22-23.2.2011 Brussel INNODRIVE FINAL CONFERENCE UNIVAASA, CEPS, DIW, - - PowerPoint PPT Presentation

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22-23.2.2011 Brussel INNODRIVE FINAL CONFERENCE UNIVAASA, CEPS, DIW, - - PowerPoint PPT Presentation

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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

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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

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22.2.2011 2

www.innodrive.org

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22.2.2011 3

Intangible Capital Corrado-Hulten-Sichel (2005) Own Categories 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)

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

1) Software 1) ICT personnel assets 2) Database Economic Competencies Innovative Property Digitalized information - ICT capital

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22.2.2011 4

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

R&D Architectural design OC management OC purchased Advertisement Training New financial products Market research

New intangibles GDP shares

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22.2.2011 5

Source: Innodrive, www.innodrive.org

0.1 % 0.1 % 0.1 % 0.5 % 0.6 % 0.3 % 0.5 % 0.2 % 0.2 % 0.8 % 0.3 % 0.6 % 1.6 % 1.6 % 0.2 % 1.3 % 0.8 % 2.2 % 0.4 % 1.2 % 0.9 % 0.8 % 1.1 % 1.2 % 2.5 % 0.9 % 1.1 % 1.2 % 2.2 % 2.6 % 2.6 % 1.6 % 2.2 % 1.7 % 1.7 % 2.6 % 2.4 % 2.1 % 3.3 % 2.6 % 1.8 % 2.7 % 3.3 % 1.9 % 2.5 % 2.5 % 3.9 % 2.3 % 2.5 % 2.9 % 4.4 % 2.7 % 1.8 % 5.2 % 0.9 % 0.8 % 1.0 % 1.3 % 1.5 % 2.3 % 1.7 % 2.8 % 2.5 % 1.9 % 2.2 % 2.2 % 1.5 % 2.5 % 3.0 % 2.2 % 2.9 % 3.9 % 3.9 % 2.6 % 3.2 % 4.1 % 4.3 % 4.3 % 2.8 % 4.7 % 4.8 % 3.0 %

0 % 1 % 2 % 3 % 4 % 5 % 6 % 7 % 8 % 9 % 10 %

Figure 1: Intangibles as share of GDP (%) 2005: EU – 27 countries (and Norway)

Scientific R&D investment Organizational competence excl. training Other

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22.2.2011 University of Vaasa | Department of Economics| INNODRIVE 6

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

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22.2.2011 7

Source: Innodrive, www.innodrive.org

2.1 % 4.7 % 3.2 % 5.7 % 4.7 % 4.1 % 5.2 % 4.4 % 7.5 % 4.7 % 7.2 % 4.7 % 7.3 % 7.6 % 7.7 % 7.1 % 6.5 % 8.6 % 6.4 % 6.4 % 9.2 % 5.1 % 8.2 % 9.1 % 8.0 % 4.5 % 4.3 % 2.9 % 4.5 % 2.7 % 4.3 % 5.3 % 4.6 % 5.5 % 3.8 % 6.8 % 4.4 % 7.4 % 5.6 % 5.8 % 6.0 % 7.1 % 8.1 % 6.2 % 8.5 % 8.6 % 5.9 % 10.1 % 7.1 % 7.3 % 11.4 % 15.6 % 0 % 2 % 4 % 6 % 8 % 10 % 12 % 14 % 16 % 18 % 20 % 22 %

Figure 2. Tangible and Intangible Investment as share of GDP (%) 2005: EU – 27 countries (and Norway)

Intangible investment Tangible investment

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22.2.2011 8

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).

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22.2.2011 9

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
  • f 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)

  • up to 500,000 workers in 26,000 firms across 11 years
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22.2.2011 10

Figure 1. Share of management, marketing, ICT and R&D workers

at around 18% (percentage of all workers, 2003)

  • Organisation worker share (management and marketing) varies between 13% and 5.5%
  • R&D workers between 9% (Nordic countries) and 4% (UK)

0 % 1 % 2 % 3 % 4 % 5 % 6 % 7 % 8 % 9 % 10 % UK Finland Germany Czech Rep. Slovenia Norway Management Marketing ICT Work R&D Work

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0 % 1 % 2 % 3 % 4 % 5 % 6 % 7 % 8 %

98 99 00 01 02 03 04 05 06 07

Organizational investment Organizational investment (PER) R&D investment ICT investment

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Intangible investment as share of new value added

FINLAND UK

  • FIN, NOR : R&D 6.0% exceeds OC,

FIN ICT 1%, NOR ICT 2%

  • UK OC 5% exceeds R&D

UK ICT 2%

0 % 1 % 2 % 3 % 4 % 5 % 6 % 7 % 8 %

98 99 00 01 02 03 04 05 06 07

Organizational investment Organizational investment (PER) R&D investment ICT investment

0 % 1 % 2 % 3 % 4 % 5 % 6 % 7 % 8 %

98 99 00 01 02 03 04 05 06

Organizational investment Organizational investment (PER) R&D investment ICT investment

