Thursday, March 29, 2012

Manufacturing of wood products: R&D in Sweden and Portugal

OECD C19 industry code includes manufacturing of wood and cork products. Furniture manufacturing is basically included there. But this code does not include wood pulp, paper and paper products (code C21). Under OECD classification, this is a very low tech industry - although one of the most innovative and successful companies selling wood products with high design content (IKEA) strongly depends on wood industries suppliers (C20). And IKEA group, headquartered in Sweden, itself includes highly competitive and innovative industrial operations manufacturing wood products (Swedwood, for instance).
Wood and furniture industries are classical case of “traditional” industries, considered low tech manufactures by OECD and Eurostat / EU, where policies suggest that countries should not give incentives to these “traditional and low tech industries” - although most of the economic value added and employment is generated by these industries.
Let´s have a look at some numbers about total R&D intensity statistics in five countries: Germany and Sweden, Portugal and Spain, and United States (
(source: OECD.StatExtracts, STAN indicators).
First, let’s consider all manufacturing industries (first figure). R&D intensity of manufacturing in Sweden (around 12%) in higher that USA  (around 10%) and Germany ones (8%). Portugal and Spain are at lower level: 3% for Spain and 1% for Portugal. We will not discuss here the reasons for such large gaps between the iberian countries and the other three. But different structure of manufacturing explain an important part of the variation (see this post).

Second figure isolates the case of Sweden and shows how important is the gap between the curves of all manufacturing and wood products manufacturers. R&D intensity in one of the most advanced countries in manufacturing of wood products, home of the most innovative wood furniture and related products company in the world, is much smaller than the aggregated intensity of all manufacturing sectors in the same country.

Next, consider the R&D intensity of wood /furniture industries (C20 code, third figure). The interesting point here is that variation across countries is very small. Overlapping is the main message. Yes, R&D intensity in Sweden used to be larger than in Spain, but Spain intensity during last years improved and it is now larger than Germany - and Sweden. Portugal is the middle. 

Anyway, the order of magnitude of the differences between R&D intensity between wood industries across countries is much, much smaller than between manufacturing across the same countries. With some ups and downs, R&D intensity in wood products manufacturing is less than 1% for all the five countries. If Portugal intensity in overall manufacturing was clearly lower than Sweden, Germany and USA, its intensity in manufacturing of wood products is clearly at the same level of the other four countries.
The conclusion: when we consider a sector like manufacturing of wood products, portuguese companies have the same level of R&D intensity that the equivalent companies in the most advanced industrial countries - including Sweden. Of course this tells a lot about the usual popular idea that “portuguese companies do not invest in R&D”, and how biased it may be.

The ratio between R&D intensity of wood products manufacturing and all manufacturers is around 0.1 for most of the cases (now around 0.2 for Sweden). R&D intensity for aggregated manufacturing is between 5 to 10 times larger. But not for Portugal: see last figure. Even ignoring the years 1998, 99 and 2000, the ratio is around 0.5 for Portugal. This looks strange and to be more than statistical noise.

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