The Role of R

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The Role of RD on Firms Export Performance
A case of Thailand
2
Definitions

• Thai firms - Firms where 100 of its capital is
  held by Thai people.
• Non-Thai firms - Firms report any share of
  foreign capital.
• Exporting firms (EF) - Firms report the share of
  exports of total sales is greater than zero (not
  sold 100 on the domestic market).
• Large-share exporting firms (LSE)- export in
  total sale is greater than or equal to 50
• Small-share exporting firms (SSE)- export in
  total sale is larger than 0 but less than 50
• Non-exporting firms (NE) - Firms that not export
  at all (sold 100 on the domestic market)

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Statement of the problem

• Shifting in world demand from labor-intensive to
  technology-intensive products (Lall, 2000)
  pressures manufactured firms in Thailand improve
  technological capabilities.
• One strategy implemented to develop technological
  capabilities is performing research and
  development (RD).
• RD expenditures in the private sector in
  Thailand have been increasing.
• Is RD improve export performance of firms in
  Thailand?

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Statement of the problem
RD Expenditures Classified by Sector
million baht
  1996 1997 1999 2001
Total RD expenditures 5,528 4,811 5,021 11,064
Government sector 2,708 2,666 1,833 5,019
High education sector 1,219 1,631 2,570 1,950
Business enterprise sector 1,243 466 587 4,009
Private non-profit sector 357 46 30 85
Source Office of the National Research Council
of Thailand
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Conceptual Discussion

• 1) RD and export performance
• However, the effects of RD on export performance
  of firms in developing countries remain
  ambiguous.
• One the one hand, some previous studies (Posner,
  1961 Hirsch, 1965 Vernon, 1966) proposed that
  RD determines export performance of developed
  countries only.
• One the other hand, there are studies argued that
  imported technology is often costly, risky and
  difficult to codified (Kumar and Siddharthan,
  1994 Lall, 2000 Rodriquez and Rodriquez, 2005).
• There is still no conclusion.

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Conceptual Discussion

• 2)The nature of RD in developing countries
• The role and organisation of RD in
  Technology-Followers (Forbes and Wield, 2000)
• RD as a complement to shop-floor innovations.
• RD as the formal learning unit of the firms
• RD as a measure to build an independent product
  design capability
• RD as a source of intangible spin-off benefits
  for the firms

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Conceptual Discussion

• 2)The nature of RD in developing countries
  (cont.)
• Industrial Structure and the role of RD (Kumar
  and Siddharthan,1994 Dijk, 2002)
• In developing countries, RD determines the
  export performance of firms in low-technology and
  medium-technology industries.
• However, RD does not affect export performance
  of firms in the high-technology industry.

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Conceptual Discussion

• 3. The Multiplant Economy of Scale and RD
  Behavior of MNEs (Markusen, 1984)
• Economies of multiplant operation.
• Explains MNEs behavior in host countries.
• MNEs may be composed of many plants. One plant
  (or more) carries out RD and use its output as
  joint inputs of all plant productions.
• Thus, the RD behavior of MNEs are different from
  the RD behavior of local firms and should be
  separately analyzed.

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Remarks for the study of Thailand

• The role of RD in technology follower firms may
  differ from technology leader firms (Forbes and
  Wield, 2000) .
• MNE firms may behave differently in RD activity
  from Thai locally owned firms. (Markusen,1984)
• Effects of RD on export performance vary across
  industries. (Kumar and Siddharthan,1994)

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Objective of the study

• 1) To estimate the effect of RD intensity on
  export performance of firms in Thailand.
• 2) To investigate the differences in RD behavior
  between exporting firms and non-exporting firms.

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Method of the study

• To answer the 1st objective
• - using econometrics model to estimate effects
  of RD intensity on firms export performance
  (estimated whole sample).
• - examine the effects of RD on export
  performance of Thai firms and non-Thai firms.
• - examine the effects of RD on export
  performance across groups of industries.
• To answer the 2nd objective
• - using ANOVA to investigate RD behaviors
  among RD firms.

