Hannu Piekkola How intangible investments have evolved in EU area using both firm-level and national perspectives 22-23.2.2011 Brussel INNODRIVE FINAL CONFERENCE UNIVAASA, CEPS, DIW, STATNO, NIESR, IER, ETLA, EI, LUISS INNODRIVE the EU 7th Framework Programme, No. 214576
www.innodrive.org 22.2.2011 2
Intangible Capital Corrado-Hulten-Sichel (2005) Own Categories Economic Competencies 1) Brand Equity: 1) Organization capital - Advertising -Management - Market Research - Marketing 2) Firm-specific resources: - Skilled administration - Firm-specific human capital (e.g. training) - Organization structure (e.g. management) Innovative Property 1) Scientific Research & development 1) Research & development 2) Other Research & development: - Non-Scientific Research & development - Mineral exploration - New motion picture films and other forms of entertainment - New architectural and engineering design - New product development in financial industry Digitalized information - ICT capital 1) Software 1) ICT personnel assets 22.2.2011 3 2) Database
Country-level expenditures of intangible investment and capital Official data sources homogeneous across countries (mainly Eurostat surveys, national accounts data and supply and use tables, data from National Statistical Institutes) to guarantee reproducibility and international comparability (LUISS). New Intangible investment not included in national accounts (Corrado Hulten Sichel type) 5.5% of GDP New intangibles GDP shares Market research New financial products Training Advertisement OC purchased OC management Architectural design R&D 22.2.2011 4
22.2.2011 10 % 0 % 1 % 2 % 3 % 4 % 5 % 6 % 7 % 8 % 9 % 1.1 % 0.9 % 1.2 % 0.8 % 0.1 % 2.2 % 1.0 % Figure 1: Intangibles as share of GDP (%) 2005: EU – 27 countries (and Norway) 0.1 % 2.6 % 1.3 % Scientific R&D investment 0.1 % 2.6 % 1.5 % 0.5 % 1.6 % 2.3 % 0.6 % 2.2 % 1.7 % 0.3 % 1.7 % 2.8 % 0.5 % 1.7 % 2.5 % Source: Innodrive, www.innodrive.org 0.2 % 2.6 % 1.9 % 0.2 % 2.4 % 2.2 % Organizational competence excl. training 0.8 % 2.1 % 2.2 % 0.3 % 3.3 % 1.5 % 0.6 % 2.6 % 2.5 % 1.6 % 1.8 % 3.0 % 1.6 % 2.7 % 2.2 % 0.2 % 3.3 % 2.9 % 1.3 % 1.9 % 3.9 % 0.8 % 2.5 % 3.9 % 2.2 % 2.5 % 2.6 % Other 0.4 % 3.9 % 3.2 % 1.2 % 2.3 % 4.1 % 0.9 % 2.5 % 4.3 % 0.8 % 2.9 % 4.3 % 1.1 % 4.4 % 2.8 % 1.2 % 2.7 % 4.7 % 2.5 % 1.8 % 4.8 % 0.9 % 5.2 % 3.0 % 5
Company level intangible investment and capital All countries with traditionally high rates of R&D (Sweden, Finland, Germany) rank above average in terms of their investment in intangibles Many non-R&D intensive countries rank high: the UK, Belgium the Czech Republic, the Netherlands, Hungary Innovation model that emphasises organisational competence. Czech Republic (architectural design), France (training) and Netherlands and Luxembourg (new financial product) are intensive in other type of intangibles University of Vaasa | Department of Economics| INNODRIVE 22.2.2011 6
22.2.2011 10 % 12 % 14 % 16 % 18 % 20 % 22 % 0 % 2 % 4 % 6 % 8 % 2.1 % 4.3 % Figure 2. Tangible and Intangible Investment as share of GDP (%) 2005: EU – 27 4.7 % 2.9 % 3.2 % 4.5 % 5.7 % 2.7 % 4.7 % 4.3 % 4.1 % 5.3 % 5.2 % 4.6 % Source: Innodrive, www.innodrive.org 4.4 % 5.5 % Intangible investment 7.5 % 3.8 % countries (and Norway) 4.7 % 6.8 % 7.2 % 4.4 % 4.7 % 7.4 % 7.3 % 5.6 % Tangible investment 7.6 % 5.8 % 7.7 % 6.0 % 7.1 % 7.1 % 6.5 % 8.1 % 8.6 % 6.2 % 6.4 % 8.5 % 6.4 % 8.6 % 9.2 % 5.9 % 5.1 % 10.1 % 8.2 % 7.1 % 9.1 % 7.3 % 8.0 % 11.4 % 4.5 % 15.6 % 7
Intangible and tangible investment Total tangible and intangible investments are fairly evenly distributed throughout Europe. Norway, Czech Republic Sweden, Belgium and Malta rank as the top countries in the half of countries with business investment intensity between 13%-20% of GDP Countries with relatively low intangible investment have high levels of tangible investment. An indication about the degree of transition towards knowledge economy in 2005 Czech Republic (architectural design), Sweden and France (training) are intensive in other type of intangibles (also new financial product, non-scientific R&D capital and databases and software). 22.2.2011 8
