Industry in Europe

„16,2

Drittmittelfinanzierte Expertisen

IW-Gutachten Industry in Europe Industrie in Europa Manuel Fritsch, Thorsten Lang, Edgar Schmitz

Auftraggeber: Bundesverband der Deutschen Industrie e.V. KĂśln, 16.02.2018

Industry in Europe

IW Consult GmbH Konrad-Adenauer-Ufer 21 D-50668 KĂśln

Contact Tel.: +49 (0)221 4981-758 www.iwconsult.de

Authors Manuel Fritsch, Thorsten Lang, Edgar Schmitz

Photo credits – cover shutterstock.com, Magnifier

1

Industry in Europe

Table of contents

Executive summary

3

1

Industry in Europe – an approach

5

2

The importance of industry

6

2.1

Contribution to total national value added

2.1.1 Share of direct value added

6 6

2.1.2 Industry in the European production network

12

2.1.3 Joint value creation in the joint industry-services sector

18

2.2

Employment effects in the manufacturing sector

19

2.3

Exports

22

2.3.1 The EUʼs position in terms of international trade

22

2.3.2 The EUʼs position in terms of knowledge-intensive products

25

3

Productivity in an international comparison

28

4

Germanyʼs “Mittelstand” and Europeʼs SMEs

34

4.1

SMEs in Europe: structural data

34

4.2

Internationalization of Germanyʼs “Mittelstand”

35

List of tables

37

List of figures

38

5

39

Appendix

Bibliography

2

44

Industry in Europe

Executive summary Industrial enterprises, narrowly defined as enterprises in the manufacturing sector, continue to form the backbone of the European economy. In 2016, industryʼs direct share of total national value added was 16.2 per cent; back in 2012 it accounted for a direct share of only 15.4 per cent.

However, industryʼs importance goes well beyond its direct value-added effect:

◼ Industrial enterprises in the European Union (EU) are the biggest purchasers of intermediate inputs from other sectors in the Union. In 2014, they purchased goods and services valued at 1.8 trillion euros from other European branches of industry. That corresponds to 33.6 per cent of their total intermediate inputs to other sectors.

◼ Industry not only contributes its own value added: on account of its forming very dense intermediate input networks with other sectors, it generates some 4 per cent of total national value added via joint production. The industrial sector therefore accounts for more than one fifth of total value added.

◼ Industry is Europeʼs engine for growth. Some 32 million jobs are supported directly and a further 29.6 million jobs are supported indirectly by input purchases. In total, some 61.6 million jobs in Europe are thus dependent on its industrial sector.

Industry in Europe is responsible for around two fifths of international exports of goods.

◼ Although Europeʼs global market share dropped by some 6 per cent in the period after 2000, it has remained stable since 2012. Other traditional developed countries such as the United States and Japan have lost considerably more weight in the global market.

◼ EU member states are among the worldʼs most knowledge-intensive economies. This is reflected in their relative specialization in exports of goods produced in research-intensive sectors. European industry is above all specialized in medium- to high-tech goods, for example those produced in the machinery sector and the automobile industry.

The current situation and the trend in regards to productivity in the EU continue to vary greatly.

◼ Average labour productivity (measured in euros per hour) varies greatly between the EU member states. While those employed in the industrial sector generate 39.2 euros per hour on an EU average, in Denmark they generate 81.5 euros per hour. In Bulgaria, by contrast, they generate only 6.7 euros per hour.

◼ The trend in labour productivity has varied across EU member states in the period since 2000. EU average growth in labour productivity stands at 62 per cent, in Germany at 59 per cent. In Italy, the United Kingdom and France, labour productivity growth ranged between 41 and 45 per cent.

Small and medium-sized enterprises (SMEs) in the industrial sector have a key role to play for European industry:

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Industry in Europe

◼ SMEs account for 99.3 per cent of enterprises, 58.4 per cent of employees and 42.3 per cent of value added in the industrial sector in Europe.

◼ The analysis of German SMEs reveals that even micro enterprises are doing business on the international stage. SMEs export goods, post employees and even invest in research and development (R&D) abroad. Unlike large firms, though, the focus of their entrepreneurial activities is still on the domestic market.

The industrial sector is a determinative factor for economic growth in European economies. In recent years, countries with a higher industry quota have experienced higher growth rates, and the industrial sector in Europe has gained increasing importance since 2013. Even though manufacturingʼs share has risen by some 1 per cent since 2012 and by 2016 once more exceeded 2008 pre-crisis levels, the target corridor for 2020 is still well beyond reach.

Especially in view of the megatrends of globalization, digitization and the ever-closer linkages between the industrial and services sectors, the question arises to whether other features (beyond industryʼs direct contribution to value added) should be included in an analysis of the importance of the industrial sector.

4

Industry in Europe

1 Industry in Europe – an approach Industry1 continues to represent the spine of the European economy. Solely on account of its direct valueadded effect it is one of the most important economic sectors in the EU-28 countries. In addition, a study

by Lichtblau et al. (2013) showed that industryʼs importance clearly goes beyond its direct impact. Industry is closely linked with other sectors. Its demand for intermediate inputs (products and services), for instance, from other sectors in the joint industry-services sector generates additional value-added effects.

This summary report essentially updates the key figures included in Lichtblau et al.ʼs 2013 study. The report examines

◼ industryʼs impact on direct value added, ◼ intermediate input networks, ◼ joint production, ◼ exports and ◼ employment effects.

Productivity ratios and indicators for European SMEs in the industrial sector are examined as well.

1

5

Narrowly defined as enterprises in the manufacturing sector.

Industry in Europe

2 The importance of industry 2.1 Contribution to total national value added In the following, industryʼs share of total national value added across two dimensions will be presented: first, the share of direct value added and, second, value added in the joint industry-services sector.

2.1.1 Share of direct value added Industry is one of the worldʼs most important sectors. Nevertheless, its share of direct value added in the G51 countries2 has dropped from 19 to 17.8 per cent since the year 2000 (Table 2-13). This is, mainly, due to the rise of the services sector in the developed world. Industryʼs direct importance is waning in Western developed countries in particular. For example, manufacturingʼs share of value added in the UK and in France dropped by 4.4 per cent; in Italy it dropped by 3.3 per cent, in the United States by 3.2 per cent.

Germany and South Korea were the only two big industrialized countries whose share in national value added remained constant or increased. In China, too, industry has not grown since 2000 to the same extent as other sectors have. Industryʼs share of national value added in China (29 per cent) is, nevertheless, still significantly above the average. In contrast, industryʼs direct importance has increased in countries in Central and Eastern Europe (CEE). At 21.2 per cent, national value added in these countries is 0.9 percentage points higher than in 2000.

2

The G51 group of countries includes the worldʼs most important economies and economic regions, which account for

some 88 per cent of global exports in the manufacturing sector. It comprises the G50 countries chosen for inclusion in Lichtblau et al.ʼs 2013 study, plus Croatia, the EUʼs newest member.

3

6

Data on other countries are provided in Table 5-3 in the Appendix.

