WHAT IS HIGH TECHNOLOGY?

According to the National Science Foundation, there is no single preferred method for identifying high technology industries.

High technology industries have a great dependence on science and technology innovation that leads to new or improved products and services. They generally have a substantial economic impact, fueled both by large research and development spending, and a higher than industry average sales growth. 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. This demand can serve the entire business community by drawing talent to the high tech companies, as well as by calling upon the resources of other companies and entrepreneurs in the region and beyond.

How the definition of high technology will be used usually determines which of  two major approaches to take. The basic methods use either the percentage of scientific and technical employment in a particular industry compared to all industries or R&D dollars spent as a percent of total sales, a measure of research intensity.

Using workforce measures

Occupational employment and the percentage of particular occupations within industries changes over time, reflecting changes in employment growth as well as business structure. The Department of Labor revises these data periodically.

If an industry’s proportion of  R&D employment is equal to at least the average proportion of R&D employment in all industries, it can be considered high tech.

In managerial and administrative occupations, the category of engineering, natural science, and computer and information managers is considered one of the most significant indicators of R&D activity, thus of high tech.

The professional occupations most indicative of high R&D activity, thus of high tech, are engineers, physical and life scientists; computer scientists; and health professional specialties. Engineering and science technicians are also employed in significant proportions in high-technology companies.

Using research intensity

Data on research intensity (R&D dollars as a percent of total sales) is derived from studies of publicly traded companies.

Currently, the top ten most research intensive industries are: medicinal chemicals and botanical products (SIC 2833); biological products, excluding diagnostics (SIC 2836); prepackaged software (SIC 7372); diagnostics, in vitro and in vivo (SIC 2835); telephone and telegraph apparatus (SIC 3661); pharmaceutical preparations (SIC 2834); commercial research (SIC 8731); electromedical apparatus (SIC 3845); computer communication equipment (SIC 3576); and laboratory analytical instruments (SIC 3826).

Although these ten industries are research intensive, they do not necessarily all have a major economic impact. A handful of categories, considered super-technology industries, lead the high-tech pack: pharmaceutical preparations (SIC 2834); telephone and telegraph apparatus (SIC 3661); biological products, excluding diagnostics (SIC 2836); semiconductors and related devices (SIC 3674); and prepackaged software (SIC 7372.)  They are all research intensive, big spenders for R&D, and have faster than average sales growth.

 The economic potential of super-tech companies can be considerable: in 1996, the super-technology industries saw sales almost 400 % greater than 1990 sales. Compare this to a 150 % increase for all industries.

Recent growth in R&D intensive high-tech industries has been largely due to growth in high-tech services. It is worth noting that R&D intensive services -- management and public relations, computer and data-processing, engineering and architectural, and research and testing services -- have been outperforming employment growth in the economy overall, as well as in the service sector. There have also been significant gains in the service sector share of R&D spending: almost 
25 % in 1995 versus 8 % in 1985.

Creating a list

Identifying individual high technology companies merely using industry classifications  such as Standard Industrial Classification Codes (SIC) or the more recently adopted North American Industry Classification Codes (NAICS) has limitations. For example, the average percent R&D employment in an industry, or the research intensity does not reflect the major variations in performance of individual companies or  establishments. Within some companies, the R&D talent, although abundant enough to qualify the industry sector for high-tech status, may be employed merely making small variations on existing products, rather than in true innovation.

Some companies involved in the manufacture of cigarettes, soaps, cleaners, toilet goods, paints and allied products, as well as some computer and office equipment manufacturing, are relatively mature, even though they may continue to generate new products. They use mass-produced components in highly-regulated factory settings, with superficial product changes, minimal engineering, or scientific input required.

When determinations of high technology status rely on industry-specific measures, rather than a determination of whether individual establishments are involved in innovative work, it may lead to companies being inappropriately categorized, or overlooked altogether.

References

Constance Lee Menefee
Copyright 2000

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