Intangible at company level: LEED data Finland (UNIVAASA) 1995-2008 2,933 firms cover 400,000 workers UK (NIESR) 1998-2006 10,000 firms 20% of GVA in relevant industries Annual business inquiry, annual survey of hours and wages Matched at the 3-digit industry level to Labour Force Survey data on shares of workers with five skill categories Norway (NORSTAT) 1999-2006 6,202 firms and 21,816 firm-year observations for the period 2003 – 06 Germany (DIW) 1999-2003 1.5 million establishments about 20 million workers Social Security Dataset (SSD) Czech Republic (CERGE – EI) 2000-2007 2,000 firms and over 1 million workers annually AMADEUS database Slovenia (IER) 1994-2004 Balance sheet data, income tax statements at the individual level and the Statistical Register of Employment (SRDAP) 22.2.2011 9 up to 500,000 workers in 26,000 firms across 11 years
Figure 1. Share of management, marketing, ICT and R&D workers at around 18% (percentage of all workers, 2003) 10 % 9 % 8 % 7 % 6 % 5 % 4 % 3 % 2 % 1 % 0 % UK Finland Germany Czech Rep. Slovenia Norway Management Marketing ICT Work R&D Work • Organisation worker share (management and marketing) varies between 13% and 5.5% • R&D workers between 9% (Nordic countries) and 4% (UK) 22.2.2011 10
Intangible investment as share of new value added FINLAND UK 8 % 8 % 7 % 7 % 6 % 6 % 5 % 5 % 4 % 4 % 3 % 3 % 2 % 2 % 1 % 1 % 0 % 0 % 98 99 00 01 02 03 04 05 06 07 98 99 00 01 02 03 04 05 06 Organizational investment Organizational investment (PER) Organizational investment Organizational investment (PER) R&D investment ICT investment R&D investment ICT investment NORWAY 8 % 7 % FIN, NOR : R&D 6.0% exceeds OC, 6 % FIN ICT 1%, NOR ICT 2% 5 % 4 % UK OC 5% exceeds R&D 3 % UK ICT 2% 2 % 1 % 0 % 98 99 00 01 02 03 04 05 06 07 Organizational investment Organizational investment (PER) 11 R&D investment ICT investment
Intangible investment as share of new value added GERMANY CZECH REPUBLIC 8 % 8 % 7 % 7 % 6 % 6 % 5 % 5 % 4 % 4 % 3 % 3 % 2 % 2 % 1 % 1 % 0 % 0 % 98 99 00 01 02 03 04 05 06 07 98 99 00 01 02 03 04 05 06 07 Organizational investment Organizational investment (PER) Organizational investment Organizational investment (PER) R&D investment ICT investment SLOVENIA R&D investment ICT investment 9 % 8 % GER, CZ : R&D 4-5% exceeds OC 2-3%, 7 % ICT 1%, CZ up to 4% by 2005 6 % 5 % SLV R&D 6% or above 4 % 3 % data from 2003 unreliable 2 % 1 % 0 % 98 99 00 01 02 03 04 05 06 12 Organizational investment R&D investment ICT investment
Intangible capital as share of new value added FINLAND UK 90 % 90 % 85 % 85 % 80 % 80 % 75 % 75 % 70 % 70 % 65 % 65 % 60 % 60 % 55 % 55 % 50 % 50 % 45 % 45 % 40 % 40 % 35 % 35 % 30 % 30 % 25 % 98 99 00 01 02 03 04 05 06 07 98 99 00 01 02 03 04 05 06 Plant, machinery, equipment capital Intangible capital Net plant, property, equipment Intangible capital NORWAY Intangible capital (PER) NORWAY Intangible capital (PER) 90 % Other machinery and equipment SNA 85 % 80 % FIN, NOR: Intangibles 40-45% less than 75 % 70 % tangibles, 65 % UK Intangibles 40%, tangibles 75% 60 % 55 % 50 % 45 % 40 % 35 % 30 % 98 99 00 01 02 03 04 05 06 07 13 Net plant, property, equipment Intangible capital Intangible capital (PER)
Intangible capital as share of new value added GERMANY CZECH REPUBLIC 110 % 250 % 100 % 90 % 200 % 80 % 70 % 150 % 60 % 50 % 100 % 40 % 30 % 50 % 20 % 10 % 0 % 0 % 98 99 00 01 02 03 04 05 06 07 98 99 00 01 02 03 04 05 06 Tangible capital Tangible capital Intangible capital Intangible capital (PER) Intangible capital Other machinery and equipment SNA SLOVENIA (per turnover) 120 % GER, CZ : intangible capital 30% below 100 % tangible capital, 80 % SLV intangible capital 20% of turnover below 60 % tangible capital 40 % 20 % 0 % 98 99 00 01 02 03 04 Intangible capital Intangible capital (PER) 14 Tangible capital
Company-level intangible capital The expenditure-based approach gives only part of the picture regarding the value of intangibles when they are owned by the firm Employees are not fully compensated for the value of intangible production. The performance-based approach increases the relative importance of organisational investment Supported by its impact on the market value of Finnish listed firms. Company level productivity is strongly related to firms’ own intangible capital as well as to regional intangible capital, suggesting positive regional spillovers Intangibles have public good characteristics 22.2.2011 15
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