1. Brussels, March 2007 EU 6. Framework Programme Contents 1.Research question 2.Theoretical background 3.Micro-data access 4.Measurement of diversification 5.Preliminary findings 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

2. Brussels, March 2007 EU 6. Framework Programme 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. Brussels, March 2007 EU 6. Framework Programme 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. Brussels, March 2007 EU 6. Framework Programme Data sources: WP 10: Product Diversification and Firm-level Productivity of ICT Producer 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. Brussels, March 2007 EU 6. Framework Programme Production Survey Registration code of the firm PRODCOM code of commodity Quantity Value in

6. Brussels, March 2007 EU 6. Framework Programme 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: WP 10: Product Diversification and Firm-level Productivity of ICT Producer 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. Brussels, March 2007 EU 6. Framework Programme A number of indicators are suggested in the literature. WP 10: Product Diversification and Firm-level Productivity of ICT Producer 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. s i = Sales of product i as a share of the sales of all products recorded for the firm We use a numbers equivalent entropy measure:

8. Brussels, March 2007 EU 6. Framework Programme 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. West GermanyEast Germany

9. Brussels, March 2007 EU 6. Framework Programme In a panel analysis for the period from 1995 until 2001 we can compare nearly 7.700 firms WP 10: Product Diversification and Firm-level Productivity of ICT Producer 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:

10. Brussels, March 2007 EU 6. Framework Programme 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 19952001 Change in % Non-ICT producer ICT producer 19952001 Change in % 42,83 43,75 44,18 31,0 29,7 18,5 56,11 56,75 52,35

11. Brussels, March 2007 EU 6. Framework Programme 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 19952001 Change in % Non-ICT producer ICT producer 19952001 Change in % 479 3021 635 -12,9 -18,0 2,2 417 2478 649

12. Brussels, March 2007 EU 6. Framework Programme Firms with increasing number of products show a low growth rate of productivity, but they are expanding their employment. WP 10: Product Diversification and Firm-level Productivity of ICT Producer 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:

13. Brussels, March 2007 EU 6. Framework Programme Productivity growth rates of dynamic ICT producer, of both, specialising and diversifying firms, are lower than for Non-ICT producing firms. WP 10: Product Diversification and Firm-level Productivity of ICT Producer 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:

14. Brussels, March 2007 EU 6. Framework Programme 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