Comparative Analysis of Enterprise Data

Chair:MIYAGAWA Tsutomu (Faculty Fellow, RIETI / Vice President, Gakushuin University)
Panelists:OKAWA Yukihiro (Assistant General Secretary, Service Productivity & Innovation for Growth / Executive Director, Management Development Dept., Japan Productivity Center)
NISHIMURA Kiyohiko G. (Deputy Governor, the Bank of Japan)
Keun LEE (Professor, Economic Department, Seoul National University)
Eric J. BARTELSMAN (Professor, Faculty of Economic Sciences, Business Administration and Econometrics, Free University (Vrije Universiteit), Amsterdam)
TOJO Yoshiaki (Director, Information Services Industry Division, Commerce and Information Policy Bureau, METI)

The purpose of the session was to compare management practices in different countries and to identify hints about new business models for the sustainable growth of businesses and economies. To this end, panelists gave short presentations and held discussions on the following issues:

1. An empirical examination of the U.S. business model after the IT revolution: Could it be a success?
2. Can Asian business models respond to globalization and innovation?
3. Searching for suitable measures for business models and firm performance. Have data facilities for these measures been established?
4. How can governments in advanced countries help the private sector achieve sustained growth for the global economy through the productivity improvement of firms?

• Corporate behavior in the market can be analyzed from the following three dimensions: sources of value added (product innovation vs. process innovation), product architecture (modular architecture vs. integral architecture), and sources of profits (horizontal monopoly vs. vertical enclosure).
• The rapid advances of information and communication technology (ICT) and globalization in recent years have affected corporate behavior.
• Japanese businesses need to develop appropriate strategies to take action in response to an aging population that is leading to declining demand.
• Economic shocks are considered to be exogenous structural changes in macroeconomic analysis. Policymakers need to know the details of structural changes as soon as possible. To this end, it is important to look at not only aggregate data but also at the data of each business and office.

• The service industry accounts for 70% of the Japanese economy in terms of both GDP and workforce. In the manufacturing industry, service divisions account for a large percentage of value added. It is therefore important to consider productivity in the service industry in Japan.
• The service industry has three characteristics: formlessness (services themselves are invisible), simultaneity (services are consumed when they are provided), and people at the center of specific operations. Management is therefore complex and difficult.
• To solve management problems in the service industry, measuring quality control, identifying the keys to customer satisfaction, and creating yardsticks for measuring productivity are necessary.
• To that end, it is important to develop both ICT-based initiatives, including knowledge sharing and changing intangible assets into explicit knowledge, and human-based initiatives, including knowledge creation and the enhancement of tacit knowledge.

• The TFP of South Korea was about 60% of that of Japan in the 1980s. However, the difference in TFP between South Korea and Japan has been narrowed to about 10%. The situation is different in each industry.
• Two factors are considered to determine the TFP catch-up: sectoral systems of innovation, including the explicitness of knowledge and technology, and corporate-level learning and capability, including external discipline.
• Differences among industries need to be considered when initiatives for improving productivity are developed. The effects of domestic initiatives for catching up in TFP, including research and development and incentive schemes, also need to be considered.
• Prompt and appropriate decision-making and investment are important for companies in industries whose technology cycle is short. As technology cycles are generally getting shorter and shorter with each year in many industries and products, the timing of decision-making is becoming more important than quality and other product factors.

• Intangible investment patterns are very heterogeneous across companies.
• Developing policies based on an assumed optimal ratio of intangible investments is difficult for two reasons: (1) optimal ratios for companies and the entire economy are different and (2) defining the ratio of intangible investments is difficult because of spillover and crowding out effects.
• Cross-country analysis using corporate-level data is thought to provide hints for optimal intangible investment. Appropriate theories of cross-country analysis and data for experimental proof need to be considered.
• Appropriate theories and data should show changes in corporate outcomes in accordance with increases in the level of intangible investments, because optimal intangible investment levels differ, depending on corporate outcomes.

Q:

What should we emphasize to enhance productivity in the Japanese service industry?

