Activities of multinational enterprises Eurostats approach Szymon Bielecki

Activities of multinational enterprises – Eurostat’s approach Szymon Bielecki European Commission Eurostat, Unit G 2 Structural Business Statistics

Outline n AMNE and FATS – general concepts n FATS compilation and dissemination in the European Union n Broader context of EU-FATS 11/6/2020 Foreign Affiliates Statistics (FATS) 2

AMNE and FATS – general concepts

What are FATS and AMNE? FATS: n In the past: n Now: Foreign Affiliates’ Trade in Services Foreign Affilia. Tes Statistics n statistics describing the overall operations of foreign-controlled affiliates (direct investment enterprises) n a ‘bridge’ between business statistics and FDI/Bo. P n part of AMNE statistics (Activities of Multi. National Enterprises) n traditional focus on services, now also manufacturing included n mode 3 of international supply of services n chapter IV of MSITS 2010, consistent with international standards (BPM 6, BD 4, SNA 2008)

Inward vs. Outward FATS

Statistical unit vs. reporting unit n Inward FATS: …we ask a resident enterprise being an affiliate of a foreign enterprise group about its own characteristics THUS: statistical unit = reporting unit n Outward FATS: …we ask a resident enterprise being head of an enterprise group about characteristics of other enterprises (its foreign affiliates) THUS: statistical unit ≠ reporting unit 11/6/2020 Foreign Affiliates Statistics (FATS) 6

FATS vs. AMNE

Rationale for compiling FATS n extend the information provided by international trade statistics, FDI statistics and business statistics n describe international commercial presence of enterprises n measure the real economic impact of direct investment flows n complement the information on economic links between countries n very relevant for research on economic globalisation – both in terms of reasons and effects/impacts n policy relevant – GATS, taxation, movement of capital

Dimensions of FATS 1. Economic activity of the foreign affiliate n MSITS: ISIC (ICFA groupings, focus on services) n EU: NACE (EU implementation of ISIC, goods and services) 2. Partner country n Inward FATS: country of the (ultimate) controlling investor n Outward FATS: country of residency of the foreign affiliate 3. Characteristics (variables) 4. Compiling country 11/6/2020 Foreign Affiliates Statistics (FATS) 9

FATS variables (MSITS, SNA) Basic measures: – – – sales (turnover) and/or output employment value added exports and imports of goods and services number of enterprises (affiliates) Additional measures: assets, compensation of employees, net worth, net operating surplus, gross fixed capital formation, taxes on income, research and development expenditures, purchases of goods and services (intermediate consumption)

FATS compilation and dissemination in the European Union

Common legal framework of FATS in the EU n Regulation (EC) No 716/2007 of the European Parliament and of the Council of 20 June 2007 on Community statistics on the structure and activity of foreign affiliates http: //eur-lex. europa. eu/Lex. Uri. Serv. do? uri=OJ: L: 2007: 171: 0017: 0031: EN: PDF n Implementing regulations of the European Commission on derogations, definitions, classifications, quality reporting n FATS Recommendations Manual 2009 edition http: //epp. eurostat. ec. europa. eu/cache/ITY_OFFPUB/KS-AR-09 -014/EN/KS-AR-09 -014 -EN. PDF 11/6/2020 Foreign Affiliates Statistics (FATS) 12

Obligatory FATS characteristics (variables) n Number of enterprises n Turnover n Number of persons employed n n n n 11/6/2020 Inward & Outward FATS Value added at factor cost Gross investment in tangible goods Personnel costs Production value Total purchases of goods and services Purchases of goods and services for resale Total intra-mural R&D expenditure Total number of R&D personnel Foreign Affiliates Statistics (FATS) Inward FATS 13

Data requirements n Periodicity: annual (first compulsory reference period 2007) n Timeliness: t+20 months n Classification: NACE (Rev. 2 in the course of implementation) n Dimensions: – Inward FATS: 1) 26+14 main partners x detailed activities 2) all partners x total economy (sections B-N excl. K) – Outward FATS: 1) 9 main partners x detailed activities 2) 24 other partners x 17 main activities 3) all partners x total economy (sec. B-S excl. O) 11/6/2020 Foreign Affiliates Statistics (FATS) 14

Limitations and challenges n complexity, intransparency and dynamics of large multinationial corporations’ structures n data completeness – population frame, sampling, size thresholds, response rate, estimations and imputation n consolidated reporting (turnover, trade variables) n confidentiality – level of detail for economic activity, links to other statistical domains (SBS), size of the economy n asymmetries Inward vs. Outward FATS – international cooperation very useful n lack of data cross-checking possibilities 11/6/2020 Foreign Affiliates Statistics (FATS) 15