Industry in Europe Table 2-1: Manufacturing’s share of value added G51; figures in per cent; changes in percentage points

Manufacturingʼs share of national value added

Manufacturing’s share of global value added

2000

2016

2000–2016

2000

2016

2000–2016

EU-28

18.6

16.2

-2.4

26.7

21.2

-5.5

EU-27 (EU-28 minus UK)

19.5

17.3

-2.2

22.8

19.1

-3.8

Eurozone Western Europe CEE Total

19.4

17.1

-2.3

20.3

16.2

-4.1

18.6

15.8

-2.8

25.1

18.8

-6.3

20.3 19

21.2 17.8

0.9 -1.2

1.2 100

2 100

0.8

Germany

23

22.9

-0.1

7.3

6.4

-0.9

France Italy

15.7 19.5

11.4 16.3

-4.4 -3.3

3.5 3.6

2.2 2.4

-1.3 -1.2

UK

14.6

10.1

-4.4

3.9

2.1

-1.8

USA

15.5

12.3

-3.2

27.8

19.2

-8.6

Japan 22.5 South Korea 29 China 31.8

20.5 29.3 29

-2 0.4 -2.8

19.9 2.6 6.9

7.9 3.3 30.3

-11.9 0.7 23.4

Source: Eurostat (2018); OECD (2018); World Bank (2018); own calculations

Examining the distribution of manufacturingʼs value added across the G51 countries, above all it is Chinaʼs increasing significance that is striking. Back in 2000, around one in every 15 euros (6.9 per cent) of manufacturingʼs global added value was attributable to China. In 2016 that figure had risen to almost one in every three euros (30.3 per cent). Nevertheless, the role of the services sector has increased in the big emerging economies as well. Chinese manufacturingʼs share of global value added, for instance, dropped by 2.8 per cent in the period after 2000.

While predominantly the United States and Japan have forfeited global market shares, the CEE countries and South Korea have increased their market share. Western European countriesʼ global market share dropped by a total of 6.3 per cent. Among the large European economies, the smallest reduction was registered in Germany (only -0.9 percentage points).

7

Industry in Europe Figure 2-1 depicts the development of manufacturingʼs value-added share in selected regions. It shows that two economies with an industrial share above average – South Korea and China – have seen industryʼs relevance drop, relatively speaking. However, the figures also show that since 2011 in most of the other regions there is a slight upwards trend in terms of industryʼs importance. In the period after 2011, manufacturingʼs share of national value added in the G51 countries dropped by 0.4 percentage points.

Figure 2-1: Development of manufacturing’s value-added share Figures as a percentage of national value added; selected regions 34 CHN

29

29.3 29.0

KOR

24 SVK

22.9

DEU

22.6

ITA EU27 19 G51 EU28

17.8 17.3 16.3 16.2

FRA USA

14

GBR

12.3 11.4 10.1 9 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 G51

EU28

EU27

DEU

FRA

KOR

USA

CHN

SVK

GBR

Source: Eurostat (2018); OECD (2018); World Bank (2018); own calculations

8

ITA

Industry in Europe The trend in global market shares reveals how China is steadily growing in importance when it comes to global industrial production (Figure 2-2). The drop in global market shares in other regions should also be considered in relation to Chinaʼs growing importance on the global market. While Europeʼs share also grew in importance significantly between 2000 and 2004, the United Statesʼ global market share dropped early on in that period. At the end of the reference period, however, the two regionsʼ relevance was levelling out again.

Figure 2-2: Development of manufacturing’s share of global value added As a percentage of value added in G51 countries; selected regions 35 EU28

EU27

DEU

FRA

KOR

USA

CHN

GBR

ITA

30.3

30 USA EU28 25 EU27

21.2 20

19.2 19.1

15

10 DEU CHN 5

GBR ITA FRA KOR

6.4 3.3 2.4 2.2 2.1

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Eurostat (2018); OECD (2018); World Bank (2018); own calculations

9

Industry in Europe Nonetheless, European industry has also benefitted from the new markets which are opening up in China and other emerging economies. Overall, industrial value added in Europe increased by some 550 billion euros in the period after 2000. Of the big European economies, only the UK fell in absolute figures.

In 2016, manufacturingʼs share of total national value added in the EU-28 countries (16.2 per cent) was significantly below the target they themselves had set (20 per cent), though. Looking at the EU without the UK (EU-27), that share rises to 17.3 per cent. Figure 2-3 presents the trend in manufacturingʼs share of value added over time for the EU-28. Since the economic crisis in 2009, manufacturingʼs share of value added has in fact increased. In 2016, that figure for the first time exceeded the pre-crisis level by reaching 16.2 per cent.

Figure 2-3: Development of manufacturingʼs share of value added (EU-28) As a percentage of national value added

18.6

18.1 17.5

17.1

16.9

16.6

16.5

16.5

16.0 15.4

15.7

15.4

15.4

15.6

16.0

16.2

14.7

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Eurostat (2018); OECD (2018); Word Bank (2018); own calculations

Across all the G51 countries, industryʼs share of value added dropped after 2000, although it has remained fairly constant since 2002 – except in 2009, the year of the global economic crisis. In 2002, for example, it was 17.6 per cent, some 0.2 percentage points lower than in 2016. Overall, industryʼs share fluctuated between 17.2 and 17.8 per cent after 2002. The drop in industryʼs share of value added in 2009 was less serious worldwide than in Europe. Nevertheless, industryʼs share of value added in Europe also developed more dynamically than of all the G51 countries aggregated in the period after 2010.

However, in the entire period since 2000, only a few countries have been able to increase the national share of industrial value added. In addition to Bulgaria, Poland, Hungary, the Czech Republic and South Korea, the value-added share in Ireland is particularly striking. According to the Irish Central Statistics Office, some of this growth can be attributed to services enterprises being reclassified as belonging to 10

Industry in Europe branches of industry. The chemicals and pharmaceuticals industries in particular improved their value added dramatically.4 Figure 2-4 plots the share of industrial value added in 2016 as well as changes after 2000. The trend which can be observed is that countries with a high industry quota increased that share or registered only negligible slips.

Figure 2-4: Manufacturing’s share of the national value added and changes over time Figures for 2016 in per cent; changes since 2000 in percentage points 10 IRL

5 BGR VNM ARG IND DNK 0

GRC

0

5 CYP

LUX

POL LTU AUT

HUN

ROU

DEU LVA NOR 10 EST 15 20 25 NLD PRT HRV SVN USA JPN SVK FRA MEX PHL ESP TUR GBR ITA -5 IDN BRA BEL NZL AUS ISR ZAF CHL MYS SWE CAN

CZE KOR THA

30

35

40

CHN

-10

RUS

FIN

MLT

-15

Correlation between manufacturing’s share of value added and change over time: 0.55.

Origin of the coordinate system as weighted mean of G51 countries; EU-28 countries in blue.

Source: Eurostat (2018); OECD (2018); World Bank (2018); own calculations

4

Since the majority of Irish companies in these sectors are multinationals, it is also possible that the growth in value

added is due to statistical effects on account of profits being transferred to Ireland. The disparity between gross domestic product (GDP) and gross national income (GNI), among other things, makes this clear. The increase in industrial value added is not reflected in any corresponding increase in exports or working hours in Irelandʼs manufacturing industry either.

11

Industry in Europe Industryʼs contribution to growth in the individual EU member states has varied since 2000. Figure 2-5 shows how industryʼs direct contribution to domestic growth (measured in terms of GDP) has varied. While in Germany, Ireland and various CEE countries industry contributed at least one fifth of GDP growth, in the UK and Finland a slight drop in national value added was registered in the manufacturing sector after 2000.

Figure 2-5: Difference in importance of national manufacturing sector in EU member states 40

Manufacturing's share of GDP (2000–2016) in per cent

IRL 35 30 25

CZE DEU

20

SVN

HUN POL

SVK BGR

15 AUT

DNK 10 5 GRC 0

ESP ITA NLD PRT BEL SWE

LUX

FRA FIN

GBR -5 0

50

100

150

200

250

300

GDP growth per capita (2000–2016) in per cent

– EU-28 average is shown in blue. The scale of each bubble corresponds to a country’s share of manufacturing in EU-28 in per cent (2016).

