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AN INTRODUCTION TO SPECIALISATION AND COVERAGE RATIOS
FIGURE 1 – EXAMPLE OF BUSINESS ALLOCATION TO INDUSTRY IN THE ABS
The supply-use tables are compiled at the level of 67 industries based on the Supply-Use Industry Classification (SUIC) and 114 products based on the Supply-Use Product Group (SUPG).
Figure 2 illustrates how primary products can be identified in the supply-use tables. The light green cells indicate primary production of industries and dark green cells indicate secondary production. The list of primary products associated with each industry in the supply-use tables are provided in Appendix A.
FIGURE 2 – PRIMARY AND SECONDARY PRODUCTION, 2016-17
The ratio between the production by an industry of products primary to it and its total output is called the specialisation ratio. This ratio indicates how concentrated an industry is on producing its primary products. A high ratio indicates a highly specialised industry (with a ratio of 100 per cent implying an industry performs no secondary production) and a low ratio indicating a more diverse industry that derives a substantial amount of total output from secondary production.
The coverage ratio is the market share of the industry to which the product is primary. A ratio of 100 per cent implies that all output of industry's primary products are performed solely by that industry. The coverage ratio of each industry producing a given product can be calculated by dividing that industry's output of that product by the total output of that product.
Importantly, the coverage ratio does not tell us about the penetration of imports for particular products, but analysis between Australian production and imports can also be performed using the supply-use tables.
INTERPRETATION OF THE RATIOS
There are some limitations to the analysis of specialisation and coverage ratios. For example, changes to these ratios could be attributed to structural changes within the industries. Businesses could be merging with others and thus acquiring capacity to produce a more diverse mix of products or diversifying themselves as new market opportunities open up. (footnote 1)
In addition, when analysing changes in specialisation and coverage ratios, it is important to consider the output of secondary production. Graph 1 compares the specialisation ratio to output of secondary production of the Internet Publishing and Broadcasting industry and the Construction Services industry.
GRAPH 1 – SECONDARY PRODUCTION LEVEL VS SPECIALISATION RATIO
The specialisation ratio for the Construction Services industry has remained unchanged because both primary and secondary production has increased at a similar rate. However, the output of secondary products by the Construction Services industry has increased by more than $57.5 billion in the past 20 years, accounting for more than 15 per cent of the increase in total secondary production by all industries.
In contrast, the change in specialisation for the Internet Publishing and Broadcasting industry is significant, falling from 96 per cent to 80 per cent between 1994-95 and 2016-17. The change in secondary production over the same period was $2.5 billion, accounting for only 1 per cent of total secondary production growth.
CHANGES IN SPECIALISATION AND COVERAGE RATIOS
Evidence of industry diversification and specialisation are observed at all scales in the supply-use tables. Graph 2 shows the changes in the specialisation ratio across all industries in the economy from 1994-95 to 2016-17. Specialisation trended downward until 2012-13, but since 2012-13 there has been a modest rise, which has been driven by the mining industry performing less of their own construction works at new sites and more of their core mining business.
GRAPH 2 – SPECIALISATION RATIO AND SUPPLY OF PRIMARY AND SECONDARY PRODUCTION
Graph 3 shows some of the industries with the biggest changes in their specialisation ratio between 1994-95 to 2016-17. Internet Publishing and Broadcasting, and Telecommunications Services are closely related, and the drop in their specialisation ratios is largely due to each industry supplying a growing share of the other’s primary products.
GRAPH 3 - LARGEST CHANGE IN SPECIALISATION RATIO, BY INDUSTRY, 1994-95 TO 2016-17
An industry's ratio of specialisation can be influenced by changes in primary and secondary production. Graph 4 shows the output of primary and secondary products by the Printing industry. This industry recorded the largest drop in specialisation of all industries, falling from around 79 per cent in 2007-08 to 25 per cent in 2016-17. In absolute terms, primary production of printing products fell from $7.4 billion to $1.7 billion over the same period. A major contributing factor to the decline in supply of printing products has been businesses and consumers moving to online platforms. Businesses are increasingly using online platforms to interact and engage with their customers with traditional printing services being phased out (footnote 2). While consumers use online platforms as a more cost effective way in distributing information than traditional print materials. The Printing industry has adapted to a fall in demand for its primary products by increasing output of complementary products such as advertising, commercial art, and specialised design services.
