Comparative Analysis of Enterprise Data

The symposium began with opening remarks by NAGAOKA Sadao (Research Counselor and Faculty Fellow, RIETI / Professor, Institute of Innovation Research, Hitotsubashi University). Dr. Nagaoka pointed out that the accumulation of intangible assets in Japan will play an important role not only in economic growth in Japan but also in the growth of the global economy. Following the remarks, RIETI and Dr. MIYAGAWA Tsutomu (Faculty Fellow, RIETI / Vice President, Gakushuin University) introduced the measurement of intangible assets.

They showed the possibility of measuring intangible assets with a significant influence on accounting systems and policies, and expressed the hope that the symposium would encourage a better understanding of intangible assets and provide an important topic for overcoming the current economic crisis.

NAGAOKA Sadao (Research Counselor and Faculty Fellow, RIETI / Professor, Institute of Innovation Research, Hitotsubashi University)

Ron JARMIN (Chief Economist, U.S. Census Bureau)

Dr. Jarmin focused on widely available data relating to location (regions) and based on this data, reported challenges and analyses in assuming the effects of the features of regions on corporate performance. The advantages of location data are that they are easy to use and enable the aggregation of the effects of the competitive environment.

Dr. Jarmin also presented an analysis of the effect of the Big-Box entry on the employment of small retailers in the region. For an analysis like this, data on store locations are needed. In analyses of retailers, data on merchandise (such as clothing), ownership patterns, and sizes (mom-and-pop stores or large chain store) are also needed.

The analysis results have shown that the entry and exit of a Big-Box retailer do affect employment in mom-and-pop stores dealing in the same type of merchandise in the same region, and that the impact is limited to stores in close proximity to the Big-Box.

The results suggest that the location of a business is a significant factor that affects the performance of a business in a certain industry.

Carol CORRADO (Senior Advisor and Research Director, Economics, The Conference Board)

Dr. Carol Corrado explained from both macroeconomic and microeconomic perspectives that new data are needed to analyze intangible assets and indicated the importance of analyzing innovation processes.

Although iPods are designed by Apple, they are assembled in China. For this reason, the Bureau of Economic Assistance (BEA) cannot evaluate Apple accurately. First, the BEA underestimates Apple, since funds for brand development and R&D are not posted as capital expenditures. Second, manufacturers that outsource production overseas are treated as a reseller of imported goods. To solve this problem, intangible assets need to be calculated.

There are two types of innovation: technical innovation that is built from basic scientific research and non-technical innovation that starts from the conception of ideas. However, the innovation processes of the two types of innovation have similar stages. Of the processes, innovation for commercialization is important. To analyze the innovation, it needs to be measured based on a common standard of measurement, and a classification scheme for analyzing different types of innovation is required.

MIYAGAWA Tsutomu (Faculty Fellow, RIETI / Vice President, Gakushuin University)

Dr. Tsutomu Miyagawa analyzed the effects of intangible assets on the Japanese economy, based on the measurement of intangible assets at the macroeconomic, industry, and corporate levels, and reported the results of the analysis.

In comparison with the United States, productivity growth in Japan came to a halt in the mid-1990s. The reason for this is believed to be that the accumulation of intangible assets, which complements the accumulation of IT assets, was not sufficient.

Intangible assets are classified into three categories: computerized information, including software; intellectual property, including R&D investments; and investments in economic competencies, including human assets and organizational capital. Of the 53 trillion yen in intangible assets in Japan, investments in economic competencies have been declining since 2002 and are relatively low compared to investments in other advanced countries. The ratio of intangible to tangible assets is around 60% in Japan, compared to more than 120% in the United States. By industry, investments in economic competencies in the Japanese service sector have been falling. Since human assets and organizational capital, the constituents of these investments, reflect activities within a company, analysis at the microeconomic level is needed.

The effects of human assets and organizational capital on corporate performance were measured in Japan and South Korea through interview surveys. The measurement revealed that human resource management is more flexible in Japan than in South Korea and that corporate performance is influenced by organizational reform in Japan and improvements in human resource management in South Korea. It is important that each company prepare and disclose data on intangible assets to provide information for investors making decisions.

Q1:

(Question for Dr. CORRADO) In the United States, do any public or private institutions plan to conduct innovation surveys, for example, to include R&D in the system of national account (SNA)?

A1:

The BEA announced that it plans to include R&D in SNA in 2012 or 2013, but there are no official plans to conduct innovation surveys. However, researchers are willing to conduct surveys, interviewing marketing directors in significant industries.

Q2:

(Question for Dr. MIYAGAWA) If businesses understand that intangible investment will produce profits, they will make investments. However, investment in intangible assets in the service sector is very limited. Why is that?

A2:

The strategy that businesses in the service sector adopted in the 2000s was not to accumulate human capital but to boost productivity in the short term by hiring irregular employees and reducing labor costs. The service sector increased productivity in the first half of the 2000s by choosing a direction that was opposite to the accumulation of intangible assets.

Q3:

(Question for Dr. JARMIN) Population density around a store will make a significant difference. What characteristics do stores in densely populated areas have?

A3:

We limited the scope of analysis to an area within a ten mile radius of a store, based on the assumption that people do not drive more than ten miles to shop at a mom-and-pop store. In the future, our analysis will consider changes in consumer behavioral patterns and will assume that some people drive ten miles or more to shop at a large store.

Q4:

(Question for Dr. CORRADO) How do you amortize intangible assets?

A4:

I understand that your question is about the amortization of intangible assets. You estimate the amortization of intangible assets by considering the period during which ownership of intangible assets produces revenue.

Q5:

(Question for Dr. MIYAGAWA) Do you study the international transmission effects of intangible assets? Do you compare the economic effects of intangible assets internationally?

A5:

We do not study the international transmission effects of intangible assets. If we try to compare the economic effects of intangible assets internationally, we will face issues such as differences in industry structure. For this reason, we are estimating the economic effects of intangible assets at the industry level.