Firm productivity and functional specialisation

Abstract

A defining characteristic of our modern economy is the fragmentation of production across national borders (Amador & Cabral, 2017;Baldwin, 2016). This fragmentation involves the cross-border flow of physical inputs and a range of professional business functions, such as design, engineering, sourcing, marketing and after-sales services of consumer products (Feenstra, 1998;Timmer et al., 2019). As production has been unbundled, firms have specialised in activities. 1 The best-known example is the iPhone. On the back of the iPhone, it reads designed by Apple in California, but assembled by Foxconn in Guangdong. Does specialisation in activities, such as in the design or assembly, relate to levels of economic development? Or, to narrow it down since value added per worker is closely associated with wages and living standards: Does functional specialisation relate to productivity?This paper proposes a straightforward yet novel approach to measure the specialisation of firms and provides an empirical test of the relation between firm productivity and functional specialisation.We measure the functional specialisation of firms using unique data from two survey rounds in 2012 and 2017, in which Dutch firms report on the composition of their employees by function. The surveys we use were administered by Statistics Netherlands and sent to private firms with at least 50 employees. Managers who complete such surveys indicate the allocation of their employees across business functions is a natural way for them to categorise their workers (Sturgeon & Gereffi, 2009).

Productivity and wage effects of firm‐level upstreamness: Evidence from Belgian linked panel data

“…Based on the results of de Vries et al (2021) and Rungi and Del Prete (2018), we have already noted that engaging in downstream activities could be expected to improve productivity. Depending on the type of activity and industry, the search for higher rents in value chains may therefore involve the development of more downstream activities.…”

“…Indeed, reverse causality between upstreamness and productivity/wages is likely to be encountered given that (1) the number of steps before a firm's output meets final demand is typically larger among exporting firms (OECD, 2012), and (2) huge evidence supports reverse causality between firms’ export behaviour and their productivity/wages (Arnold & Hussinger, 2005; Berthou & Vicard, 2013; Eaton et al, 2007; Freund & Pierola, 2010), with more productive firms self‐selecting into export markets. All in all, using our panel data also allows us to address important methodological issues, namely firm‐level fixed effects (productivity drivers) and the potential endogeneity of upstreamness, which neither Ju and Yu (2015), nor Rungi and Del Prete (2018), nor de Vries et al (2021) (with respect to firm fixed effects) control for, by using both GMM‐SYS and FE‐IV estimators.…”

“…Indeed, the merging of the National Bank of Belgium business-to-business (NBB B2B) transactions dataset with detailed linked panel data, for the purpose of our study, gives us unique longitudinal information on the number of steps (weighted distance) necessary before the production of (almost) each commercial firm 3 (operating in both manufacturing and services) meets either domestic or foreign final demand by using information on the upstreamness of each transaction in each firm, whereas the three aforementioned studies relied on indirect sectoral measurements of the upstream position of firms. Our dataset allows us not only to measure whether (and to what extent) the relationship is positive, negative or insignificant, but also to test more appropriately for possible nonlinearities in the nexus between upstreamness and productivity, for whether the impact of upstreamness on productivity tends to be linear (Ju & Yu, 2015), nonlinear (Rungi & Del Prete, 2018) or not significant at all (de Vries et al, 2021).…”

“…The third relevant study is that of de Vries et al (2021), who analyse whether total factor productivity of Dutch manufacturing firms could depend on their functional specialisation as well as the more upstream or downstream position of their products. The authors pool cross‐sectional data from firms observed in two waves of surveys conducted in 2012 and 2017.…”

Factores clave en la evaluación de la productividad: estudio de caso

“…Los primeros se enfocan en investigación y desarrollo para producir innovaciones, mientras los otros se concentran en modificar su estructura productiva» (Maldonado y Sánchez, 2012). Esto es un aspecto clave: la estructura productiva modificada por procesos de investigación que generan innovación, «las empresas especializadas en I+D y marketing tienen niveles de productividad significativamente más altos» (de Vries et al, 2021). Por su parte se destaca que «las estrategias de innovación tienen efectos positivos sobre la productividad y el impacto ambiental de las empresas manufactureras donde las grandes empresas tienen efectos más significativos en la relación entre las estrategias de innovación y la productividad» (Seclen-Luna et al, 2021).…”