Source: Eurostat (2018); own calculations

2.1.2 Industry in the European production network Reducing industryʼs importance to its direct value-added effect would, however, fail to grasp its full impact.

Industry is an important purchaser of intermediate inputs delivered by other national and international enterprises, for example. Not only does it create a market for their products: on account of its strong export bias, industry also incorporates these inputs into international value chains. Along with own valueadded and employment effects, industry impacts the production and labour in many other sectors.

An analysis of linkages across sectors in the EU-28 shows that manufacturing enterprises form the heart of the European value-added network (Figure 2-6). They are responsible for 45 per cent of trade in 12

Industry in Europe intermediate inputs in the EU, either as customers or suppliers, for example. Around one in every three euros of cross-industry intermediate inputs supplied by the other nine industry groups went to enterprises in the manufacturing sector. IndustryĘźs biggest suppliers were enterprises supplying business services. They accounted for intermediate inputs valued at 783 billion euros provided to manufacturing enterprises in the EU-28. Overall, industrial enterprises in the EU purchased goods and services from other sectors in the EU valued at 1.8 trillion euros.

Figure 2-6: EU-28 production network illustrated by intermediate inputs (2014) Excluding intersectoral trade; sum of supply and demand of intermediate inputs

The size of the nodes corresponds to total output in sectors in the EU-28.

Source: WIOD (2016); own calculations

Trade in intermediate inputs between industrial enterprises in the member states has also increased significantly over the past 15 years. Fritsch and Matthes (2017) show that the interregional trade in intermediate inputs in Europe has grown particularly strongly since 2000 compared to other regions such as North America and Asia. In 2014, for instance, 14.6 per cent of all inputs were purchased from one of the other EU-28 countries. This is around 3 percentage points more than in 2000 and over 10 percentage points more than in North America or Asia.

13

Industry in Europe Ties to other sectors have remained relatively stable, though, in the EU-28 countries, that is in terms of the value of intermediate inputs. A total of 53.5 per cent of the intermediate inputs valued at 3.3 trillion euros which industry sourced across Europe in 2000 was supplied by other industrial enterprises. In 2014 that share had actually increased minimally to 53.7 per cent (Figure 2-7).5 It is the share of industrial intermediate inputs from abroad which increased, namely from 20.7 per cent in 2000 to 25.9 per cent of intermediate inputs in 2014. Industrial inputs from domestic markets dropped by roughly the same amount over that period. In this respect industry in Germany is slightly above the EU average, at 55.4 per cent of intra-industrial intermediate inputs, 29.8 per cent of which are purchased on the domestic market. In 2000 the share of intra-industrial intermediate inputs in Germany was 58.7 per cent. Thus, over the past 15 years German industry has outsourced some 3 per cent of purchased intermediate inputs to the services sector.

Figure 2-7: EU-28 – Intermediate input share over time As a percentage of total intermediate inputs (lines); intermediate inputs in trillion euros (bars); manufacturing 4.5

60,0

4.6

4.6

4.2

53.5 50,0

3.3

3.4

3.3

3.3

3.6

4.6

4.5

4,5 53.74,0

4.1

3.8

5,0

4.5

3.7

3,5

40,0

3,0

32.7 30,0

2,5 27.9 2,0 25.9 1,5

20,0 20.7

1,0

10,0

0,5

0,0

0,0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Total intermediate input

Intra-industry domestic share

Intra-industry share abroad

Share of intra-industry inputs

2012

2013

2014

Source: WIOD (2016); own calculations

5

Intermediate input data alone do not allow any firm conclusions to be drawn as to where industrial productsĘź value

added originates from. Further research based on input–output tables would be needed.

14

Industry in Europe EuropeĘźs largest industrialized countries are its most important hubs within the European industry input network. In 2014, the largest bilateral trade in intermediate inputs between two European countries with an industrial enterprise as customer was registered between Germany and the Netherlands. Industrial enterprises in the two countries imported a total of some 87.2 billion eurosĘź worth of intermediate inputs from their respective neighbour. Germany is directly involved in the five biggest bilateral intermediate input networks. In 2014, Germany exchanged intermediate inputs with France valued at some 62 billion euros. GermanyĘźs bilateral trade in intermediate inputs with Italy totalled 53.9 billion euros, with Austria 46 billion euros and with Poland 41.2 billion euros. In total, industry purchased cross-border inputs totalling more than 1 trillion euros in Europe. Figure 2-8 presents intermediate input networks in Europe.

Figure 2-8: Intermediate input networks in European manufacturing (2014) EU-28 countries; in billion euros

The size of the nodes corresponds to national value added in manufacturing; bilateral intermediate linkages with a volume of at least 5 billion euros shown; Malta and Cyprus without trade values above the threshold.

Source: WIOD (2016); own calculations

15

Industry in Europe The fact that 21.7 per cent of manufacturing industryĘźs production value in the EU-28 countries in 2014 was based on demand for industrial intermediate inputs from other EU countries is an indication of the strong links within European industry. In absolute figures, this corresponds to a production value of some 1.4 trillion euros for European industry.

German industry is responsible for the largest absolute output, namely 373 billion euros (Figure 2-9). The other four big European economies (France, Italy, Spain and the UK) are also strongly integrated into European production networks, however, with an implied output on account of the demand for intermediate inputs totalling 453 billion euros.

Figure 2-9: Output effects in inter-regional intermediate consumption network (2014) Output in manufacturing based on demand for intermediates from other EU countries; in billion euros Germany Italy France Netherlands Spain Belgium United Kingdom Poland Austria Czech Republic Sweden Hungary Finland Slovakia Ireland Portugal Denmark Romania Slovenia Bulgaria Lithuania Greece Estonia Luxembourg Croatia Latvia Malta Cyprus

372.6 161.8 133.8 108.4 85.3 81.4 72.1 71.7 56.9 56.7 46.3 32.7 27.6 23.2 19.1 17.3 17.1 16.3 8.4 6.1 5.6 5.2 3.8 3.7 3.2 2.4 0.4 0.2

Source: WIOD (2016); own calculations

16

Industry in Europe In percentage terms, LuxembourgĘźs industrial sector is the most strongly integrated into European value chains as a supplier of intermediate inputs (Figure 2-10). A total of 42.8 per cent of the countryĘźs industrial output is based on demand from other EU member states. In addition to the Benelux countries, industry in the CEE countries is particularly active in delivering inputs to European value chains. 29.9 per cent of their output is based on demand for intermediate inputs from other European countries. In Western Europe that value is slightly below average in a European comparison, namely 20.7 per cent. The VisegrĂĄd Four countries (Czech Republic, Hungary, Poland and Slovakia) in particular benefit from European value chains, as they constitute a market for their products (31.9 per cent of production value).

Figure 2-10: Importance of inter-regional intermediate consumption network (2014) As a percentage of total national value added in manufacturing

Source: WIOD (2016); own calculations

17

Industry in Europe

2.1.3 Joint value creation in the joint industry-services sector In total, European manufacturing enterprises purchase significantly more intermediate inputs from other sectors within the EU than they deliver products to them. For example, intermediate inputs valued at some 1.8 trillion euros were purchased from other sectors, while intermediate inputs valued at only 1.3 trillion euros were delivered to them. This positive balance of intermediate inputs can be interpreted as value added within the joint industry-services sector. Industryʼs direct value added plus that of the joint industryservices sector is referred to as “joint production”. It then becomes clear that industryʼs importance in most economies is significantly underestimated when industryʼs share in added value is accounted for.

