Contents Research question Theoretical background Micro-data access

1. WP 10: LINKAGES WITH MICRO DATA Product Diversification and Firm-level Productivity of ICT Producer A Micro-Data Analysis for Germany Bernd Görzig Martin Gornig • Contents • Research question • Theoretical background • Micro-data access • Measurement of diversification • Preliminary findings

2. 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?

3. WP 10: Product Diversification and Firm-level 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)

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

5. Production Survey Registration code of the firm Quantity PRODCOM code of commodity Value in €

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

7. We use a ‘numbers equivalent’ entropy measure: si =Sales of product i as a share of the sales of all products recorded for the firm WP 10: Product Diversification and Firm-level Productivity of ICT Producer The measurement of product diversification: A number of indicators are suggested in the literature. The ‘numbers equivalent’ entropy corresponds to the number of the products, if the values of all products have the same sharein total sales of a firm.

8. West Germany East Germany Preliminary findings for total manufacturing Increasing specialisation in the average for all producers in manufacturingis a net result of cost driven specialisation and expanding diversification.

9. WP 10: Product Diversification and Firm-level Productivity of ICT Producer Distinction between ICT producer and NON-ICT producer: In a panel analysis for the period from 1995 until 2001 we can compare nearly 7.700 firms Taking the OECD classification for ICT products, we can identify roughly 400 firms, producing one or more ICT products 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

10. 42,83 43,75 44,18 56,11 56,75 52,35 31,0 29,7 18,5 47,32 49,75 49,40 56,46 64,71 61,99 19,3 30,1 25,5 Preliminary findings: Productivity in 1000 € per head Non-ICT producer ICT producer Changein % Changein % 1995 2001 1995 2001 Constant no. of products Reduced no. of products Increased no. of products

11. 479 3021 635 417 2478 649 -12,9 -18,0 2,2 220 834 579 228 774 603 3,6 -7,2 4,1 Preliminary findings: Employed person per enterprise Non-ICT producer ICT producer Changein % Changein % 1995 2001 1995 2001 Constant no. of products Reduced no. of products Increased no. of products

12. WP 10: Product Diversification and Firm-level Productivity of ICT Producer Conclusions: 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)

13. Questions: Does a different composition of the analysed sets of firms play a role? - Methodology: Decomposition by industries and firm size. WP 10: Product Diversification and Firm-level Productivity of ICT Producer 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.

14. WP 10: LINKAGES WITH MICRO DATA Product Diversification and Firm-level Productivity of ICT Producer A Micro-Data Analysis for Germany Bernd Görzig Martin Gornig