Chapter 6 | Industry, Technology, and the Global Marketplace

Introduction

Policymakers in many countries increasingly emphasize the central role of knowledge, particularly R&D and other activities that advance science and technology (S&T), in a country’s economic growth and competitiveness. This chapter examines the downstream effects of these activities—their embodiment in the production of goods and services—on the performance of the United States and other major economies in the global marketplace.

This chapter covers three main areas. The first is knowledge- and technology-intensive (KTI) industries; the second is trade in KTI products and services; and the third is sustainable energy research and technologies.

KTI industries encompass both service and manufacturing sectors, based on 15 categories of industries formerly classified by the Organisation for Economic Co-operation and Development (OECD 2001, 2007) that have a particularly strong link to S&T (Table 6-1).^​ These include five knowledge-intensive services industries, five high-technology manufacturing industries, and five medium-high-technology industries. The definition of KTI industries has been expanded with the addition of medium-high-technology manufacturing industries for this 2018 edition of Science and Engineering Indicators (see sidebar New Definition of KTI Industries). In prior editions KTI consisted of 10 categories of industries—five knowledge-intensive (KI) services industries and five high-technology manufacturing industries.

• Five KI services industries incorporate high technology either in their services or in the delivery of their services. Three of these—financial, business, and information services (including computer software and R&D)—are generally commercially traded. The others—education and health care—are publicly regulated or provided and remain relatively more location bound (Table 6-1). Although they are far less market driven than other KTI industries in the global marketplace, competition in education and health appears to be increasing. Public KI services are also becoming more global; for example, many universities have international campuses.
• Five high-technology manufacturing industries spend a large proportion of their revenues on R&D and make products that contain or embody technologies developed from R&D (Table 6-1). These are aircraft and spacecraft; pharmaceuticals; computers and office machinery; semiconductors and communications equipment (treated separately in the text); and measuring, medical, navigation, optical, and testing instruments.^​ Aircraft and spacecraft and pharmaceuticals are less market driven than the other three industries because of public funding, procurement, and regulation.^​
• Five medium-high-technology manufacturing industries spend a relatively large proportion of their revenues on R&D (Table 6-1). These are motor vehicles and parts, chemicals excluding pharmaceuticals, electrical machinery and appliances, machinery and equipment, and railroad and other transportation equipment. Although they spend a relatively lower proportion of their revenue on R&D compared to high-technology manufacturing industries, medium-high-technology manufacturing industries produce many products that incorporate advanced and science-based technologies. For example, cars and trucks contain sophisticated sensors and software to prevent accidents, optimize engine performance, and maximize fuel economy.

Non-KTI industries are also very important in the world economy and therefore receive some attention in this chapter.

The globalization of the world economy involves the rise of new centers of KTI industries.^​ Advances in S&T have enabled companies to spread KTI activity to more locations around the globe and to develop strong interconnections among geographically distant entities. Although the United States and the European Union (EU) continue to be leading global producers in many of these industries, China has become the global leader in many technology-intensive manufacturing industries and is moving from final assembly into higher-value activities, including R&D and manufacture of sophisticated products. Overall, the United States is the largest global producer of high-technology manufacturing industries. However, China is the largest global producer in the information and communication technologies (ICT) manufacturing industries. China is the world’s largest global producer in medium-high-technology industries. The U.S. and the EU lead in the production of commercial knowledge-intensive services; China is growing rapidly and is now the third largest producer.

This chapter ends with a discussion of global investment in sustainable energy research and technologies. In recent years, developed and emerging economies have invested in developing improved technologies for generating sustainable energy. Energy has a strong link to S&T and, like ICT, is a key element of infrastructure.

Several themes cross-cut the various indicators examined in the chapter:

• The United States has had robust growth in many KTI industries and trade of KTI goods and services following the global recession, in contrast to tepid or negative growth by the EU and Japan. The United States continues to be the world’s largest provider of commercial KI services. China has continued to grow faster than developed countries in many KTI industries and has become the world’s largest producer in many technology-intensive manufacturing industries. Although its share is lower in commercial KI services, China is growing far more rapidly overall than developed countries.
• The high-technology and medium-high-technology manufacturing industries are the most globalized among the KTI industries. Two high-technology manufacturing industries—communications and semiconductors and computers—have complex global value chains where manufacturing is located far away from the final markets. Although production is globalized in motor vehicles and parts, a medium-high-technology industry, manufacturing generally occurs near or in the final markets.
• Developed countries continue to dominate in KTI industries despite much more rapid growth by China. Developed countries account for nearly 70% of global production of commercial knowledge-intensive services industries, which are the largest category of KTI industries. However, China is the world’s second largest producer in high-technology manufacturing industries, and is the largest producer in medium-high-technology industries.
• Globalization is increasing rapidly in the much larger commercial knowledge-intensive services industries but remains generally lower than in high-technology or medium-high-technology manufacturing. Business services is highly globalized with firms contracting out these services to providers located in developed and developing countries.
• China plays a unique role in global KTI industry production. China’s global share in several high-technology- and medium-high-technology industries is comparable with or exceeds that of the United States or the EU.
• Among the KTI industries in developed countries, those in the United States have grown the strongest since the global recession. Growth of KTI industries in the EU and Japan has been weaker than the United States.

This chapter focuses on the major players in the global KTI arena, namely the United States, the EU, Japan, China, and other Asian economies. Other major developing countries, including Brazil, India, Indonesia, and Russia, also receive some attention. The time span is from the early 2000s to the present.

This chapter is organized into three sections:

• The first section discusses the prominent role of KTI industries in regional and national economies around the world, describes the global spread of KTI industries, and analyzes regional and national shares of worldwide production. It discusses shares for the KTI industry group as a whole and the knowledge-intensive services and high-technology manufacturing groups. Because advanced technology is increasingly essential for non-high-technology industries, some data on these industries are also presented.
• The second section discusses indicators of increased interconnection of KTI industries in the global economy. It examines patterns and trends in global trade in KTI products and services, with a focus on the links among the United States, the EU, Japan, China, and other Asian countries.
• The last section presents data on sustainable energy research and technologies, which have become a policy focus in many developed and developing nations. These energy technologies, like KTI industries, are closely linked to R&D. Production, investment, and innovation in these energies and technologies are rapidly growing in the United States and other major economies.
• Prior editions of this chapter contained a section on innovation-related indicators, which covered innovation activities of U.S. companies, patenting by the United States and other major economies by technology area, trade in royalties and fees, and venture capital and Small Business Innovation Research investment. For the 2018 edition of Science and Engineering Indicators, a new chapter—Chapter 8, Invention, Knowledge Transfer, and Innovation—integrates and extends the innovation-related indicators that have previously been presented in Chapters 4, 5, and 6 of prior editions of Science and Engineering Indicators. This new chapter presents a more holistic and comprehensive approach to coverage of innovation and related activities.

This chapter uses a variety of data sources. Although several are thematically related, they have different classification systems (see sidebar Industry Data and Terminology. The discussion of regional and country patterns and trends includes an examination of developed and developing countries using the International Monetary Fund’s categorization. Countries classified by the International Monetary Fund as advanced are developed countries, whereas those classified as emerging and developing are considered to be developing.