Friday, February 17, 2012

R&D and size of firms

We can identify two main structural sources of variation among R&D performed by different companies: one effect associated with industry sector (some industry sectors have a much higher propensity to do R&D work than others) and another effect associated with the size effect. From the multiple surveys available, we know that large companies are more important contributors to R&D activities than SMEs. Let’s see what statistics tell us (USA, 2008).

First table summarizes R&D performed and paid by industries (business R&D) by different size classes (adapted from data available in Science and Engineering Indicators, 2012).
 Large firms, with more than 5000 people, employ ⅓ of the workforce in all industries (and 38% of the payroll). Very large firms, with more than 10000 people, employ 27% of total workforce (and 31% of payroll). This means that contribution of 10000+ firms is 83% of the employment of all 5000+ firms - a clear indication of the weight of very large firms in the 5000+ group.
Half of R&D performed and funded by industries is done by very large companies, larger than 10000 people. It would be 59% if we considered all companies larger than 5000 people.
Firms smaller than 5000 people employ ⅔ of industries workforce and perform 41% of business R&D. The importance of firms between 1000 and 5000 employees is dominant in this subgroup. (See second table).

Intensity of R&D is very different along the 5000 people border: (business) R&D per capita is 3614 USD for companies with 5000+ people, against 1246 USD for firms with 5000- people. The intensity of R&D is three times larger for companies 5000+. And the difference between 5-10000 and 10000+ is visible: 3724 versus 3088 USD. 

The importance of 5000-, 5 to 10000, and 10000+ firms in employment for each NAICS first level economic sector is shown in the figure. Very large firms (10000+) dominate in retail trade and information sectors, where they employ more than half of the workforce. But in utilities, transportation and finance and insurance, these size of firms contribute with 40 to 50% of employment. Manufacturing is not so much dominated by big firms.  
Considering the sectors that are top performers in R&D, we can see different scenarios of structure of firms by size. It is clear that both effects are not linear addicitive - an interaction between effects must exist.

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