Considering the joint industry-services sector at national level reveals that national value creation is positive in almost all of the countries for which data are available (Figure 2-11 and Figure 2-12).

Figure 2-11: Share of value added – manufacturing and joint production sector (2014) Countries outside EU; as a percentage of total national value added Korea China Taiwan Turkey Indonesia Mexico India Brazil Switzerland Japan Russia Canada USA Norway Australia

32.2 31.8 31.3 30.3 27.4 25.3 24.3 20.7 20.6 18.2 15.7 13.8 13.6 11.2 6.9

Manufacturing Joint Production

Source: WIOD (2016); own calculations

Only Cyprus, Luxembourg, Malta, the UK and Japan have slightly negative value-added shares for joint production in the industrial sector. With the exception of Japan, these are economies in which industry plays a comparatively insignificant role – even in terms of its direct effect. In Japan, the reason for industryʼs negative national intermediate input balance, which at first glance seems counterintuitive, can above all be found in the oil and pharmaceuticals industries. Both sell a relatively large proportion of their products as inputs to other domestic sectors. For instance, Japanʼs pharmaceuticals industry sells its goods to the domestic health sector on a large scale. At the same time, many refineries, for instance, purchase the raw materials they need to manufacture their goods from abroad. Industryʼs importance for the overall economy is greatest in the Czech Republic. More than one in every three euros (36.8 per cent) of national value added in 2014 can be traced back to domestic industrial production, with 10.3 per cent originating in the joint industry-services sector. In Germany, too, a significant share of national value added derives from joint production, specifically 9.1 per cent.

18

Industry in Europe Figure 2-12: Share of value added – manufacturing and joint production sector (2014) EU-28 countries; as a percentage of total national value added Czech Republic Germany Romania Hungary Slovenia Slovakia Poland Croatia Lithuania Estonia Austria Bulgaria Ireland Italy Finland Sweden Belgium Denmark Latvia Portugal Greece Spain France Netherlands United Kingdom Malta Luxembourg Cyprus

36.8 31.8 30.6 29.6 28.6 27.0 25.8 25.5 24.7 24.6 23.8 22.7 22.5 22.4 22.1 21.4 19.2 18.3 18.0 17.6 16.5 16.3 15.0 Manufacturing 14.2 Joint Production 10.3 8.8 4.5 3.9

Source: WIOD (2016); own calculations

If one regards the EU-28 countries as one single economy when calculating a value for joint production, then the share of direct value added in 2014 totalled 15.6 per cent and joint production some 4 per cent.

Thus, production in the manufacturing industry accounted for a total of 19.5 per cent of the total national value added in the EU-28 countries. Looking at the EU-27, the share of direct value added is 16.5 per cent and the joint production share 5.1 per cent. Both values are around 1 per cent higher than the value for the EU-28. Overall, some 21.6 per cent of the EU-27ʼs value added is generated by the manufacturing sector.

2.2 Employment effects in the manufacturing sector According to Eurostat (2018), some 32 million people were employed in enterprises in Europeʼs manufacturing sector in 2016. That corresponds to a share of 13.8 per cent of workers in the EU-28.

However, industryʼs impact goes well beyond those who are directly employed in these companies.

Intermediate input purchases ensure another 29.6 million jobs within the EU. And these indirect

19

Industry in Europe employment effects ensure another around 12.8 per cent of jobs in Europe.6 In total, thus, some 61.6 million (26.5 per cent) jobs in the EU depend on domestic industrial production (Figure 2-13).7

Figure 2-13: Direct and indirect employment effects – manufacturing sector (2016) EU-28; in thousand employees

Intermediate input network based on the latest available data (2014); number of employees in 2016 for certain sectors and countries estimated based on 2016/2015 developments in corresponding main groups; for total employees in different sectors, see Table 5-4 in the Appendix.

Source: WIOD (2016); Eurostat (2018); own calculations

Enterprises in the fields of business services, logistics, energy supply, mining, and agricultural and forestry in particular benefit from industrial demand from within Europe. More than one in four of their respective employees depends on the demand of the manufacturing sector within Europe. The agricultural sector in particular sells a large share of its products either directly or indirectly to manufacturing enterprises.

6

The impact calculation applied here differs conceptually from the joint production approach. While joint production

includes intermediate input purchases between sectors, the impact analysis calculates the number of dependent jobs based on total input purchases which industry makes in the respective sectors.

7

Table 5-5 in the Appendix breaks down other regional impact calculations.

20

Industry in Europe Almost half of its outputs are sold directly to industrial enterprises, particularly for food production. Then there are indirect inputs, for example fodder producers who sell their products to livestock farmers or the manufacturers of energy-rich plants whose products are also used in industrial production of green energy.

The indirect employment shares are thus higher than the shares of direct intermediate inputs purchased.

Overall, for each person employed in manufacturing in the EU-28, around 0.92 additional jobs are created in other non-industrial sectors.8

8

The impact calculations are based on the intermediate input networks in multi-regional input–output tables. Account

is thereby also taken of value chains which include a step of production outside the EU-28. This means it is possible to record more accurate figures because these intermediate input networks are not cut off at the EUʼs external border.

The effects are, therefore, significantly larger than the sum of national input–output calculations for each individual member state based on national input–output tables.

21

Industry in Europe

2.3 Exports Another measure which underlines industryʼs importance for Europe is the share of national value added contributed by industrial exports. According to the OECD (2018), around three quarters of exports from OECD countries were exports of goods. Calculations based on OECD (2016) data indicate that, in Europeʼs case, the share of national value added in manufacturing exports was significantly higher (at 64.7 per cent) than the average direct value-added share9 of the EU-28ʼs manufacturing sector (some 27.9 per cent).

Manufacturingʼs strong export bias thus also offers national service providers an opportunity to incorporate their products into international value chains. Thus, European SMEs, which generally have lower internationalization indicators (see Table 4-2), can also benefit from the growth in non-EU emerging markets.

2.3.1 The EUʼs position in terms of international trade Table 2-2 shows the development of manufacturingʼs global export market shares in key countries and groups of countries. It is clear that, with the exception of Germany, the big European industrialized countriesʼ, the United Statesʼ and Japanʼs share of global exports have been on a distinct downwards trend since 2000. Western European countriesʼ share dropped from 43.1 per cent in 2000 to 34.9 per cent at present. The United Statesʼ share dropped by around one third to 10.8 per cent; Japanʼs even halved from 9.7 per cent to around 5 per cent.

China in particular was able to increase its share, though. In 2000, the world market share in relation to the G51 countries was still 5 percent. By 2016 it increased more than threefold, to 17.3 per cent. South Korea and the CEE countries also increased their global market share. The latter benefitted strongly from the greater linkages within the EU-28. Fritsch and Matthes (2017) show that back in 2014 more than 10 per cent of domestic jobs in the CEE countries already depended on demand for intermediate inputs from other European countries. In the Czech Republic, one in every five jobs (19.8. per cent) was based on crossborder demand for intermediate inputs within European value chains.

9

Average value added as a percentage of production value.

