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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 for this entire group of industries and for individual service and manufacturing industries within the group. This section will examine the positions of the United States and other major economies in KTI industries.

Health and Education Services

International comparison of the health and education sectors is complicated by variations in the size and distribution of each country's population, market structure, 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 United States and the EU are the world's largest providers of education services, with world shares of 32% and 30%, respectively (table 6-1 and appendix table 6-4). Other large economies have comparatively small shares—Japan (7%); China (7%); and the Asia-8, a group of economies consisting of India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan, and Thailand (6%).

The U.S. global share of education services fell 4 percentage points from 36% to 32% during the first decade of the century, whereas the EU's share stayed roughly flat (30%) (table 6-1 and appendix table 6-4). Third-ranked Japan's share fell from 13% to 7% because of stagnant growth. China's global share of education services more than doubled from 3% to 7% to nearly equal Japan's share.

Patterns and trends in the health care sector are similar to those for education—domination of both sectors by the EU and the United States, declining global shares of production in the United States and Japan, and a growing share by China (table 6-1 and appendix table 6-5).

Commercial Knowledge-Intensive Service Industries

The United States has the largest commercial KI service industries—business, financial, and communications—with $3.6 trillion of value added in 2010 (figure 6-11 and appendix table 6-3). The EU was second at $2.9 trillion, trailed by Japan with $900 billion. China had the largest output among developing countries, nearly equal to Japan, with $700 billion. The Asia-8 region was in fifth place with $600 billion.

From 1995 to 2010, the value added of developing countries grew far faster than in the developed world (figure 6-12 and appendix table 6-3). The value added of developing countries more than quadrupled from $500 billion to $2.3 trillion, whereas value added of developed countries more than doubled from $3.9 trillion to $8.6 trillion. Two factors driving the growth of KI service industries in developing countries are the rapid advancement of living standards in these economies and the growth of international trade in these services. Although these industries remain largely based in developed economies, these factors are helping to build local capacity in the developing world.

Faster growth of KI services industries in developing countries during the last 15 years resulted in their share of global output rising from 12% to 21% (appendix table 6-3). China's output rose sevenfold, tripling its world share from 2% to 6% (figure 6-11). Brazil, India, and Russia each reached shares of 2%–3%.

Rapidly rising output by China across all commercial KI service industries, combined with the declining Japanese share of worldwide production in these industries through 2007, has substantially altered the national distribution of these services within the Asian region.

Because of the worldwide recession, total global output of commercial KI service industries was stagnant in 2009, compared to 8% growth in 2008 (appendix table 6-3). But developed and developing countries were affected very differently. Output was flat in the developed countries (–0.1%), but it grew by 4% in developing countries (figure 6-13). As a result, a growing share of world output shifted to the developing world. Double-digit growth in China was largely responsible for the difference, but India also increased its output rapidly. The recovery in global output in 2010 (8%) was led by double-digit increases by most major developing economies, continuing the shift in global share from developed to the developing countries. Output of developed countries grew by 5%, with the United States and Japan growing at the same rate. The EU had stagnant growth.

The U.S. share of worldwide commercial KI services, which rose from 1995 to 2001 to reach a peak of 44%, dropped steadily thereafter to 33% in 2010 (figure 6-11 and appendix table 6-3). The United States had a slight loss in its share of the commercial KI services market during the recent global recession. In 2009, however, U.S. commercial KI services outperformed other U.S. service industries, maintaining their production level while other private services experienced a 1% decline. U.S. commercial KI services grew by 5% in 2010, faster than other services (3%) in that year (figure 6-14).

The EU's share of worldwide commercial KI services rose from 24% in 2000 to 30% in 2007–08 before dropping to 26% in 2010 (figure 6-11 and appendix table 6-3). Japan's world share dropped from 17% in 1995 to 8%–9% for the 2006–10 period. (Fluctuations in the shares of the United States, the EU, and Japan may in part reflect changes in the dollar/euro/yen exchange rates.)

Trends in national and regional shares of production in individual commercial KI service industries sometimes varied substantially from the corresponding trends for the group as a whole:

  • The U.S. share of the world's communications services declined continuously from 39% in the early 2000s to 26% in 2010 (figure 6-15 and appendix table 6-10).
  • The EU's share remained roughly steady in business services and finance for the latter half of the 2000s before falling 2–3 percentage points in 2009–10 to reach 31% for business services and 22% for finance during the recession (appendix tables 6-6 and 6-9). The EU share in communications showed a more pronounced drop from 26% in 2004 to 19% in 2010 (figure 6-15 and appendix table 6-10).

Some large developing economies showed gains in some of these industries but from a low base. Brazil's share in finance rose from 2% to 3% between 2001 and 2010 (appendix table 6-9). Its share in communications more than doubled from 2% to 5% (appendix table 6-10). Russia's share in finance rose from less than 0.5% in 1995 to 2% in 2010. India's share in communications doubled from 1% in 1995 to 2% in 2010.

