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Innovation and global supply chains: Findings from the Survey of Innovation 2005
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by Susan Schaan, SIEID, Statistics Canada
This article sheds light on selected characteristics of firms, both innovators and non-innovators that participated in a global supply chain. Using results from the Survey of Innovation 2005, four indicators of global supply chain participation are explored: sales; source of raw materials and components; source of new machinery and equipment; and contracting out of R&D services.
About this article
Findings
Summary
References
About the author
About this article
An innovation is defined as the introduction of new or significantly improved goods or services to the market, or the introduction of new or significantly improved processes, including new or significantly improved ways of delivering goods or services (OECD/Eurostat 1997). Only innovations occurring between 2002 and 2004—the survey reference period—were included in this analysis.
The sample unit for the Survey of Innovation 2005 was the statistical establishment. The questionnaire substituted the more familiar word “plant” for statistical establishment, which is also the term used in this article.
Estimates contained in the charts include the confidence intervals1 as a double-ended line extending above and below the estimate itself. This reflects the level of confidence that the estimate lies within the indicated range of values 95% of the time. Where confidence intervals for individual estimates overlap, these estimates are said to not be statistically significantly different from each other. Where confidence intervals do not overlap, estimates are statistically significantly different from each other. All estimates presented in this article have been evaluated for statistically significant differences.
Findings in this article were presented at the Statistics Canada Socio-Economic Conference, May 28-29, 2007.
More information about the Survey of Innovation is available here.
Preliminary results from the 2005 Survey of Innovation are now available. Please contact susan.schaan@statcan.gc.ca for more information.
What is a global supply chain?
According to the OECD guidelines a supply chain is “a network of facilities and distribution channels that encompasses the procurement of materials, production and assembly, and delivery of product or service to the customer” (OECD 2002). If this network is international then it can be referred to as a global supply chain. For the purposes of this analysis, engaging in trade with the United States is not sufficient for a plant to be considered part of a global supply chain. A plant is considered as part of a global supply chain if it satisfies at least one of the following criteria:
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The plant had some (more than 0%) of their revenues from sales to customers in Mexico, Europe, Asia Pacific or another country (not including the United States or Canada); or
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The plant had some (more than 0%) of their expenditures on raw materials and components from a supplier in Mexico, Europe, Asia Pacific or another country (not including the United States or Canada); or
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The plant had some (more than 0%) of their expenditures on new machinery and equipment from a supplier in Mexico, Europe, Asia Pacific or another country (not including the United States or Canada); or
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The plant had some (more than 0%) of their expenditures R&D services from a supplier in Mexico, Europe, Asia Pacific or another country (not including the United States or Canada).
Findings
In 2004, more than half of all manufacturing plants participated in a global supply chain
Of the 53.1% of manufacturing plants that participated in a global supply chain, 30.1% sold goods or services to global customers, while 34.0% purchased raw materials and components from global suppliers. Among the nearly two-thirds of plants (64.6%) that purchased new machinery or equipment in 2004, one-quarter (23.8%) of these did so from a global supplier. In addition, of the one in ten manufacturing plants (10.8%) that contracted out for research and development (R&D) services, 11.3% did so from global suppliers.
Large plants were more likely than both small and medium-sized plants to participate in a global supply chain
In 2004, 78.3% of large manufacturing plants (those with at least 250 employees) were part of a global supply chain, compared with 63.5% of medium-sized plants (those with 100-249 employees), and less than half (47.6%) of small plants (those with 20 to 99 employees).
Large plants were more likely to be involved in a global supply chain than either small or medium-sized plants for three of the four indicators examined (Chart 1). The contrast is most striking for plants with global sales and among those that purchased new machinery or equipment from global suppliers; large plants were almost twice as likely as small plants to have global customers and global suppliers of new machinery or equipment.
The exception is among the one in ten plants (10.8%) that contracted out for R&D services in 2004, where large plants were no more likely than small or medium-sized plants to contract out to global suppliers.
Chart 1
Percentage of manufacturing plants by selected global supply chain indicators and size of plant, 2004
Innovative plants were more likely to participate in a global supply chain than non-innovative plants
Almost two-thirds (61.4%) of innovative plants participated in a global supply chain in 2004 compared with slightly more than one-third (37.7%) of non-innovative plants. Innovative plants were more likely to participate in a global supply chain in 2004 than non-innovative plants for each of the four indicators examined (Chart 2). The contrast is most striking for the one in ten (10.8%) plants that contracted out for R&D services in 2004—innovative plants were four times more likely to contract out to a global supplier than non-innovative plants.
Chart 2
Percentage of manufacturing plants by selected global supply chain indicators, innovators and non-innovators, 2004
Innovative plants that were part of a global supply chain more likely to have world-first innovations than those that were not
Innovative plants that were part of a global supply chain in 2004 were three times more likely to have a world-first innovation (16.3%) than those that were not part of a global supply chain (5.6%). This was the case for three of the four indicators examined (Chart 3). The contrast is greatest for plants with global sales; an innovative plant was three and a half times more likely to have a world-first innovation if it had sales to a global client than if sales were not global.
An exception to greater likelihood for world-first innovations is among the two-thirds of plants that purchased new machinery or equipment in 2004; there was an equal likelihood that such a plant had a world-first innovation regardless of whether or not they were part of a global supply chain.
Chart 3
Percentage of innovative manufacturing plants with world-first innovations, by global supply chain participation and selected indicators, 2004
Summary
This article provides some insights into global supply chain participation, however there is much more work that can be done in this area. The analysis could be expanded to examine other characteristics of plants that participated in global supply chains. Firm structure, including geographic location of other plants and operations of the firm (multinational or domestic), as well as the propensity to be part of a global supply chain, could be explored. As the survey provides data on the geographical location of clients and suppliers, it would also be possible to explore whether some countries/regions are more active in global supply chains than others.
The analysis of global supply chain participation is important to appreciating the influence and impact of globalization. Although the Survey of Innovation 2005 provides indicators of global supply chain participation, opportunity exists for new survey questions and indicators to be developed. For example, data from the Survey of Advanced Technology 2007 will be available in the spring of 2008 and will provide information on geographical sources of advanced technologies.
References
OECD/Eurostat (1997). Oslo Manual—guidelines to interpreting innovation data, 2nd edition. Paris, France.
OECD (2002). Supply Chains and the OECD Guidelines for Multinational Enterprises. Paris, France, page 82.
About the author
Susan Schaan is with the Science, Innovation and Electronic Information Division (SIEID) at Statistics Canada. For more information about this article, please contact sieidinfo@statcan.gc.ca.
Note
- As the sample drawn for the Survey of Innovation 2005 was only one of many possible samples that could have been drawn using probability sampling methods, a sampling error can be attributed to each estimate. Standard errors combined with imputation rates have been used to provide a guide as to the reliability of percent estimates. The System for Estimating Variance due to Non-response and Imputation program (SEVANI) was used to complete these calculations. For the Survey of Innovation 2005 a 95% confidence interval was used in the probability sample scheme.
