brussels, march 2007 eu 6. framework programme contents 1.research question 2.theoretical background...

Brussels, March 2007EU 6. Framework Programme

Contents

1. Research question2. Theoretical background 3. Micro-data access4. Measurement of diversification5. Preliminary findings

WP 10: LINKAGES WITH MICRO DATA

Product Diversification and Firm-level Productivity of ICT ProducerA Micro-Data Analysis for Germany

Bernd GörzigMartin Gornig


WP 10: Product Diversification and Firm-level Productivity of ICT Producer

Research question:

Innovative diversification or concentration on core competencies -

What strategy is driving productivity of ICT producer?



Theoretical background:

Traditional view: Product specialization with concentration on core competencies reduces fixed cost and increases productivity and profits (Marshall 1920)

Industrial organisation theory: Product diversification and innovation is one of the most important strategies for firms to improve competitiveness and productivity (Chandler 1978)


Data sources:


Using register based datasets, this implies: based on legislation, compulsory answer, full coverage

Two central surveys of the National Statistic Office for Germany:

• Production Survey - for more than 6.000 manufacturing products based on PRODCOM

• Cost Structure Survey – 30.000 firms in manufacturing


Production Survey

Registration code of the firm

PRODCOM code of commodity

Quantity

Value in €


In cooperation with the new installed Research Data Centres in Germany we linked the two surveys on the firm-level. The result is a product-producer firm-level panel file.

Advantages of the register based access:


• Full coverage of the firms considered

• Big enough to conduct data hungry analyses, like panel econometrics and to apply non-parametric analytical methods as well

• These surveys are the central basis of the NA, therefore they are principally available in all EU countries


A number of indicators are suggested in the literature.


The measurement of product diversification:

The ‘numbers equivalent’ entropy corresponds to the number of the products, if the values of all products have the same share in total sales of a firm.

si = Sales of product i as a share of the sales of all products recorded for the firm

1

1( ) exp ln( / )N

i ii

E s s s

We use a ‘numbers equivalent’ entropy measure:


Preliminary findings for total manufacturing

Increasing specialisation in the average for all producers in manufacturing is a net result of cost driven specialisation and expanding diversification.

1,95

2,00

2,05

2,10

2,15

2,20

2,25

2,30

1995 1996 1997 1998 1999 2000 2001

West Germany East Germany


In a panel analysis for the period from 1995 until 2001 we can compare nearly 7.700 firms


In the average, about 60 per cent of the product value of ICT producer can be classified as ICT products. The highest share, we observe in the industry of electrical and optical equipment

Taking the OECD classification for ICT products, we can identify roughly 400 firms, producing one or more ICT products

Distinction between ICT producer and NON-ICT producer:


Preliminary findings: Productivity in 1000 € per head

Constant no. of products

Reduced no. of products

Increased no. of products

47,32

49,75

49,40

56,46

64,71

61,99

19,3

30,1

25,5

1995 2001Change

in %

Non-ICT producerICT producer

1995 2001Change

in %

42,83

43,75

44,18

31,0

29,7

18,5

56,11

56,75

52,35


Preliminary findings: Employed person per enterprise

Constant no. of products

Reduced no. of products

Increased no. of products

220

834

579

228

774

603

3,6

-7,2

4,1

1995 2001Change

in %

Non-ICT producerICT producer

1995 2001Change

in %

479

3021

635

-12,9

-18,0

2,2

417

2478

649


Firms with increasing number of products show a low growth rate of productivity, but they are expanding their employment.


These results are in line with other empirical findings:• Diversification reduces the profit rates

(Montgomery 1985). • Diversification and firm growth are highly

correlated (Jovanovic/Gilbert 1993)

Conclusions:


Productivity growth rates of “dynamic” ICT producer, of both, specialising and diversifying firms, are lower than for Non-ICT producing firms.


We also have to look at the development of individual firms: Does the strong productivity growth of ICT producer with constant number of products result from the introduction of new products before 1995? - Methodology: Treatment analysis.

Does a different composition of the analysed sets of firms play a role? - Methodology: Decomposition by industries and firm size.

Questions:


WP 10: LINKAGES WITH MICRO DATA

Product Diversification and Firm-level Productivity of ICT ProducerA Micro-Data Analysis for Germany

Bernd GörzigMartin Gornig

brussels, march 2007 eu 6. framework programme contents 1.research question 2.theoretical background...

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