'The Phenomenal Cat': Firms Clawing the Goods of Others
35 Pages Posted: 5 Feb 2016
Date Written: July 23, 2015
Using results collected for the first time through interviews with Italian manufacturing firms, this work shows that around a quarter of aggregate manufacturing sales are not sold by the actual producer. This circumstance, known as carry along trade (CAT), means that the comparative advantage of some manufacturing firms lies in activities other than crafting, with important consequences for the interpretation of productivity measures. CAT firms hold a 3% productivity premium compared with the average firm, which does not disappear controlling for size, export and multinational status, geographical location and sector. This premium increases to 10% when CAT involves mainly packaging and to 20% when goods produced by third parties are sold under the brand or associated with the brand of CAT firms. Furthermore, CAT firms specializing in downstream activities earn higher profit margins on sourced than on in-house production. CAT can thus be conceived as an example of functional upgrading of some firms towards more valuable downstream activities. Usual productivity measures disregard the CAT phenomenon and bundle a firm's ability to combine factors within a physical production process with other sources of profitability, such as proximity to consumers, access to foreign markets through well-established distributional channels, and marketing skills. The existence of CAT calls for a methodological refinement of productivity measurement.
Keywords: carry along trade, productivity premia, servicification
JEL Classification: F12, F14, L11
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