High-Technology Manufacturing Industries

The United States has the world's largest set of HT manufacturing industries, with $390 billion of global value added in 2010 (figure 6-16 and appendix table 6-11). The EU and China are the second and third largest with about $270 billion and $260 billion, respectively, of global value added in 2010. The EU and China lead the world in apparent domestic consumption of HT goods with the United States close behind (see sidebar, "Apparent Consumption of High-Technology Manufactured Goods"). The Asia-8 and Japan each have HT manufacturing output of about $175 billion.

The dampening effects of the recessions in the early and late 2000s on these industries' output are clearly visible and remarkably similar. Overall worldwide output declined by about 13% from 2000 to 2001, from $850 to $740 billion (appendix table 6-11). Output slipped by 14% in the developed economies but maintained its volume in the developing world. From 2008 to 2009, total world HT manufacturing output declined by 6%. It dropped by 7% for developed economies, but stayed constant for the rest of the world (figure 6-13). Only China's output grew throughout the entire period (figure 6-16). World HT manufacturing output rebounded in 2010, growing at 13%, with developing countries averaging more than 20% growth in their output. Output of developed countries rose by 10%, led by a 30% increase in Japan's output. Output of the United States and EU grew far more slowly, expanding by 5% and 3%, respectively. The relatively less severe effects of the two recessions on developing nations combined with China's rapid, uninterrupted growth to produce global share shifts: from 3% in 1995 to 19% in 2010 for China and from 9% in 1995 to 29% in 2010 for the developing world as a whole (figure 6-16 and appendix table 6-11). The U.S. share declined from 34% in 1998 to 28% in 2010, while the EU's share, long at 25%, dropped to 20% by 2010. Japan's share plummeted from 27% in 1995 to 11% in 2009 before rising to 13% in 2010.

The six HT manufacturing industries contribute uneven value-added amounts. The largest, pharmaceuticals, provided $346 billion, 25% of the global total in 2010. The others, in order, were semiconductors ($312 billion, 22%); scientific and measuring equipment, which includes medical and measuring equipment ($275 billion, 20%); communications equipment ($200 billion, 14%); aircraft and spacecraft ($137 billion; 10%); and computers ($127 billion, 9%) (appendix tables 6-16, 6-17, 6-18, 6-19, 6-20, 6-21, and 6-22). Size variations have not been stable over the 1995–2010 period, in part reflecting steep price declines for computers, semiconductors, and communications equipment.

The U.S. share of global value added was relatively stable in the aircraft and spacecraft, computer, and pharmaceutical industries between 1995 and 2010 (figures 6-17 and 6-18 and appendix tables 6-16, 6-21, and 6-22). The United States is the world's leading producer in aircraft and spacecraft (51% of global value added in 2010) and ties with the EU as the leading producer of pharmaceuticals. The U.S. share in scientific and measuring instruments rose modestly (from 31% to 35%), surpassing the EU in 2010 to become the world's largest producer (appendix table 6-18). The U.S. share fell in communications (from 26% to 20%), and semiconductors (from 25% to 19%) (appendix tables 6-17 and 6-20). Researchers and policymakers have concluded that the location of HT manufacturing and R&D activities overseas may also lead to the migration of higher value activities abroad.

China's communications and semiconductor industries grew more than fivefold over the decade, their world shares climbing from 5%–6% to 17% in semiconductors and 26% in communications equipment (figure 6-18 and appendix tables 6-17 and 6-20). China surpassed the United States and Japan to become the largest producer in communications and overtook the EU to become the third largest in semiconductors, narrowing its gap with the United States. China's rapid growth in these two industries owes much to the establishment in China of manufacturing operations of U.S., EU, and developed Asian-based companies, but Chinese-based companies in these industries are also emerging and successfully competing both domestically and globally. China's computer industry grew even faster than its communications and semiconductor industries, expanding from 4% to 47% of the world total (figure 6-18 and appendix table 6-22). China's dominant position in computer manufacturing has been largely due to its success as the low-cost assembly center of computer components primarily manufactured and designed in other countries; acquisition of Western computer companies also played a role.[10] China's achievement of designing and building the world's fastest supercomputer—albeit as yet with largely foreign-designed input— indicates its drive to become a global competitor in a range of technologically sophisticated, high-value-added activities (see sidebar, "China's Progress in Supercomputers").

China's growth in other HT industries was also rapid—China more than tripled its world share in pharmaceuticals, scientific instruments, and aircraft and spacecraft (figure 6-17 and appendix tables 6-16, 6-18, and 6-21).

The EU's share stayed roughly stable over the decade in two industries: aircraft and spacecraft (25%) and pharmaceuticals (26%) (figure 6-17 and appendix tables 6-16 and 6-21). Its share fell in computers (from 16% to 8%), communications (from 13% to 9%), semiconductors (from 15% to 12%), and scientific instruments (from 38% to 30%) (figure 6-18 and appendix tables 6-17, 6-18, 6-20, and 6-22).

Japan's share loss, driven primarily by the communications, semiconductor, and computer and office machinery industries, also extended to pharmaceuticals and scientific instruments (figures 6-17 and 6-18 and appendix tables 6-16, 6-17, 6-18, 6-20, and 6-22). However, the decline of Japan's semiconductor industry was interrupted by very strong growth in 2010 that raised its world share from 18% in 2009 to 22% in 2010, resulting in a 7-percentage-point fall in its world share over the decade. This broad downward trend may reflect the Japanese economy's lengthy stagnation and the shift of production to China and other Asian economies.