22

Industry in Europe Table 2-2: Global export market shares in manufacturing G51; shares in per cent; changes in percentage points

2000

2016

Change 2000–2016

EU-28

46.1

40.9

-5.2

EU-27 (EU-28 minus UK)

40.9

37.9

-3.0

Eurozone

36.2

31.7

-4.5

Western Europe

43.1

34.9

-8.2

CEE

2.2

4.9

2.7

Germany

11.0

10.7

-0.3

France

6.0

3.9

-2.1

Italy

4.9

3.7

-1.1

UK

5.2

3.0

-2.2

USA

14.9

10.8

-4.1

Japan

9.7

5.0

-4.7

South Korea

3.6

4.1

0.5

China

5.0

17.3

12.3

Source: OECD (2018); WTO (2018); own calculations

Figure 2-14 shows the current situation and trend in manufacturingʼs share of the global market for each of the EU-28 countries. While all the CEE countries were able to increase their global market share, those of almost all the Western European countries decreased. Portugal, Austria, Spain, the Netherlands and Germany almost held their position in terms of global trade almost, despite Chinaʼs growth. Among the large European economies, the UK in particular slipped. The global market share of the UKʼs manufacturing industry dropped by around 42 per cent. In absolute figures, by contrast, all the 51 countries included in the survey registered growth in their export figures. The total trade volume of the G51 countries has increased by 109 per cent since 2000, for instance.

23

Industry in Europe Figure 2-14: The EUʼs position in global manufacturing trade In per cent 200

Growth in global share 2000–2016 LTU

SVK

LVA 100

CHN

POL

150 ROU

CZE BGR

SVN 50 EST

-02

HUN

HRV AUT ESP GRC PRT 00 DNK 02 00 CYP IRL BEL MLT SWE -50 LUX FIN

DEU

NLD 04 ITA FRA

06

08

-100

––– The size of the bubbles corresponds to the global share of manufacturing exports China: global share = 17.6 per cent; growth = 246.1 per cent

24

12

Global share 2016

GBR

Source: OECD (2018); WTO (2018); own calculations

10

USA

Industry in Europe

2.3.2 The EUʼs position in terms of knowledge-intensive products One of Europeʼs great strengths is the high knowledge intensity of its manufacturing industry. On account of the substantially above-average unit labour costs across Europe (compared, e.g., to the United States; see Schröder, 2017), high knowledge intensity is a decisive factor when it comes to keeping high-wage countries competitive in international markets.

One indicator which calculates knowledge intensity based on an economyʼs trade data is the Economic Complexity Index (ECI) developed by the Massachusetts Institute of Technology (MIT). The ECI measures the average knowledge intensity of individual countries based on its relative share of exports for various types of products.10 Scores are standardized to a mean value of 0, with a standard deviation of 1. A value greater than 0 thus indicates that an economy has an above-average level of know-how at its disposal. The 2015 ranking draws on all the countriesʼ complete trade data. Japan achieves the highest score of 2.34 points (Table 2-3). Germany is among the best of the EU-28 countries, with a score of 1.92 points.

Table 2-3: 2015 Economic Complexity Index (ECI) Top 10 countries

Rank

Country

2015 ECI

1

Japan

2.35

2

Switzerland

2.12

3

South Korea

1.97

4

Germany

1.92

5

Singapore

1.72

6

Austria

1.66

7

Sweden

1.61

8

Czech Republic

1.56

9

Finland

1.46

10

Hungary

1.41

Source: MIT (2018)

10

The assumption is that a broad knowledge base is required to manufacture complex products such as turbines or

optical instruments. The global market for such products is, therefore, dominated by just a few economies with the relevant know-how. All the national economies across the world with at least 1.25 million inhabitants and an export volume of at least 10 billion US dollars are included in the ranking, as are all those groups of goods whose global trade volume totals at least 1 billion US dollars. For a precise mathematical description of the calculation methods, see Simones and Hidalgo (2011).

25

Industry in Europe Overall, 19 out of the 25 EU-28 countries included in the ranking are among the top 30 countries rated on knowledge intensity. Greece is the only EU country to have a negative ECI score. It ranks 54 out of 109 countries, with -0.15 points. Guinea, Nigeria and Sudan rank at the bottom of the table, with less than -1.77 points.

The fact that the EU-28 countries are knowledge oriented is also evident when one considers manufacturing始s export structure in Europe. The EU-28 countries are very active in those branches of manufacturing which are particularly knowledge intensive (Table 2-4). European industry accounts for almost half (46.8 per cent of global trade volume) of the global market for medium- and high-tech goods such as machinery, automobiles and chemical products. The sectors are classified according to the share of expenditure for research and development (R&D) in relation to value added.11 The EU-28 countries始 specialization in knowledge-intensive products shows most clearly when one examines the relative export share (RXS)12 in the individual technology categories. A positive RXS value indicates a relative degree of specialization within a product group, while a negative value implies that a product group is less significant. Looking at the values for the EU-28 reveals that these countries are focused on sectors in the medium- to high-tech segment. Germany in particular specializes in these sectors to a significantly above-average degree. It is also slightly specialized in medium to low technologies.

Countries in Southeast Europe, plus the Netherlands, Poland and other CEE countries in particular are active in these areas to an above-average degree. The global market for such categories of goods is above all dominated by China, which also has a positive specialization coefficient in this respect.

Nevertheless, China始s specialization coefficients have increasingly shifted to the high-tech and medium- to high-tech categories since 2000. The same applies, to a lesser degree, to the EU-28 countries. Both shifts in RXS indicate a positive balance in research-intensive sectors. This change is particularly striking in the CEE countries. The shift in RXS in the CEE countries towards high-tech is +70.2 points and in medium- to hightech +17.5 points.

11

For a classification of manufacturing sectors into individual clusters, see Table 5-1 in the Appendix.

12

The RXS is the logarithmic relationship between a technology category始s global market share and the global market

share of all categories of goods surveyed. A value > 0 indicates a relative specialization in a particular category, while a value < 0 indicates below-average specialization in a particular category. The higher the RXS value, the greater the relative specialization of the region surveyed in a particular category.

26

Industry in Europe Table 2-4: Export market share by technology category Market share as a percentage of G51 countries

High-tech

Medium- to high-tech

Medium-tech

Medium- to low-tech

EU-28

34.6

46.8

35.6

41.5

CEE

3.0

5.4

4.7

5.6

Germany

9.2

14.7

8.5

7.4

USA

14.2

11.4

8.3

8.4

Japan

3.8

8.0

5.4

1.3

South Korea

5.2

4.4

4.9

2.3

China

23.9

12.1

17.3

20.2

EU-28

-16.9

13.4

-14.1

1.5

CEE

-48.4

11.3

-1.7

14.6

Germany

-14.8

31.7

-22.6

-36.9

USA

27.8

5.7

-25.7

-24.7

Japan

-28.2

47.1

8.0

-135.4

South Korea

23.7

7.2

17.5

-58.7

China

32.3

-36.0

-0.3

15.4

2016 global market share (per cent)

2016 RXS

Change in RXS 2000â&#x20AC;&#x201C;2016 (percentage points) EU-28

2.3

5.3

-18.3

-6.0

CEE

70.2

17.5

-41.7

-37.0

Germany

16.2

-0.2

-17.1

-6.9

USA

-6.9

3.1

6.6

14.6

Japan

-47.8

16.6

10.3

20.1

South Korea

-12.0

44.1

-6.7

-52.4

China

46.3

24.8

-26.4

-43.7

RXS is defined as the log of the ratio between the global market share in the specific technology category and the global market share for all technologies in the country multiplied by 100.

Source: OECD (2018); own calculations

27

Industry in Europe

3 Productivity in an international comparison Industryʼs success in individual countries across Europe and the world is based on the productivity of industrial enterprises. Countries with high production costs (e.g. for wages and salaries) need to compensate these with correspondingly higher rates of labour productivity so as to remain competitive at an international level.