(Dr. NISHIMURA)

• Product innovation
• Services that take human psychology into account
• Combining services that have been considered to be completely irrelevant

Mr. OKAWA

• Repeating the cycle of reviewing business processes from the perspective of customers, making them explicit knowledge, and creating a great deal of tacit knowledge

Q:

China is expected to catch up in terms of TFP. Against this background, what challenges do Korean businesses face in terms of the accumulation of intangible assets?

(Dr. LEE)

• I do not believe that large Korean companies will be affected by China catching up, but I expect that small and medium enterprises will be affected. For those companies to respond to China catching up, it is important to focus on technological capabilities.

Q:

What types of data and analyses are required in analysis using data on intangible assets?

(Dr. BARTELSMAN)

• Appropriate data on intangible assets differ depending on the analysis.
• I suggest you prepare data on business operations through interviews with companies. A short period - one or two years would be sufficient. It is best to collect data on the details of companies, such as data on registrations, employers, and employees, so that you can identify factors for their success.
• Databases that researchers in different countries can easily access are needed.
• I am interested in analyzing the differences between successful and unsuccessful companies and how heterogeneity among companies is reflected in productivity in each country.

• - Since the relationship between intangible assets and value added is related to the management strategy of each business, it is difficult to discuss the relationship in a single uniform way. Analyzing corporate-level and office-level micro-data is necessary. Accumulating and fostering intangible assets in accordance with management strategies are also needed.
• - Considering how to use the intangible assets of venture companies and small and medium enterprises in the overall economic system is a challenge. Measuring and evaluating intangible assets appropriately and using them in the financial and capital markets is one solution.
• - Improvements have been made in the use of microeconomic data under the Statistics Act of Japan. In fact, however, access to microeconomic data by researchers is limited due to privacy and other factors. Researchers and statistics authorities should together consider new anonymization and aggregation methods in relation to statistics to make disclosure of microeconomic data easier to facilitate access.
• - The Internet and computerization mean that there is a lot of data other than government statistics available. It is important to study using corporate and microeconomic data, combining official and unofficial data and discussing policies based on that.

(Dr. LEE)

• - Since there are many different business approaches, databases including data on intangible assets from many different perspectives need to be created.

(Mr. TOJO)

Dr. Bartelsman, what are your views on the strategy of driving the economy by increasing variances in performance among businesses and the existing strategy of limiting excessive risk taking like that?

(Dr. BARTELSMAN)

• - Risks need to be taken to achieve long-term growth

Q:

(Audience) Dr. Nishimura considers two types of innovation, product innovation and process innovation, as sources of added value, but I wonder whether the classification generally applies. For example, if the generation of nuclear power, which is not a renewable energy, is replaced by photovoltaic power generation, which can be regarded as an innovation related to renewable energy, the cost of power generation will rise 20-fold. In this case, is the replacement of nuclear power generation with photovoltaic power generation considered to generate added value?

(Dr. MISHIMURA)

When you consider cost and value added, you need to think about whether they are private or social. Policymakers need to correct distortions in the economy and promote innovation, considering both private rate of return and social rate of return. In the example relating to photovoltaic power generation, since the optimal combination of nuclear power generation and photovoltaic power generation is not known, you need to design an appropriate mechanism that considers private and social added value.

Q:

(Audience) I suspect that Japanese policies for the protection of intellectual property rights have not been very successful. What are your views?

(Mr. TOJO)

Patents have two purposes: to protect ideas and enable healthy transactions in healthy ideas. As there are many different forms of innovation, striking a balance between the two purposes is difficult. Society�fs interest in intellectual property rights is growing, and awareness of the potential of patents as part of new innovation activities is also growing. The government seeks to continue to make policy decisions, determining actual conditions correctly and striking a balance between the two purposes so as not to stymie innovation and growth in the economy.

OIKAWA Kozo (Chairman, RIETI)

This symposium was held as the symposium session of the CAED 2009 Conference, the first CAED conference held in Asia.

Intangible assets constitute a large part of the background of innovation and are considered important, but it is difficult to paint a precise picture of them. This led us to conceive of a symposium that leveraged global expertise and the research achievements of RIETI. This seminar has been made possible thanks to the efforts of Professor FUKAO and Professor MIYAGAWA.

I would like to express our gratitude to the Hitotsubashi University Global COE Program for co-hosting, and to our sponsors.