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Organization of the study
indifferent
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The 1st objective
Estimate the effect of RD intensity on export
performance of manufacturing firms in Thailand
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Theoretical Model

• From

is the optimal level of the firms total output.
is the optimal level of output sold in the
domestic market is the output sold in the
foreign market or the level of the firms export
product. is the cost variable that is common
to production for both markets is the specific
cost of each market (k d, f) . is a vector of
the specific factors of firm j, such as the
productivity, size, and ownership.
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Theoretical Model

• Focusing on optimal level of firms export
• From Crepon, Duguet, and Mairesse (1998), RD can
  improve productivity, then reduce the exporting
  cost, and increase export level.
• RD can also ease firms to develop new products.
• Applying equation (4.13) in practice, firms
  export performance is influenced by the exporting
  cost and firms characteristics

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Theoretical Model

• Alternatively, we use knowledge from previous
  literatures as proxy variables.
• RD intensity- reduces costs of exported goods
  and extend product ranges.
• Skilled labors can be either complementary
  factors for RD activities or raising production
  costs.
• Firms size Large firms tend to have cost
  advantages. Empirical evidences also found
  inverted U-shaped relationship between firms
  size and export
• Ownership Foreign and Joint venture firms have
  superior knowledge, export experience, and can
  easier access advanced technology. Hence, costs
  of export market penetration are lower than local
  firms.

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The Model
18
Data descriptions
19
Whole sample estimated results
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Estimated results by ownership
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Notifications from estimated results

• Effects of RD intensity on export performance of
  non-Thai firms and Thai firms are different
• Export performance of non-Thai firms is not
  determined by RD intensity
• The results indicate that RD behaviors of
  non-Thai firms can not well explained by this
  model. (see Markusen,1984)
• Hence, it is reasonable to consider effects of
  RD intensity on export performance of Thai firms
  rather than whole firms.

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Estimated results of Thai firms

• LR-test shows that tobit model is more
  appropriate
• Export performance of Thai firms is determined by
  RD intensity, firms size, and size2
• The expected signs of all variables are correct
  with the assumption.
• RD intensity positively correlates with export
  performance. If RD intensity increases
  (decreases) one million baht, the conditional
  expected of export intensity increases
  (decreases) 1.8746 unit.
• Hence, RD intensity can improve export
  performance of Thai firms

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Estimated results of Thai firms

• A marginal effect of skilled labors has positive
  sign and is equal to 0.0159. If share of skilled
  labors in total employees increases (decreases)
  one unit, the conditional expected of export
  intensity increases (decreases) 0.0159 unit.
• However, this variable is insignificant. Skilled
  labors do not affect export performance of
  manufacturing firms in Thailand.

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Estimated results of Thai firms

• As for firms size. If numbers of employees
  increase (decrease) by one hundred persons, the
  conditional expected of export intensity
  increases (decreases) by 0.0039.
• Size2 has negative sign
• Firms size and export performance reveal the
  inverted U-shaped relationship

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The effect of RD intensity with sector variation
Sector characteristics Industry Technology accumulation Source of technology
Supplier dominated Agriculture, construction, Services, Traditional manufacturing Import technology / Little RD Specialized suppliers
Scale intensive Petroleum and coal, iron and steel, motor vehicles, transportation equipments Design, Operation , and learning by doing (Process innovation) Internal
Specialized suppliers Machinery building, instruments Design development Clients
Science based Chemical products, Electronics products, Pharmaceutical products Academic research, Search for new technology In-house RD, external collaboration
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Data descriptions
27
Estimated results by industries
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Estimated results classified by industrial
structure

• RD intensity determines export performance of
  firms in supplier dominated industries and scale
  intensive industries only.
• Our results are similarly with the results of
  Kumar and Siddharthan (1994) for India and Dijk
  (2002) for Indonesia.