The Asia-8 rapidly increased its global share in semiconductors from 20% to 26% over the decade, surpassing Japan and the United States to become the largest world producer in this industry (figure 6-18 and appendix table 6-17). The Asia-8's rapid rise was driven by Taiwan and South Korea, which together had a 20% global share. The success of South Korea and Taiwan in this industry reflects both the output of companies based in these locations and investments in manufacturing facilities by Intel and other multinational firms. Many Taiwanese firms have shifted production to mainland China, which may overstate China's global market share and understate Taiwan's.

The Asia-8 slightly increased its share in pharmaceuticals from 5% to 7%, with growth driven by activity in India and Singapore (figure 6-17 and appendix table 6-16). Indian firms have become significant world producers, particularly in generic drugs. In addition, U.S. firms and other multinationals have established a presence in India to access the growing consumer market and collaborate with India-based firms. Firms based in India and Singapore have also become contractors for manufacturing and clinical trials conducted by U.S. and EU-based firms.

Information and Communications Technology Industries

In 2010, the United States had the largest ICT industry with $729 billion (26% global share), closely followed by the EU with $625 billion (22%) (figure 6-19 and appendix table 6-13). China and Japan, each with about $340 billion in value added, tied for third place, with 12% global shares.

The U.S. global share rose from 31% in 1995 to 34% in the early 2000s before falling steadily to reach 26% in 2010 (figure 6-19 and appendix table 6-13). The EU's share remained roughly stable at 26%–27% for much of the 2000s before falling to 22% in 2010. Japan's share fell steeply from 22% in 1995 to reach 11%–12% in the latter half of the 2000s, mirroring its downward trends in share in both HT manufacturing and commercial KI service industries. China's share rose by sixfold from 2% to 12% because of strong gains in its shares of both HT and KI industries. The Asia-8's share was roughly steady at 8% during this period. India's share rose from 0.5% to 1.5%; Brazil's and Russia's shares had similar trends.

Industries That Are Not Knowledge or Technology Intensive

Science and technology are used in many industries besides HT manufacturing and KI services. Services not classified as knowledge intensive may incorporate advanced technology in their services or in the delivery of their services, albeit at a lower intensity than the KI services discussed above. Manufacturing industries not classified as HT by the OECD may use advanced manufacturing techniques, incorporate technologically advanced inputs in manufacture, and/or perform or rely on R&D. Some industries not classified as either manufacturing or services also incorporate recent science and technology 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 KI include the wholesale and retail, restaurant and hotel, transportation and storage, and real estate industries. The United States and the EU are the two largest providers in the wholesale and retail industry—the largest of these industries ($7.0 trillion)—and in the real estate and restaurant and hotel industries (table 6-3). The EU is the largest provider in transportation and storage (27% share of global value added), leading the next two economies, the United States and China (14% share each of global value added), by a wide margin. Allowing for fluctuations, the U.S. and EU shares declined and the Asia-8's share remained stable or showed a slightly upward trend between 1995 and 2010. China showed rapid growth, with its shares of global value added at least tripling across all these industries. Japan's global shares fell significantly across all of these industries.

Non-High-Technology Manufacturing Industries

Non-HT manufacturing industries are divided into three categories, as classified by the OECD: medium-high technology, medium-low technology, and low technology. Medium-high technology includes motor vehicle manufacturing and chemicals production, excluding pharmaceuticals; medium-low technology includes rubber and plastic production and basic metals; and low technology includes paper and food product production.

The share trends in all of these industry segments are generally the same as for HT—share losses for the United States and the EU, larger share losses for Japan, stable or slight increases for the Asia-8, and strong share gains across all segments for China.

  • Medium-High-Technology Industries: These industries produced $2.9 trillion in global value added in 2010. The U.S. share fell from 22% to 14% between 1995 and 2010 (table 6-4), and the EU's share fell from 34% to 24%. Japan's share fell from 24% to 13%. China's share grew more than eightfold from 3% to 26%, as it joined the EU as one of the two largest producers among these economies. The Asia-8's share rose slightly from 6% to 8%.
  • Medium-Low-Technology Industries: The U.S. share of these industries ($3.0 trillion global value added) fell 1 percentage point between 1995 and 2010, to 18% in 2010 (table 6-4). The EU's share fell more steeply, from 31% to 23%. China's share rose nearly sevenfold, from 3% to 20%, making it the second-largest producer among these economies. Japan's share fell from 24% to 10%, its steepest loss among these three segments.
  • Low-Technology Industries: These industries produced $1.2 trillion in global value added in 2010. The U.S. share fell from 25% in 1994 to 19% in 2010, and the EU's share was down more sharply, from 33% to 22% (table 6-4). China's share grew by ninefold, from 3% to 28%.

Notes

[10] See Williamson and Raman (2011) for a discussion of China's acquisition of foreign companies.
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