Factors affecting growth of added value

1.2 Factors affecting growth of added value

- social factors and components of environmental protection,

- politics and law (development trends in the economic policy and legislation, share of foreign companies on the market, issues of export and technology transfer).

The factors of immediately relevant environment of an enterprise include productivity, investment intensity, innovations, quality of products, marketing, vertical integration and customer-related factors (consulting, servicing and contracted services) and workers (qualification, fluctuation, remuneration system).

To compare the selected countries we will initially use the indicator of economic survival ⁰, which represents the share of total added value on production and sales for which we used the turnover indicator – see Table No. 1; the table provides the first comparable variable available not only at the macroeconomic level but also at the microeconomic level to compare individual enterprises. The higher the value of this indicator the better the country or enterprise is doing and its survival is more probable (it has a higher ratio of the added value to the turnover).

A more detailed view of research and development expenditures is provided in Figure No. 2 which shows relative shares of various financial resources on research and development expenses, i.e. the percentage of GERD (Gross Domestic Expenditures on Research and Development), funded from private business sources, public sources and sources of university and private non-for-profit sector and from foreign sources. Research and a development involves significant flows of financial means between individual entities, organizations, sectors and countries. The Lisbon Strategy targets set in Barcelona defined the structure of representation of the individual sources for funding of research and a development as follows: 1/3 from public sources and 2/3 from private sources. The target has been met by Belgium, Denmark, Germany, Finland and Sweden. In the Czech Republic and Slovakia the shares of public and private expenditures on research and development are approximately the same and it is expected that the missing private sources are obtained from abroad.

Another factor affecting growth of added value which takes into account added value per one employee is the productivity indicator⁰; according to Havlíček (2011, p. 196-197), it is strongly dependent on the business orientation ( e.g. in production companies this indicator is lower than in consulting companies). It provides information whether the company is able, before investing and paying interest on credits, to cover the wages of its employees and whether it is prepared for further investment development.

From the macroeconomic point of view it is more convenient to express productivity per one worked hour (see Fig. 3) which provides a more comprehensive picture of productivity development in a specific economy than productivity per one employee because it balances differences between countries and years with a given setup of workforce made up of full-time and part-time jobs. This indicator confirms the leading position of the already mentioned countries, i.e. Denmark, Belgium, Sweden and Finland throughout the entire 11 years.

Fig. No. 3: Real productivity of labor in EUR per hour and per employee in selected EU countries over a period of eleven years in 2003 – 2013
Source: The chart is based on Eurostat data – available at: http://apl.czso.cz/pll/eutab/html.h

A derived indicator which affects the level of innovation and productivity of labor is e.g. the number of patents⁰; they are affected positively if the number of patents increases, as indicated in Fig. 4. From the microeconomic point of view an even more important role is played by innovation and requirements for appropriate macroeconomic and microeconomic climate and observation of the corporate values supporting innovation because the innovation processes particularly require consistency, creativity and courage to overcome habits, traditions and risks and innovation represents a driving force for growth of added value as such, including inspiring cooperation between the business sector, non-for-profit sector and university sector.

To complete the picture provided by the indicator of real productivity of labor, we have also provided an indicator of annul average of hours worked per one week. Fig. 5 illustrates that the high added value reported by some countries was achieved by higher effectiveness and efficiency of labor and not by more working hours. This eventually affects quality of life of the employees and their families.

The last monitored factor affecting growth of added value is the return on equity and investment intensity. The return on the own investments is reported through a net return (after tax) on equity of non-financial enterprises⁰ which is decreasing in the monitored countries (except in Portugal , Hungary and the Czech Republic) as indicated in Fig. 6.

The rate of investment⁰ is understood as an element in evaluation of the investment intensity where the technology selected by an enterprise determines how much investment capital and operating capital is needed to obtain one unit of added value. From the microeconomic point of view it means that the higher the investment intensity, the higher the break-even point; in our case – see Fig. 7 – the situation is inverse and therefore the companies improve their return on investment and profitability. According to Steinőcker (1998, p. 102), in small and medium enterprises the investment intensity can be seen as a strategic commitment which, on the other hand, limits flexibility of the concerned business unit.