Outward FATS data – some figures… 2008 data, total of non-EU affiliates, total economic activity country variable No. of enterprises (x 1. 000) Turnover (bn €) Employment (x 1. 000) Germany 11. 3 682 2309 France (2007) 10. 3 443 1785 Italy 7. 8 142 739 Netherlands 6. 1 295 666 Sweden 4. 2 88 568 Denmark 2. 9 n. a. 250 Finland 1. 5 67 214 Slovenia 1. 5 3 47 Belgium 1. 2 19 110 Austria 1. 0 35 153 (Note: UK and Spain not available)

…and interesting facts n Germany is the biggest contributor in all 3 variables and almost all destinations n the highest employment per affiliate: Cyprus (510) n 41% of ‘German’ turnover recorded by US affiliates n US affiliates very important also for the Netherlands, Italy, Sweden, Finland Belgium n Italy particularly present in Africa, Netherlands in S-E Asia n 21% of turnover for the Netherlands recorded by affiliates resident in offshore financial centres n other specific strong links: NL→CH, SE→NO, AT→HR, NL→RU, FI→RU, SE→UA, IT→KZ, FI→CN, IT→IL, NL→AE, IT→SA, NL→CA, NL→AR, IT→BR, IT→VE, PT→KY, PT→AO

Inward FATS data overview 2007 data, total of affiliates controlled from outside the EU, total econ. activity variable country No. of enterprises (x 1. 000) Turnover (bn €) Employment (x 1. 000) UK 11. 2 775 1824 Germany 10. 3 577 1429 Italy 5. 3 189 473 Hungary 4. 7 44 180 Bulgaria 3. 8 8 63 Sweden 3. 8 84 244 Austria 2. 4 60 116 Netherlands 2. 1 189 274 Portugal 1. 7 15 64 Spain 1. 6 98 295 (Note: France not available)

Some IFATS related facts and interpretations n for most of the EU countries the US parent companies play the most important role (in Cyprus 70%, in the Netherlands 67% of total turnover in non-EU controlled enterprises) n Germany, Hungary and the UK attractive for companies from S-E Asia; Bulgaria for Russia, Ukraine and countries of Central Asia and Middle East n large turnover of Swiss-controlled affiliates in Romania and Slovenia n Portugal with 17. 5% of affiliates controlled from offshore financial centres n 32% of Slovak employment in foreign controlled companies, 50% of Slovak and Hungarian turnover n affiliates controlled from another EU member more numerous than those controlled by non-EU countries (except for UK) n the most important destinations inside the EU: Germany, Hungary, UK, Italy and Bulgaria; importance of neighbours’ links n some other interesting links: UA→HU, IL→HU, SC→HU, AU/NZ→UK, CA→UK, ZA→UK,

Broader context of EU-FATS

Links of FATS with other statistical domains n FATS extend the information provided by international trade in goods and services statistics (transactions), FDI statistics (flows, stocks, income) and business statistics (characteristics of resident enterprises) n data can and should be analysed in the context of the other statistical domains n the same classification used for FATS, FDI and SBS (economic activity), but different for international trade n trade variables (intra-firm, goods/services) would be very interesting but seem unfeasible in FATS

Relation between FDI statistics and FATS n FDI – cross-border capital links between enterprises n FATS – real economic activity of the capital located abroad (extension of the information provided by FDI) n FDI – 10% or more of voting power in the FDI enterprise (ownership) n FATS – concept of control over the affiliate (e. g. ‘power to name the majority of its directors or otherwise to legally direct its actions’ (MSITS); in practice 50%+ voting power) n FDI – statistics according to individual country shares n FATS – affiliate’s characteristics attributed as a total

FATS vs. other statistics

Data collection links to FDI and SBS n FATS variables defined like in the SBS framework n Commonly used synergies in data collection: – Inward FATS: business registers, business statistics surveys – Outward FATS: FDI registers, FDI surveys (as an annex) n Two basic approaches to developing FATS: 1. directly request information from enterprises via surveys (Inward FATS – affiliates, Outward FATS – parents) 2. (Inward FATS only) identify the foreign-controlled subset of the existing data on resident enterprises (SBS) n Advantages of separate FATS surveys (approach 1): – possibility of tailoring the requested data (variables, classifications) and survey periodicity to data compiler’s needs and data reporters’ capacities – no automatic use of SBS/FDI size thresholds

Euro. Groups Register n Register of multinational corporations active in the EU n Ongoing project, 5000 biggest groups, soon 10000 n Corporate structures, ID numbers, key characteristics (where available), UCI, SPE… n integration and cooperation between business statistics and investment statistics n Source: commercial databases (Bureau van Dijk, Dun&Bradstreet), combined by Eurostat, verified and completed by national statistical data compilers n Access restricted to EU NSIs and (soon) NCBs n Main users: FATS and FDI statisticians 11/6/2020 Foreign Affiliates Statistics (FATS) 25

Thank you very much for your attention! Contact: szymon. bielecki@ec. europa. eu 11/6/2020 Foreign Affiliates Statistics (FATS) 26