Empirical Analysis of Industrial Structure and Productivity of the Japanese Software Industry

Author Name MINETAKI Kazunori  (Research Fellow, Fujitsu Research Institute) /MOTOHASHI Kazuyuki  (Faculty Fellow, RIETI)
Creation Date/NO. May 2007 07-J-018
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Among IT industries in Japan, the productivity of the software industry is reputed to be lower than that of the hardware industry. This could be attributable to the relatively high proportion of labor-intensive, custom-made software it produces and to the preponderance of SMEs and the consequent impact of the stratified subcontracting structure. In this paper we use microdata from the 28th Survey on Operating Conditions in the Information Processing Industry, conducted by the Information-Technology Promotion Agency (IPA) in August 2006, to carry out an empirical analysis of the determinants of the productivity of the software industry. We classify software companies either as prime contractors, intermediate subcontractors, or final subcontractors, and compare their levels of productivity, finding that the level of intermediate subcontractors is the lowest and that there is no statistically significant difference between the levels of prime contractors and final subcontractors. However, we also find that among intermediate subcontractors there are higher productivity levels in companies with high-quality human resources, as measured by a test for qualifying information processing skills. Intermediate subcontractors require project management capabilities in the sphere of software development, but lag behind prime contractors in terms of human resource development and thus constitute a factor that drags down the level of productivity of the software industry as a whole.