HIGH TECHNOLOGY INFORMATION TIP SHEET

SPEAKING GENERALLY

According to the National Science Foundation -- tasked with understanding and monitoring science, engineering, technology and research and development issues in the United States -- there is no single preferred method for identifying high technology industries.

The Pittsburgh High Technology Council stated that defining high technology was one of the most difficult challenges they faced when initiating their first study of the region’s economic development.

Each region or metropolitan area has a different set of needs and requirements that drives how they define high technology.

SO, WHY BOTHER TO DEFINE HIGH TECHNOLOGY COMPANIES?

BECAUSE: High technology industries, with their dependence on science and technology innovation, generally have a great economic impact, fueled both by larger than average research and development spending, and a higher than industry average sales growth.Understanding who the regional players are can help drive economic development and human resource development policy.

 Innovation often leads to new or improved product and service development. New product development and capital investment often go hand in hand, making high technology companies an attractive addition to local tax bases.

In addition, innovation demands a trained and talented workforce. The demand can serve the entire business community by drawing talent to the high tech companies, as well as calling upon the resources of other companies and entrepreneurs in the region and beyond.

Companies grow up around the high tech enterprises and supply raw materials, components, specialized technical expertise in design, marketing, and knowledge management, skilled subcontractors, specialty packaging, distribution, and transportation.

DEFINITIONS CAN BE NARROW OR BROAD

The definitions can be narrow to focus on a small percentage of businesses, or broader, to include most kinds of businesses that have a higher than (national) average concentration of  technology- oriented workers  which are engineers;  life and physical scientists;  mathematical and computer specialists; engineering, natural science, and computer and information managers; and engineering and science technicians. These categories of workers are correlated with research and development activities.

Other definitions of high tech may focus strictly on the ratio of R&D expenditures to sales. A high R&D to sales ratios is suggestive of innovative work and new product development - thus of “high tech.” Using R&D ratios will create a more narrowly focused list which might be of interest to venture capitalists, but is not as useful to other interest groups.

Definitions of high technology are normally aimed at some goal beyond the purely academic questions of R&D and product innovation, for example:

understanding local technical training needs; recruitment and relocation of companies; business retention; establishing centers of expertise and innovation; building research parks; and developing alliances with educational and research institutions.
THE GREATER CINCINNATI CHAMBER OF COMMERCE HIGH TECHNOLOGY DATABASE AVAILABLE ON TRINET ONLINE (http://www.trinet-online.com)

The SIC codes chosen by the Greater Cincinnati Chamber of Commerce to identify high tech industries are based on research of several approaches and compared to similar types of lists created in other parts of the United States.

The GCCC compilation of SIC codes is an accurate reflection of local business strengths. The business categories in the GCCC High Technology Database are based on SIC codes that are correlated with technology-oriented workers. The proportion of engineers or scientists within each SIC category exceeds the national average for that particular type of business; and, generally, R&D expenditures to sales exceeds 2 % (the lower end of R&D intensity) and may exceed than 20 %.

A compelling reason to have a reasonable broad definition of high tech is to identify  sectors that comprise up-and-coming industry sectors -- like biotechnology, medical research, and dot.coms -- which may be in early growth phases.

The GCCC High Tech Database includes affiliated sectors that serve high tech industries. Not only are certain types of business within these category high tech in their own right, but they must achieve a certain level of high tech expertise in order to service the local high tech community

THESE ARE: Auxiliary management and public relations (SIC Codes 8741-8748) and specialty business services (SIC Codes 7389 and 8999.)

The strength of  this approach is that it is based on an aggregate of small and large, new and mature businesses, from which nationally calculated averages are derived within each occupational category by the Bureau of Labor Statistics.

The drawback of relying on SIC codes selected by companies is the error rate of self-selected business categories. Companies often pick inappropriate SIC codes or list a secondary activity as a primary activity. By inviting input from companies listed in the High Tech Database, GCCC can correct some of this.

HOW IS THE DATABASE ORGANIZED?

The GCCC High Tech Database is organized by related industry categories. There is some overlap because each category is a “stand alone” cluster of businesses that have
either related products and services or traditionally are consider related.

1. Automotive, aerospace and transportation equipment and component manufacturing
2. Auxiliary management, public relations and specialty business services
3. Biomedical, biotechnology and healthcare products manufacturing
4. Chemicals, specialty materials and pharmaceutical manufacturing
5. Industrial, specialty equipment and component manufacture
6. Information technology, computing and communications products and services
7. Research, testing and professional specialty services
8. High technology durable manufacturing not elsewhere classified
9. High technology nondurable manufacturing not elsewhere classified

Are there any business categories currently under-represented?

YES:  Past definitions of high technology have ignored or underplayed service industries. Financial  services is a rapidly growing sector of the service economy.

 Most high tech lists do not include financial services yet. The integration of computers and financial services is still in its first stages and will certainly drive these services onto high tech lists here and in other regions.

It is important to note that growth in R&D intensive high tech industries has largely been due to growth in high tech services. R&D intensive services -- management and public relations, computer and data-processing, engineering and architectural, and research and testing services --  outperformed employment growth in the economy overall, as well as in the services sector.

WHY DO WE USE PRE-EXISTING LISTS OF BUSINESSES EVEN THOUGH THAT MAY RESULT IN LISTING COMPANIES THAT ARE NOT HIGH TECH?

In order to be more than an academic exercise, a definition of high tech needs to correspond to information in currently existing searchable databases.

Systems such as Standard Industrial Classification Codes (SIC) or the new North American Industry Classification System Codes (NAICS) are used to classify companies. In addition, text descriptors are often added, but it is more difficult to sort and qualify large amounts of company information relying solely on text descriptions.

This creates a problem when a hands-off definition of high technology is used. Lists of companies may include businesses that are not truly high tech.

It is probably better to include a few too many companies that can be excluded later, based on real-time information, then to exclude companies of interest.

Company data may be flawed in all sources, because companies incorrectly self-assign SIC codes. Also, smaller companies may be more involved in production or service than true innovation. These companies are nonetheless of interest.

SO, WHERE DOES THAT LEAVE US?

The best lists are based on a theoretical model (lists of SIC codes correlated with technology oriented worker concentration) and enhanced by specific information provided by the companies.

Currently, we must rely on industry-specific measures rather than a determination of whether individual establishments are involved in innovative work (either as a manufacturer, researcher or service provider), are R&D intensive (high R&D to sales ratio), or actually employ a high proportion of scientists, engineers, or engineering and science managers.

As companies contribute more detailed information, the High Tech Database can be further refined.

REFERENCES
 

Constance Lee Menefee
Copyright 2000

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