NORWAY

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0 % 1 % 2 % 3 % 4 % 5 % 6 % 7 % 8 %

98 99 00 01 02 03 04 05 06 07

Organizational investment Organizational investment (PER) R&D investment ICT investment 0 % 1 % 2 % 3 % 4 % 5 % 6 % 7 % 8 %

98 99 00 01 02 03 04 05 06 07

Organizational investment Organizational investment (PER) R&D investment ICT investment

12

Intangible investment as share of new value added

GERMANY CZECH REPUBLIC

  • GER, CZ : R&D 4-5% exceeds OC 2-3%,

ICT 1%, CZ up to 4% by 2005

  • SLV R&D 6% or above

data from 2003 unreliable

SLOVENIA

0 % 1 % 2 % 3 % 4 % 5 % 6 % 7 % 8 % 9 %

98 99 00 01 02 03 04 05 06

Organizational investment R&D investment ICT investment

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25 % 30 % 35 % 40 % 45 % 50 % 55 % 60 % 65 % 70 % 75 % 80 % 85 % 90 %

98 99 00 01 02 03 04 05 06

Plant, machinery, equipment capital Intangible capital Intangible capital (PER) 30 % 35 % 40 % 45 % 50 % 55 % 60 % 65 % 70 % 75 % 80 % 85 % 90 %

98 99 00 01 02 03 04 05 06 07

Net plant, property, equipment Intangible capital Intangible capital (PER) 13

Intangible capital as share of new value added

FINLAND UK

  • FIN, NOR: Intangibles 40-45% less than

tangibles,

  • UK Intangibles 40%, tangibles 75%

NORWAY

30 % 35 % 40 % 45 % 50 % 55 % 60 % 65 % 70 % 75 % 80 % 85 % 90 %

98 99 00 01 02 03 04 05 06 07

Net plant, property, equipment Intangible capital Intangible capital (PER) Other machinery and equipment SNA

NORWAY

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0 % 20 % 40 % 60 % 80 % 100 % 120 %

98 99 00 01 02 03 04

Intangible capital Intangible capital (PER) Tangible capital

0 % 50 % 100 % 150 % 200 % 250 %

98 99 00 01 02 03 04 05 06

Tangible capital Intangible capital Intangible capital (PER)

0 % 10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 % 90 % 100 % 110 %

98 99 00 01 02 03 04 05 06 07

Tangible capital Intangible capital Other machinery and equipment SNA

14

Intangible capital as share of new value added

GERMANY CZECH REPUBLIC

  • GER, CZ : intangible capital 30% below

tangible capital,

  • SLV intangible capital 20% of turnover below

tangible capital

SLOVENIA (per turnover)

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22.2.2011 15

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
  • rganisational 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
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22.2.2011 University of Vaasa | Department of Economics| INNODRIVE Kick-off meeting 16

Average Tobin's q and intangibles per fixed assets

Data 65 firms listed in Helsinki Stock Exchange 1998- 2008 Tobin’s q=Market value / replacement value of fixed capital

Intangibles using performance-based measurement

.5 1 1.5 2 2.5 1998 2000 2002 2004 2006 2008 Year Tobin's q Tobin's q including intangibles

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22.2.2011 17

Intangible capital: some insights

  • In longer term intangibles increased and have explained

productivity growth

  • UK: intangible capital doubled between 1970 and 2004
  • US: accounts 18% of multi-factor productivity growth 1995-2004
  • Faster growth than in Europe
  • Recent development in the 2000s
  • Intangibles have mostly constant share of GDP
  • Capital market allocation
  • Tangibles are less useful as collateral in intangible capital intensive

firms

  • Management decisions
  • Proper financial reporting should account for investment in

intangibles

  • National saving and investment are largely underestimated
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22.2.2011 18

Key messages

  • GDP in the EU27 area is 5.5% higher after including all intangibles.
  • Intangibles are important in market valuation of the companies and the

source of future growth across European countries.

  • Countries with less tangibles invest more in intangible capital shows an

indication about the degree of transition towards knowledge economy.

  • Countries are specialised in R&D capital (Nordic countries), economic

competences (the UK, Belgium, Hungary, Slovakia) or in other type of intangibles.

  • Economic competence is one of the key drivers of growth, accounting

for three times more investment than in R&D.

  • Intangible capital is agglomerated in metropolitan areas: the greater

Helsinki area accounts for 49% of all intangibles in Finland; the London City-Region 41% of UK intangibles and the top-ten regions accounting for 48.3% in Germany.

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22.2.2011 19

Key messages

  • The total share of intangible capita type workers is typically around

18%, while the type of activity differs from one country to another.

  • Reliance on R&D investment is not enough or may even crowd out other

type of intangibles.

  • Intangibles explain market valuation of companies beyond standard

economic analysis

  • Intangible capital is agglomerated in metropolitan areas: the greater

Helsinki area accounts for 49% of all intangibles in Finland; the London City-Region 41% of UK intangibles and the top-ten regions accounting for 48.3% in Germany