GRAPH 4 – PRIMARY AND SECONDARY PRODUCTION BY 160 - PRINTING SERVICES INDUSTRY, 1994-95 TO 2016-17
Graph 5 shows the coverage ratio of the Printing industry and the output of printing services by other industries. As such, the coverage of the Printing industry of its primary product also fell, from 80 per cent in 1994-95 to 49 per cent in 2016-17. This indicates that printing services is taking place elsewhere in the economy by industries such as Wholesale Trade, and Pulp, Paper and Converted Paper Manufacturing.
GRAPH 5 – SUPPLY OF PRODUCTS PRIMARY TO THE PRINTING SERVICES INDUSTRY
The specialisation and coverage ratios of the Computer Systems Design and Related Services industry are shown in Graph 6. Primary production by the Computer Systems Design and Related Services industry continued to increase yet its specialisation ratio fell. This industry has expanded rapidly over the past five years by servicing the growing need for upgraded software and systems operation, while mergers with other strategy and research firms have broadened the range of services supplied (footnote 3). For this industry, the change in specialisation is due to the increase in secondary production of professional, scientific and technical services, and more recently data processing.
GRAPH 6 – PRIMARY AND SECONDARY PRODUCTION BY COMPUTER SYSTEMS DESIGN AND RELATED SERVICES INDUSTRY, 1994-95 TO 2016-17
The Computer Systems Design and Related Services industry is one of only three industries recording an increase in coverage ratio, rising from 70 per cent in 1994-95 to 79 per cent in 2016-17. While the output of this product has grown across the economy, the industry has managed to maintain its coverage ratio.
CHANGES IN SECONDARY PRODUCTION
Over the past 20 years, there has been a $281 billion increase in secondary production across the economy. The largest contributor to the growth in secondary production over this period were the construction industries comprising Construction Services, Residential Construction, Non-Residential Construction and Heavy and Civil Engineering Construction, accounting for 38 per cent ($106 billion) of this increase. Much of the rise is related to variations in the way the construction products is produced between the four construction industries. The next largest contributor to growth in secondary production is Wholesale Trade, accounting for 12 per cent ($34 billion) of the increase in total secondary production. Graph 7 shows the output of selected products by Wholesale Trade industry. The secondary production of this industry is far more diverse, expanding to supply 43 of the 114 product groups by 2016-17.
GRAPH 7 - OUTPUT OF SELECTED PRODUCTS BY WHOLESALE TRADE INDUSTRY, 1994-95 TO 2016-17
In outlining the linkage between industries and primary products, and introducing basic ratios to analyse the changes in the structure of industries over time, this paper seeks to encourage and guide users to engage with the newly available detail in the supply-use tables.
ABS (2006), Australian and New Zealand Standard Industrial Classification 2006, cat. no. 1292.0, 2006, ABS, Canberra
ABS (2016), Australian System of National Accounts: Concepts, Sources and Methods, cat. no. 5216.0, ABS, Canberra
ABS (2018), Australian System of National Accounts, 2017-18, cat. no. 5204.0, Canberra.
ABS (2018), Australian National Accounts: National Income, Expenditure and Product , Jun 2018, cat. no. 5206.0, Canberra.
ABS (2018a), Australian National Accounts: Input-Output Tables, 2015-16, cat. no. 5209.0.55.001, Canberra.
ABS (2018b), Counts of Australian Business, including Entries and Exits, Jun 2013 to Jun 2017, cat. no. 8165.0, Canberra.
ABS (2018c), Labour Account, Australia, Quarterly experimental estimates, June 2018, cat. no. 6150.0.55.003, Canberra.
1. Additional ABS products can be used to extend upon or refine the analysis presented here. Resources that may be of particular use are Counts of Australian Business, including Entries and Exits (ABS, 2018c) and Labour Accounts (ABS, 2018d).
2. IBISWorld industry report (2018), C1611 Printing in Australia, January 2018
3. IBIS world industry report (2018), M7000 Computer System Design services in Australia, January 2018.
APPENDIX 1: INDUSTRIES AND THEIR PRIMARY PRODUCTS
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