Figure 3-1 presents productivity per hour worked for individual economies based on internationally comparable data.

Figure 3-1: Labour productivity by country – total economy (2016) Gross value added per hour worked in euros Norway Luxembourg USA Denmark Belgium Sweden Netherlands France Germany Finland Austria Eurozone United Kingdom Canada Japan Italy EU28 EU27 Spain Cyprus Slovenia Malta Korea Portugal Greece Slovakia Czech Republic Estonia Croatia Lithuania Latvia Hungary Poland Romania Bulgaria

79.1 75.5 59.7 59.3 52.4 51.7 49.3 48.0 47.8 45.2 45.1 40.3 40.2 39.3 37.5 35.2 35.2 34.3 31.4 23.4 21.9 21.8 21.3 18.6 18.3 18.2 17.0 15.6 14.0 13.6 12.9 12.3 11.4 10.1 7.3

EU-27 is the EU-28 minus the UK; hours worked for Japan are estimated based on hours worked by “Employment”; data for the USA are for 2015; value added for Canada for 2016 was estimated; no internationally comparable data were available for China.

Source: Schröder (2017); Eurostat (2018); OECD (2018); own calculations

28

Industry in Europe Figure 3-2 depicts an international comparison of labour productivity in the industrial sector. It shows that average productivity in manufacturing enterprises in industrialised countries is significantly higher than in the CEE countries. With a productivity of around 81.5 euros per hour, the industrial sector in Denmark is around twice as productive as the average across EU-28 countries.

Figure 3-2: Labour productivity by country – manufacturing (2016) Gross value added per hour worked in euros Denmark USA Belgium Sweden Norway Netherlands Finland Germany Austria France Luxembourg Eurozone United Kingdom Japan Canada EU28 EU27 Spain Italy Korea Slovenia Greece Slovakia Czech Republic Portugal Latvia Hungary Lithuania Cyprus Estonia Poland Croatia Romania Bulgaria

81.5 78.6 68.2 65.4 62.8 61.4 60.3 59.7 55.9 54.8 51.8 48.8 45.9 43.7 42.6 39.2 38.5 37.9 36.2 30.7 25.4 22.2 18.9 17.7 16.9 16.5 16.4 16.0 14.8 12.5 11.4 11.3 11.0 6.7

South Korea: data for 2014; EU-27 is the EU-28 minus the UK; no internationally comparable data were available for China.

Source: Schröder (2017); Eurostat (2018); OECD (2018); own calculations

Various factors account for the differences in national labour productivities in the manufacturing sector.

The average level of qualification of employees in a business, for instance, has a great influence. People with higher professional qualifications generally earn a higher salary, and they are also more productive per hour on account of the jobs they perform. In an international comparison, however, both exchange rates and a domestic sectorʼs capital intensity, or rather its composition, have a key role to play. The industrial sector in the United States, for instance, largely comprises capital-intensive, process-oriented industries 29

Industry in Europe (e.g. chemicals, pharmaceuticals and refineries), which require high per-capita capital investments and generate significantly above-average labour productivity.

Figure 3-3: Development of labour productivity by country – manufacturing Gross value added per hour worked in euros; selected countries 80

DEU

EU28

FRA

ITA

GBR

70 60 50 40 30 20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 80

EU27

Eurozone

ESP

USA

70 60 50 40 30 20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

EU-27 is the EU-28 minus the UK; no internationally comparable data were available for China; no time series data were available for South Korea; development of productivity in the USA and UK includes exchange rate effects.

Source: Schröder (2017); Eurostat (2018); OECD (2018); own calculations

The trend in regard to labour productivity in Europeʼs four biggest economies has varied since 2000 (Figure 3-3). Average labour productivity (euros per hour) in the EU-28 has risen by around 62 per cent. In Germany it increased by 59 per cent, in France by 45 per cent, in Italy by 44 per cent and in the UK by 41 per cent.

Spain has gradually verged to the EU average in recent years, with an increase of 87 per cent. While a significant downturn was registered in Germany and the UK in the period between 2007 and 2009, the trend in the EU as a whole and in France and Italy is more on a level. However, in Germany productivity increased more quickly after 2009, the year of the economic crisis, than was the case in other countries.

30

Industry in Europe The great fluctuation in values for the UK between 2014 and 2016 is above all due to currency fluctuations; the same holds as regards the trend in productivity in the United States. The significant rise in productivity in the United States in recent years is also due to an increase in the share of capital-intensive processing industries (oil, chemicals and pharmaceuticals).

Labour productivity is only one of the factors which determines a countryʼs total economic growth. It is not only the quality of labour input, but also the quantity of labour input which has a significant influence on growth in national value added. For example, adjusting contractually determined working hours and integrating foreign skilled workers will have a strong leverage effect on how national value added develops in those economies which are experiencing skills shortages. Investments, that additional capital resources, play a key role as well.

If one considers the influence of the inputs “labour” and “capital” on the growth of national value added, a residual remains which cannot be explained on the basis of these two factors. This residual is referred to as “total factor productivity” (TFP). TFP can be interpreted as technical progress in an economyʼs production.

Figure 3-4 presents the trend as regards TFP in selected countries and regions since 2000. The Adjusted Version of the Total Economy Database of the Conference Board (2017) was used to calculate the values plotted. According to researchers in the United States, the adjusted Version takes better account of falling prices for common information and communication technologies (ICTs) than previous versions of the Database. In addition, the time series based on estimated growth rates provided by the Conference Board were used to calculate the TFP growth rate for China.

31

Industry in Europe Figure 3-4: Development of total factor productivity Index 1990 = 100 120 115

World

EU28

DEU

USA

JPN

KOR

114.9 114.2

110

109.2 105

105.4

100

101.4

95 90

88.6 85 80 1990

160 150

1992

1994

1996

1998

2000

FRA

ITA

ESP

GBR

Euro

CHN

2002

2004

2006

2008

2010

2012

2014

2016

143.8

140 130 120 110

106.1

100

97.8 94.2 87.8 85.8

90 80 1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Data based on the Total Economy Database â&#x20AC;&#x201C; Adjusted Version; China: data based on alternative growth estimates provided by the Conference Board; TFP value based on data provided by the Chinese government = 248.8 points.

Source: Conference Board (2017); own calculations

Significant disparities emerge between the individual economies and regions. TFP above all developed negatively in Japan between 1990 and 2000, for example. Given that this indicator represents a residual, 32

Industry in Europe this finding, which at first glance is surprising, is thus logical. In Japan, the contribution of capital resources to economic growth has increased significantly above the average. Despite the drop in the workforce due to demographic changes, the Japanese economy has grown significantly. Measured against capital input and taking account of the drop in prices for ICTs, this growth should, however, have been significantly greater.

TFP developed in a similar manner in three of the big European economies, in Italy, Spain and France. Solely in the UK that TFP growth has only amounted to 6.1 per cent since 2000.

Globally, TFP has grown by 5.4 per cent since 1990. The EU-28 countries grew by only 1.4 per cent on average. It was especially in the period between 2006 and 2009 that TFP grew less strongly in the EU than in an international comparison. The trend in Germany was similar. However, since the economic crisis in 2009, Germanyʼs national economy has developed significantly better than can be explained on the basis of the factors “labour” and “capital” alone. Overall, TFP in Germany has grown by 9.2 per cent since 1990.

In the period under review, growth in TFP was bigger in the United States and South Korea. Before the economic crisis, TFP in these countries dropped only slightly, and since 2009 it has increased above the average. Overall, TFP in the United States and South Korea grew by 14.2 per cent and 14.9 per cent, respectively, in the period under review.

