Firms in software, electronics (including instruments, semi-conductors, and computers), and biotech form a special subset of the MIT-related companies. They are at the cutting edge of what we think of as high technology. They are more likely to be planning expansion than MIT-related companies in other industries. They export a higher percentage of their product, are more likely to hold one or more patents, and spend more of their revenues on research and development. Together, firms in these three industries account for two-thirds of the employment in all MIT-related companies; electronics and instrument firms alone account for 57%. These high-tech, high-growth firms are more likely to locate in California or Massachusetts than elsewhere in the country. As we'll see, MIT-related companies form a major part of these two premier high-tech complexes.
The expansion plans of firms in the 1995 survey form an interesting "leading indicator" pointing to growth prospects by industry. By this measure, the leading growth industries are electronics, software, and advanced materials (chemicals); over 60% of the firms in these industries are planning to expand (Chart 7). These are followed closely by machinery and biotech (drug) companies.
Not coincidentally, these are also the industries with the highest R&D expenditures, the greatest likelihood of holding a patent, and the greatest share of export sales.
Electronics, machinery, and chemical firms are most likely to hold patents; in all, about 75% of the survey firms in these industries held at least one patent (Chart 8). California and Massachusetts firms are more likely to hold patents than are their colleagues in the same industries in other states. This is certainly consistent with the reputation of these two states as the two premier technology locations in the country. All told, 41% of the Massachusetts firms responding to the survey and 45% of the California firms held at least one patent, as against 27% elsewhere.
The companies holding patents averaged 9.5 patents each, with another 2.7 patents pending and still another 9.2 patents held personally by the founder (Appendix Table 12). Larger companies are more likely to hold patents (55% of companies with 500 or more employees hold at least one patent as against only 31% of companies with fewer than 50 employees); the larger companies also hold more patents (45 per company for those with 500 or more employees versus only 6 for those with fewer than 50 workers).
Software, biotech (drugs), electronics, chemicals and advanced materials firms spend the most on R&D, as shown in Chart 9. Software companies spend 18% of total revenues on research; the average for all companies surveyed is 10%. Average spending on marketing is 11% of revenue.
Exports account for 26% of the sales revenues of the surveyed companies. Over half of the exports go to Europe, Australia, and Japan; almost a quarter go to Asia, and 10% go to Canada.
Exports are far more important to software and electronics firms (52% and 44%, respectively, of total revenues) than to companies in other industries (none of which has an export share greater than 22%), as shown in Chart 10. These high-tech, high-growth industries clearly depend on foreign as well as domestic markets.
Massachusetts electronics and software firms are more heavily into export markets than their counterparts in other states. Massachusetts software companies responding to the survey sell fully 65% of their output abroad; this compares with 28% for California software firms, 38% for firms in the rest of the Northeast, and 5% or less in other states. Across all industries, exports account for 35% of total sales for Massachusetts companies as against 24% in California and the Northeast, 16% in the Northwest, and only 4% elsewhere in the country.
Cultural differences, government regulations, intellectual property rights violations, and difficulty in obtaining financing are the most important obstacles to success in foreign markets (Chart 11). As we might expect for high-tech goods and services, tariffs are not the major obstacle to expanded trade.
There are some very interesting differences between industries. Tariffs are a slightly more important obstacle for machinery manufacturers and energy generating companies; they are not a problem for consulting firms. We'd expect intellectual property rights violations to be a problem for software firms, and they are, but this difficulty was also given a fairly high rating by biotech companies, chemical and other manufacturers, and engineering and scientific consultants. Government regulations were a particularly important problem for energy and aerospace companies. The largest companies--those with 500 or more employees--were much less likely to report difficulties in obtaining financing than smaller firms.
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