13-Jul-07 Results of the vignettes on the test of a new definition of enterprises

13-Jul-07

Results of the vignettes on the test of a new definition of enterprises

13-Jul-07 Name of the presentation

Context of the study

Eurostat MEETS program – Need to develop statistics on globalisation

• ESSnet on profiling large and complex multinational enterprise groups (MNE)

– Need to improve consistency in European statistics• Consistency between countries• Consistency between domains of business statistics• ESSnet on consistency

– One common interest for the statistical unit “enterprise” in both projects,

• several reasons to change the definition of enterprise • Common statement on the necessity to change the definition

of enterprise


The profiling project proposes a new definition of enterprise

To better take into account the global dimension of economic activity

To improve relevance of national business statistics, significance and comparability at the European level

A top-down approach to delineate the new enterprises 2 levels of enterprises

– The global enterprises (GEN) defined regardless of the geographic dimension

– The truncated enterprises (TEN): the national parts of the GEN


How to test the new definition of “enterprise”?

The adoption of a new definition for enterprises: a sensitive topic – The NSIs expressed an opposition in the different working

groups (BR, SBS)• How to collect information on the new enterprises?• ESSnet profiling proposes a more collaborative way to

delineate the new enterprises– Loss of sovereignty of the countries

• Breaks in series due to the change of definition Need to transfer the debate from the political to the

technical level


What are the vignettes?

Technique used mainly – In questionnaire testing– In qualitative research and social statistics

Short stories Use the respondent’s words Contain a bit of ambiguity Enlighten the response process

Appropriate to test a new definition of enterprise– Need to elicit the context of a new definition and its impact

on NSIs' organisation and on statistics – Avoid preconceived judgment


Principles applied to build the vignettes

Stories must appear plausible and real to participants Stories need to avoid depicting eccentric characters and

disastrous events Vignettes need to contain sufficient context for

respondents to have an understanding about the situation being depicted, but be vague enough to ‘force’ participants to provide additional factors which influence their decisions

Vignettes must be presented in an appropriate format


The building of the vignettes

Describe current situations – supposed to be encountered yet in the EU countries– difficult to tackle for the business statisticians – Solved with the new definition

Cases presented according to a growing scale of complexity

Graphical illustration with a short text aside To be tested in different domains of business statistics

– SBS, STS, BR, NA


Topics treated in the 7 vignettes

Treatment of a legal unit performing an ancillary activity for another legal unit or for 2 other legal units in the same group

Treatment of vertically integrated activities in one country and in two countries

Treatment of international trading flows in the frame of a multinational enterprise group

Treatment of the headquarters Determination of the activity code in complex situation Treatment of a legal unit acting for 2 global enterprises in the

group Organisational aspects of gathering statistics on newly defined

statistical units


General results of the vignettes

42 answers received from 25 EU countries

7 countries sent a single coordinated answer for all the domains

10 answers from BR respondents



0

2

4

6

8

10

12

0 1 2 3 4 5 6 7 8

Number of differences between the current situation and the theoretical view

Num

ber

of

tim

es

the "

pro

filin

g"

solu

tion is

chose

n a

s th

eore

tica

l vie

w

RAGL

GL NANA

GL

SBS

GL

BRBR

BSI

BR

GL

BR

GLNA

BRGL

Prof BR

BSI

SBS

GLNA

SBS

Prof

BSs

SBS

STS

BR

NA

BR BS

BR

prof

BSs

BR

BR-SBS

Prof

STSGL

the sceptics

the forerunners the cautious

the driving force of the change

Ability of changing

Degree of closeness toward the definition of profiling


A majority of respondents open to consider the enterprise as a set of legal units

NSIs promote the follow up of national activities against the global activity of the group

The use of administrative data does not win unanimous support: the NSIs prefer in majority to survey the new TEN

The split of legal units is not well accepted



Vignette 1: One country / one ancillary activity serving one LeU

A domestic group has a single GEN with an activity “manufacture of footwear”.

– This activity takes place in 1 country and involves 2 legal units: • LeU1 performs the manufacturing

activity • LeU2 manages the human

resources for the whole TEN. – LeU 2 does not sell its output outside

the TEN

GEN1NACE:152Empl:100

Turnover:2000

TEN1NACE:152Empl:100

Turnover:2000

LeU1Nace:152

Empl:0Turnover:2000

LeU2Nace:7830Empl:100

Turnover:300

300


Vignette 1: One country / one ancillary activity serving one LeU

Proposed solution

Current solution

a- Consider TEN1 as a whole (NACE:152, empl:100, Turn:2000) and survey it (consolidated data collected)

28 13

b- Consider TEN1 as a whole (NACE:152, empl:100, Turn:2000) but use surveys on LeUs or administrative data (and remove the intra-TEN flows)

16 6

c- Consider TEN1 as a whole (NACE:152, empl:100, Turn:2300) but use surveys on LeUs or administrative data (without removing the intra-TEN flows)

1 2

d- Consider the LeUs as two separate enterprises

7 20

e- Other solution …………………………………………………………. ……………………………

0 6

YES NO Did you already encounter this kind of situation in your country? 40 2


Vignette 2: One country / vertical integrated activities/ one ancillary activity serving several LeUs