Examining at the 51 economies included in the survey, TFP growth was strongest in China. The countryʼs TFP has increased by 143.8 per cent, both on account of its intensive use of advanced technologies and due to its low base level in 1990.

33

Industry in Europe

4

Germanyʼs “Mittelstand” and Europeʼs SMEs

According to the definition applied by the EU, enterprises with a staff headcount of less than 250 are classed as small and medium-sized enterprises (SMEs). There is no harmonized European definition of what, in Germany, is referred to as the “Mittelstand”. The German governmentʼs definition of “Mittelstand” applies higher threshold values. Also, the unity of company ownership and management is generally regarded as a feature of the “Mittelstand”. In the following statistical analysis “SME” will be used synonymously with “Mittelstand”. SMEs in Europe – in the guise of young start-ups – not only put new and innovative business models and ideas on the market, they also make an important contribution to the national economy.

4.1 SMEs in Europe: structural data SMEs are highly relevant to European industry, too. More than 99 per cent of European manufacturing enterprises are classified as SMEs (Table 4-1). The share of SMEs in individual EU countries varies only negligibly. There are, however, bigger differences in the share of employees in manufacturing SMEs. Although a total of 58.4 per cent of employees in manufacturing across the EU work in an SME, labour force in German industry is more centred on large enterprises: more than half of those employed in industry (53.2 per cent) work for a large company. In Italy, by contrast, 75.8 per cent of those employed in industry work for an SME, that is more than three quarters of the total industrial workforce.

Since 2008, the proportion of people working in small and medium-sized industrial enterprises has declined slightly on average in Europe namely from 59.7 to 58.4 per cent. However, no uniform trend can be made out in the individual countries. This share dropped in Italy and France, while in the UK it increased from 56.8 to 58.4 per cent. In Germany, employment in industrial SMEs remained fairly stable. Thus, employment in German SMEs grew just as quickly as in big enterprises.

Table 4-1: SMEs in European industry: key facts As a percentage of total manufacturing

Companies

Employees

Value added

2008

2016

2008

2016

2008

2016

EU-28

99.2

99.3

59.7

58.4

46.4

42.3

CEE

99.1

99.3

57.9

58.3

43.4

42.5

Western Europe

99.2

99.2

59.9

58.1

46.5

42.1

Germany

97.9

98.1

46.9

46.8

35.1

32.6

France

99.3

99.5

57.0

54.0

46.9

40.7

Italy

99.7

99.7

77.2

75.8

67.4

65.3

UK

98.7

99.0

56.8

58.4

44.8

45.0

The EU defines SMEs as enterprises with a staff headcount of less than 250.

Source: DIW Econ (2017); own calculations

34

Industry in Europe Looking at value-added shares reveals a different picture. The trend has been most favourable in big enterprises in almost all the EU-28 countries included. Since the share of value added in large enterprises has also risen more sharply than the share of employment, it can be concluded that productivity has grown more quickly in big European industrial enterprises than in SMEs. Data relating to a possible expanded definition of SMEs as enterprises with a staff headcount of less than 500 is not available. It is possible to make a rough estimate of the importance of an expanded industrial Mittelstand for Germany based on industrial statistics (Destatis, 2018), since they cite the number of employees by size class of business. If one includes the around 1 million people employed in enterprises with a staff headcount of between 250 and 499, the share of employees in industrial SMEs rises by a good 13.7 per cent to 60.5 per cent. It must be assumed that roughly the same effect applies to the share of value added. Thus, under the expanded definition SMEs would account for some 56 per cent of Germanyʼs industrial value added.13

4.2 Internationalization of Germanyʼs “Mittelstand” SMEs in Europe above all exercise important functions within national economies along national and international value chains. For example, surveys of Germanyʼs “Mittelstand” show that even small enterprises in the industrial sector and industry-related services sector often generate a significant share of their turnover through exports. Around one in three enterprises with up to nine employees in the industries surveyed also sold their goods and services abroad. Around one out of every ten euros is already earned abroad. The share of exporting enterprises rises to about two thirds among medium-sized and large enterprises. Around one quarter of these enterprisesʼ turnover is earned abroad.

13

The calculation is based on a rough estimate of the importance of the industrial “Mittelstand” in Germany. There

are conceptual differences between the values for national accounts and the industrial statistic, for example when it comes to the entity included (firm or enterprises). The share of employees in a size category can be regarded as a rough indicator of value added, because its key components are staff remuneration, earnings before interest and taxes (EBIT) and the enterprisesʼ write-offs. Since remuneration per employee increases statistically the bigger the enterprise, the 56 per cent quoted should be regarded as an upper estimate.

35

Industry in Europe Table 4-2: Internationalization activity and intensity of German enterprises (2017) Manufacturing and business services

Number of employees

Micro <9

Small 10–49

Medium 50–249

Large > 250

Total

Share of firms with overseas activities (in per cent) Exports

32.5

42.3

63.0

67.8

65.2

Production

7.0

5.8

10.3

33.3

21.0

Employees

2.9

11.4

16.0

49.4

33.5

R&D

6.7

6.1

8.3

25.1

16.2

Extent of firmsʼ overseas activities (in per cent) Exports

10.6

12.6

22.9

27.2

21.9

Production

4.9

4.3

2.1

9.2

6.3

Employees

1.5

2.4

2.7

14.7

8.5

R&D

0.9

1.0

0.9

2.2

1.5

Weighted by total turnover Source: IW Zukunftspanel (2017); own calculations

In terms of the other activities surveyed, overseas activities varied more strongly between individual size categories. While around one in three large enterprises also manufactures products abroad, this applies to only one in ten medium-sized enterprises. Large enterprisesʼ overseas production is more than twice that for SMEs. The same applies for employees. Around one out of every two large enterprises has staff working abroad, while only around one in eight to ten SMEs employs people abroad.

Large enterprises also engage in more R&D abroad. One in four large enterprises does R&D abroad.

However, R&D activities in all size classes are clearly focussed on domestic sites: only 1.5 per cent of enterprisesʼ research is conducted abroad.

36

Industry in Europe

List of tables Table 2-1: Manufacturingâ&#x20AC;&#x2122;s share of value added .........................................................................................7 Table 2-2: Global export market shares in manufacturing......................................................................... 23 Table 2-3: 2015 Economic Complexity Index (ECI) ..................................................................................... 25 Table 2-4: Export market share by technology category ........................................................................... 27 Table 4-1: SMEs in European industry: key facts........................................................................................ 34 Table 4-2: Internationalization activity and intensity of German enterprises (2017) ................................ 36 Table 5-1: Economic activities based on R&D intensity ............................................................................. 39 Table 5-2: G51 countries ............................................................................................................................ 40 Table 5-3: Manufacturingâ&#x20AC;&#x2122;s share of value added ...................................................................................... 40 Table 5-4: Number of employees in different sectors (2016) .................................................................... 41 Table 5-5: Direct and indirect employment in the manufacturing sector (2016) ...................................... 42 Table 5-6: Export market share by technology category ........................................................................... 43

