the World 20082.9 22517.2 25730.3 30752.6 31191.9 31298.5 37850.4 40326.1 39825.7 USA 124638.9 136428.1 147777.4 154158.9 137614.1 149018.3 165724.4 176777.9 177820.6 Total 324594.1 349714.5 381733 406596.3 393171.9 409147.2 474141.5 501195.7 490958.3 Share of R&D investments of top 1000 companies region_analysis 2005 2006 2007 2008 2009 2010 2011 2012 2013 Asian Tigers 4% 4% 4% 4% 5% 5% 5% 5% 5% China 0.3% 0.4% 0.4% 0.7% 2% 2% 3% 3% 3% EU 31% 31% 30% 30% 31% 31% 29% 30% 31% Japan 20% 19% 20% 20% 20% 18% 20% 19% 16% Rest of the World 6% 6% 7% 8% 8% 8% 8% 8% 8% USA 38% 39% 39% 38% 35% 36% 35% 35% 36% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% Companies in the Top 1000 region_analysis 2005 2006 2007 2008 2009 2010 2011 2012 2013 Asian Tigers 54 55 52 61 66 64 56 61 59 China 5 4 5 12 16 18 34 39 46 EU 253 283 297 267 288 282 282 289 297 Japan 195 183 186 209 199 202 213 190 168 Rest of the World 75 70 75 83 92 97 93 96 104 USA 418 405 385 368 339 337 322 325 326 Total 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Share of Companies in the Top 1000 region_analysis 2005 2006 2007 2008 2009 2010 2011 2012 2013 Asian Tigers 5% 6% 5% 6% 7% 6% 6% 6% 6% China 0.5% 0.4% 0.5% 1% 2% 2% 3% 4% 5% EU 25% 28% 30% 27% 29% 28% 28% 29% 30% Japan 20% 18% 19% 21% 20% 20% 21% 19% 17% Rest of the World 8% 7% 8% 8% 9% 10% 9% 10% 10% USA 42% 41% 39% 37% 34% 34% 32% 33% 33% Total 100% 100% 100% 100% 100% 100% 100% 100% 100%
Year of foundation - ICB-4 digits Top R&D companies (2013) ICB4digit Sector Year of foundation Average St.dev. Median Firms Internet 1999 4.6 1999 13 Software 1991 10.3 1992 52 Biotechnology 1988 20.4 1993 30 Semiconductors 1985 18.3 1989 72 Computer Hardware 1985 24.8 1988 32 Computer Services 1984 31.0 1997 21 Fixed Line Telecommunications 1973 41.9 1994 15 Telecommunications Equipment 1970 44.3 1991 39 Electronic Equipment 1967 29.3 1974 53 Health Care Equipment & Services 1967 38.1 1977 43 Oil & Gas Producers 1962 39.2 1972 19 Leisure Goods 1960 37.9 1968 19 Industrial Metals & Mining 1959 51.1 1985 15 Commercial Vehicles & Trucks 1959 48.2 1982 23 Food Producers 1956 47.2 1961 20 Pharmaceuticals 1956 42.7 1964 70 Aerospace & Defence 1955 39.8 1960 33 Electricity 1954 20.7 1951 10 Automobiles & Parts 1953 42.0 1948 75 Chemicals 1947 45.4 1949 56 Electrical Components & Equipment 1946 47.5 1950 23 Construction & Materials 1945 83.6 1956 19 General Industrials 1944 37.1 1939 29 Household Goods & Home Construction 1942 42.3 1953 11 Industrial Machinery 1939 63.9 1958 52 Personal Goods 1934 37.5 1930 14 Banks 1908 95.1 1955 20 16
Average age Including Base sector fixed effects Median age Including Base sector fixed effects EU = baseline Asian Tigers -34.91*** -31.21*** -25.23*** -23.72*** (4.44) (3.27) (4.89) (3.79) China -53.34*** -66.13*** -44.08*** -54.50*** (5.99) (4.32) (6.60) (5.01) Japan 2.94-1.48 12.25*** 8.06*** (2.42) (1.77) (2.67) (2.05) Rest of the World -13.91*** -14.22*** -17.17*** -21.04*** (2.72) (1.99) (3.00) (2.31) USA -23.68*** -26.20*** -20.82*** -26.61*** (2.32) (1.73) (2.56) (2.01) Sector fixed effects (a) 0.000*** 0.000*** Constant 65.79*** 61.71*** 55.43*** 67.41*** (1.48) (4.76) (1.63) (5.52) Observations 578 578 578 578 R-squared 0.298 0.712 0.274 0.670 F-test 48.67 23.92 43.21 19.69 RMSE 20.94 14.04 23.07 16.26 Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1 17 (a) Reported is the p-value of an F-test of joint significance for the sector fixed effects (ICB3digit)