Definition of High Technology

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. The 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.

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.

Local universities and organizations can benefit from R&D alliances with high tech companies. Experts consider
active universities a key component in successful high tech regions, in part because universities can serve as
incubators for high tech start-up companies, as well as providing ongoing technical support to business.

Alliances between the high technology sector and local institutions ultimately lead to an improved quality of life
through a spillover into the arts, local education, and social programs.

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 the most significant indicator 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.

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

¾ Douglas Braddock, “Occupational employment projections to 2008,” Monthly Labor Review, November 1999
¾ Paul Hadlock, Daniel Hecker and Joseph Gannon , “High technology employment: another view,” Monthly
Labor Review, July 1991
¾ John E. Jankowski, “R&D: Foundation for Innovation,” Research-Technology Management, March-April 1998
¾ William Luker, Jr. and Donald Lyons, “Employment shifts in high-technology industries, 1988-1996,”
Monthly Labor Review, June 1997
¾ John W. Medcof, “Identifying ‘Super-Technology Industries,’ ” Technology-Research Management, July-August
1999
¾ Roger Stough, et al., Technology in Virginia’s Regions, Center for Regional Analysis, Institute of Public Policy,
George Mason University, June 1997
¾ An assessment of U.S. competitiveness in high technology industry (1983), U.S. Department of Commerce
¾ National Science Foundation, Science and Engineering Indicators ⎯ 1998
¾ Occupational Employment by 3-Digit SIC Code (1997), Bureau of Labor Statistics
¾ R&D Ratios & Budgets, Schonfeld & Associates, annual release