37

Industry in Europe

List of figures Figure 2-1: Development of manufacturing’s value-added share.................................................................8 Figure 2-2: Development of manufacturing’s share of global value added ..................................................9 Figure 2-3: Development of manufacturingʼs share of value added (EU-28)............................................. 10 Figure 2-4: Manufacturing’s share of the national value added and changes over time .......................... 11 Figure 2-5: Difference in importance of national manufacturing sector in EU member states ................. 12 Figure 2-6: EU-28 production network illustrated by intermediate inputs (2014) .................................... 13 Figure 2-7: EU-28 – Intermediate input share over time ........................................................................... 14 Figure 2-8: Intermediate input networks in European manufacturing (2014)........................................... 15 Figure 2-9: Output effects in inter-regional intermediate consumption network (2014) ......................... 16 Figure 2-10: Importance of inter-regional intermediate consumption network (2014) ............................ 17 Figure 2-11: Share of value added – manufacturing and joint production sector (2014).......................... 18 Figure 2-12: Share of value added – manufacturing and joint production sector (2014).......................... 19 Figure 2-13: Direct and indirect employment effects – manufacturing sector (2016) .............................. 20 Figure 2-14: The EUʼs position in global manufacturing trade ................................................................... 24 Figure 3-1: Labour productivity by country – total economy (2016) ......................................................... 28 Figure 3-2: Labour productivity by country – manufacturing (2016) ......................................................... 29 Figure 3-3: Development of labour productivity by country – manufacturing .......................................... 30 Figure 3-4: Development of total factor productivity ................................................................................ 32

38

Industry in Europe

5 Appendix Table 5-1: Economic activities based on R&D intensity Manufacturing; NACE Rev. 2; sorted by R&D spending (as a percentage of value added)

High-tech

30.3 – Aircraft and spacecraft and related machinery 21 – Pharmaceuticals 26 – Computers, electronic and optical products

Medium to high

25.2 – Weapons and ammunition 29 – Motor vehicles, trailers and semi-trailers 32.5 – Medical and dental instruments 28 – Machinery and equipment 20 – Chemicals and chemical products 27 – Electrical equipment 30.2; 30.4; 30.9 – Railroad, military vehicles and transport

Medium

22 – Rubber and plastic products 30.1 – Building of ships and boats 32.1 to 4; 32.9 – Other manufacturing except medical and dental instruments 23 – Other non-metallic mineral products 24 – Basic metals 33 – Repair and installation of machinery and equipment

Medium to low

13 to 15 – Textiles, wearing apparel, leather and related products 17 – Paper and paper products 10 to 12 – Food products, beverages and tobacco 25.1; 25.3 to 9 – Fabricated metal products except weapons and ammunition 19 – Coke and refined petroleum products 31 – Furniture 16 – Wood and wood and cork products 18 – Printing and reproduction of recorded media

Source: Galindo-Rueda/Verger (2016)

39

Industry in Europe Table 5-2: G51 countries By region

EU-28

Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom

Other

Argentina, Australia, Brazil, Canada, Chile, China, India, Indonesia, Israel, Japan, Malaysia, Mexico, New Zealand, Norway, Philippines, Russia, South Africa, South Korea, Switzerland, Thailand, Turkey, United States, Vietnam

Own presentation

Table 5-3: Manufacturing’s share of value added G51; figures in per cent; changes in percentage points

Manufacturingʼs share of national value added

Manufacturing’s share of global value added

2000

2016

2000–2016

2000

2016

2000–2016

Spain

17.8

14.2

-3.7

1.7

1.4

-0.3

Ireland

26.0

34.7

8.7

0.4

0.9

0.5

Poland

18.2

20.4

2.2

0.5

0.8

0.3

Netherlands

15.3

12.1

-3.1

1.0

0.8

-0.3

Sweden

23.0

15.3

-7.7

1.0

0.6

-0.3

Austria

20.4

18.2

-2.2

0.6

0.6

-0.1

Belgium

19.6

14.3

-5.3

0.7

0.5

-0.2

Czech Republic

25.9

27.1

1.2

0.3

0.4

0.2

Denmark

16.4

15.3

-1.1

0.4

0.4

-0.1

Romania

22.1

21.4

-0.6

0.1

0.3

0.2

Hungary

22.4

23.5

1.2

0.2

0.2

0.1

Slovakia

23.9

22.6

-1.3

0.1

0.2

0.1

Source: Eurostat (2018); OECD (2018); World Bank (2018); own calculations

40

Industry in Europe Table 5-4: Number of employees in different sectors (2016) EU-28; in thousand employees

Agriculture

10.405

Mining

627

Manufacturing

32.027

Utilities

2.931

Construction

14.676

Logistics

11.608

Information & Communication

5.936

Finance

8.496

Business Services

29.379

Private/Public Services

81.769

Trade

33.916

Source: Eurostat (2018); own calculations

41

Industry in Europe Table 5-5: Direct and indirect employment in the manufacturing sector (2016) In selected regions; in thousand employees

EU-27

Eurozone

Germany

France

Manufacturing

29.541

20.817

7.539

2.626

Agriculture

6.303

3.146

511

505

Mining

269

55

9

0

Utilities

726

468

129

56

Construction

803

523

177

30

Logistics

2.751

2.027

748

217

Information & Communication

666

492

165

57

Finance

979

769

227

112

Business Services

6.599

5.632

1.968

724

Private/Public Services

1.944

1.487

406

264

Trade

6.058

4.061

1.428

376

Total

56.639

39.477

13.308

4.966

Italy

UK

Spain

Manufacturing

3.861

2.486

2.060

Agriculture

617

186

490

Mining

3

24

1

Utilities

81

41

48

Construction

91

67

33

Logistics

352

213

224

Information & Communication

103

81

32

Finance

189

76

64

Business Services

873

557

532

Private/Public Services

240

136

213

Trade

599

363

414

Total

7.009

4.229

4.110

Intermediate input networks based on the latest available data (2014); number of employees in 2016 for certain sectors and countries estimated based on 2016/2015 development in corresponding main groups; EU-27 is the EU-28 minus the UK; results for the countries included encompass effects due to international value chains. This means the results are larger than those calculated based only on national inputâ&#x20AC;&#x201C;output tables.

Source: WIOD (2016); Eurostat (2018); own calculations

42

Industry in Europe Table 5-6: Export market share by technology category Market share as a percentage of G51 countries; selected countries

High-tech

Medium- to high-tech

Medium-tech

Medium- to low-tech

Spain

0.9

2.5

2.0

2.8

Poland

0.8

1.6

1.8

2.2

Czech Republic

1.0

1.7

1.2

1.0

Slovakia

0.5

0.8

0.6

0.5

Hungary

0.7

1.2

0.5

0.5

Sweden

0.8

1.2

0.9

1.3

Austria

0.8

1.3

1.4

1.3

Spain

-84.5

17.3

-7.0

26.9

Poland

-66.0

0.1

11.3

34.6

Czech Republic

-25.5

27.5

-10.1

-22.2

Slovakia

-18.2

27.7

-9.8

-30.1

Hungary

-13.0

37.1

-40.8

-45.5

Sweden

-25.8

9.7

-21.1

18.3

Austria

-51.0

2.6

5.7

-0.2

2016 global market share (per cent)

2016 RXS

Changes in RXS 2000â&#x20AC;&#x201C;2016 (percentage points) Spain

14.8

-5.1

-29.2

8.2

Poland

-66.0

0.1

11.3

34.6

Czech Republic

81.5

8.7

-48.8

-40.1

Slovakia

149.1

9.7

-60.6

-55.4

Hungary

-28.8

32.4

1.6

-40.3

Sweden

-33.2

18.3

-10.6

4.5

Austria

-2.1

-1.5

-27.6

-19.1

RXS is defined as the log of the ratio between the global market share in the specific technology category and the global market share for all technologies in a country multiplied by 100.

Source: OECD (2018); own calculations

43

Industry in Europe

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