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The 2nd objective
To investigate the differences in RD behavior
between exporting firms and non-exporting firms
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Analytical framework
Based on Forbes and Wield (2000) and other
previous literatures, RD behaviors can be
represented by
Criteria Measurement
A presence of in-house RD distribution of in-house RD activities (in all RD activities)
Numbers of scientists and engineers The number of engineers and scientists in total employees
The numbers of own design product   1)Products designed by firms according to customer requirements in total sales
The numbers of own design product   2)Products designed by firms and sold under own brand
Types of RD distribution of RD expenditures on Basic, applied, experimental
Objectives of RD RD outputs (new or improved product/ process)
Level of external collaboration in RD 1-5 Likert scale (evaluated the intensity of collaboration)
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Analytical Results
  All Firms with RD NE SSE LSE
  All Firms with RD Export 0 (0ltExport lt50) Export 50
The in-house RD 0.90 (0.26) 0.93 (0.21) 0.88 (0.28) 0.90 (0.26)
Numbers of scientists and engineers 0.07 (0.10) 0.06 (0.09) 0.10 (0.12) 0.06 (0.07)
Share of products designed by firms according to customer requirements in total sale 0.15 (0.29) 0.15 (0.29) 0.10 (0.21) 0.22 (0.35)
Share of products designed and sell under own brand in total sale 0.35 (0.43) 0.26 (0.41) 0.51 (0.45) 0.25 (0.39)
N 164 51 63 50
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Analytical Results
All Firms NE SSE LSE
All Firms Export 0 (0ltExportlt50) Export 50
Basic Research 0.64 (0.31) 0.59 (0.31) 0.63 (0.31) 0.70 (0.32)
Applied Research 0.28 (0.30) 0.31 (0.29) 0.29 (0.31) 0.25 (0.29)
Experimental Development 0.08 (0.11) 0.10 (0.12) 0.08 (0.12) 0.05 (0.09)
N 164 51 63 50
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Analytical Results
All Firms NE SSE LSE
All Firms Export 0 (0ltExportlt50) Export 50
Improve production process 0.39 (0.49) 0.50 (0.51) 0.29 (0.46) 0.40 (0.49)
Develop new production process 0.32 (0.47) 0.29 (0.46) 0.33 (0.48) 0.34 (0.48)
Improve quality of existing products 0.62 (0.49) 0.75 (0.44) 0.56 (0.50) 0.58 (0.50)
Develop new products 0.67 (0.61) 0.61 (0.49) 0.76 (0.76) 0.62 (0.49)
Granted patents 0.09 (0.28) 0.10 (0.30) 0.05 (0.21) 0.12 (0.33)
N 164 51 63 50
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External collaboration in RD
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Analytical Results

• Average of in-house RD of NE, SSE, LSE are not
  statistically different.
• On average, SSE have more numbers of scientists
  and engineer than other sub-samples, but the
  distinction is not statistically different.
• Design capabilities of LSE, SSE, and NFE are
  statistically different.
• LSE typically design and produce products
  according to customer requirements.
• SSE design and produce products, and then sell
  under their own brands.

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Analytical Results

• The results roughly present that exporting firms
  (both SSE and LSE) have design capabilities more
  than non-exporting firms.
• On average, non-exporting firms mostly perform
  experimental RD, and also successfully improve
  efficiency of production process as well as
  improve quality of existing products.
• One possible explanation is that non-exporters
  carry out experimental RD and conduct RD with
  the purpose of succeed in the domestic markets,
  not for export markets.

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Analytical Results

• On average, exporting firms (SSE and LSE)
  cooperate with the external agents more than
  non-exporting firms.
• Non-exporting firms intensely collaborate with
  public agents
• However, the degrees of external collaborations
  in RD do not statistically different among three
  sub-samples.

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Summary of the Finding

• RD intensity positively determines export
  performance of Thai firms, but not influence
  export performance of non-Thai firms.
• The results support the explanation on RD
  behaviors of MNEs by Markusen (1984).
• Regarding Thai firms, RD intensity affect export
  performance of firms in supplier dominated
  industries and scale intensive industries in
  positive way.
• For specialize supplier and science based
  industries, RD intensity has no effects on
  export performance.

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Summary of the Finding

• So far we can finish both objectives,
• 1st objective - RD intensity positively
  influences an export performance of manufactured
  firms in Thailand, but its impacts vary by
  industrial structures and ownership.
• 2nd objective - Thai RD firms that export report
  higher designed capabilities than other firms.
• Hence, apart from RD intensity, it can be
  roughly said that designed capabilities are
  important.

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Limitations and Suggestions for further studies

• Restrictions of the data.
• It is difficult to measure RD output. This study
  use RD input instead.
• The data is cross-section data, which do not
  allow us to examine the effects of RD more than
  one reference year. According to the fact that
  RD require some period of time to yield
  benefits, studying on one year may too short.
• In addition, many previous studies propose that,
  alternatively, export also causes RD. Using
  cross-section data restrict to effectively
  analyze in dual ways.

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Limitations and Suggestions for further studies

• Limitations of quantitative analysis.
• It does not give much information on firms RD
  behaviors and export decision. In-depth study
  should be continued henceforth.
• Furthermore, non-formal RD also important for
  developing countries, further studies should draw
  attention on non-formal RD activities as well.

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End of presentation