A domestic group has – A single GEN with an activity

“manufacture of footwear” – Activity takes place according to a

vertical integration: • LeU1: tanning and dressing of

leather • LeU3: manufacture of footwear • LeU2 manages the HR for the

TEN. • LeU1 and LeU2 do not sell

their output outside the TEN


Turnover:2000


Turnover:2000


Turnover:300

LeU3Nace:152

Empl:0Turnover:2000

LeU1Nace:151

Empl:0Turnover:1000

150

150

1000


Vignette 2: One country / vertical integrated activities/ one ancillary activity serving several LeUs

Proposed solution

Current solution

a- Consider TEN1 as a whole (NACE:152, empl:100, Turn:2000) and survey it (consolidated data collected)

23 9

b- Consider TEN1 as a whole (NACE:152, empl:100, Turn:2000) but use surveys on LeUs or administrative data (and remove the intra-TEN flows)

15 5

c- Consider TEN1 as a whole (NACE:152, empl:100, Turn:3300) but use surveys on LeUs or administrative data (without removing the intra-TEN flows)

1 1

d- Consider 2 national parts of the GEN, one with NACE 151 and one with NACE 152 and split the activity of LeU2 into the 2 national TENs

3 2

e- Consider the LeUs as three separate enterprises 8 19 f- Other solution 2 7

YES NO

Did you already encounter this kind of situation in your country? 34 8


Vignette3: Two countries / global integration of activities /1

A MNE has a single GEN with an activity "manufacture of footwear".

– Activity in 2 countries – vertical integration:

• In country C1: "tanning and dressing of leather"

• In country C2: "manufacture of footwear"

• In C1, the complete activity of TEN1 is integrated in the group (intra-GEN activity)

• LeU1 sells all of its output to LeU3 in C2.

• LeU1 has an exported turnover (intra-group) and then a value added outside TEN1.


Turnover:4000

TEN1NACE:???Empl:100

Turnover:2000


Turnover:4000


Turnover:300


Turnover:4000

LeU1Nace:151

Empl:0Turnover:2000300

2000

C1

C2


Vignette3: Two countries / global integration of activities /1

Proposed solution

Current solution

a- Consider TEN1 as a whole and apply the NACE of the GEN (NACE:152)

2 0

b- Consider the TEN1 as a whole and apply the NACE of the production unit (NACE:151)

34 12

c- Consider the 2 LeUs in country C1 as two separate enterprises

8 16

d- Other solution ………………………………………………………… ………………………………

4 1

YES NO Did you already encounter this kind of situation in your country?

27 15


Vignette 4: Two countries / global integration of activities /2

This case is quite similar to example3. The difference is:

– Activity in 2 countries – vertical integration:

• In TEN1: LeU5 performs a small activity of "manufacture of footwear" (NACE:152)

• But the main activity is performed by LeU1 in NACE 151

• LeU1 sells all of its output to LeU3 in C2 and LeU5 in C1.

• However, the largest part of LeU1 production is used outside TEN1 (but intra-GEN1).

• The VA of LeU1 outside TEN1 is higher than VA of LeU5

• Both LeU5 and LeU3 sell their outputs outside the GEN


Turnover:2500

TEN1NACE:???Empl:120

Turnover:1200


Turnover:2000


Turnover:360


Turnover:2000

LeU1Nace:151

Empl:0Turnover:1000

LeU5Nace:152

Empl:0Turnover:500

300

700

60

300

C1

C2


Vignette 4: Two countries / global integration of activities /2

Proposed solution

Current solution

a- Consider TEN1 as a whole and apply the NACE of LeU5 and GEN (NACE:152)

3 2

b- Consider the TEN1 as a whole and apply the NACE of the unit which has the highest value added (LeU1, NACE:151)

24 8

c- Consider 2 national parts of the TEN1, one with NACE 151 and one with NACE 152 and split the activity of LeU2 into these 2 national parts

8 2

d- Consider the 3 LeUs of country C1 as three separate enterprises

9 12

e- Other solution …………………………………………………………. ……………………………

5 1

B) YES NO Did you already encounter this kind of situation in your country?

22 20


Vignette 5: Two countries / International trading flows

GEN1 has an activity of "manufacture of wearing apparel“

– 3 LeUs in two countries • In C1, LeU1 performs

the manufacturing activity

• In C1, LeU2 is a wholesaler of the products performed in LeU1.

• In C2, LeU3 performs retail trade

• LeU2 has a totally intra-group but extra-TEN turnover.

• In C1, LeU1 produces the highest value added

• Only LeU3 sells its output outside the TEN2

TEN1Nace:???

TEN2:Nace:???

GEN1Nace:141

C2


Turnover:1000

LeU3Nace:4772


LeU2Nace:4642


1000

2000

C1


Vignette 5a: Two countries / International trading flows

Proposed solution

Current solution

a- Consider TEN1 as a whole and apply the NACE of the production unit (141)

29 10

b- Consider the TEN1 as a whole and apply the NACE of the wholesale unit (4642)

1 1

c- Consider 2 national parts of TEN1, one with NACE 141 and one with NACE 4642

14 19

d- Other solution ……… 2 1 YES NO Did you already encounter this kind of situation in your country? 27 15

In country C1


Vignette 5b: Two countries / International trading flows

Proposed solution

Current solution

a- Attribute the NACE code of the GEN1 (141) 1 1 b- Attribute the NACE of the retail trade LeU3 (4772) 36 24 c- Consider a double coding (GEN1 and TEN2, levels:141

and 4772) 8 1

d- Other solution ……………………………………………………… 1 0 YES NO Did you already encounter this kind of situation in your country? 26 16

In country C2


Vignette6: Two activities, one common wholesale trade

A MNE has 2 GEN – GEN1 performs an

activity of "manufacture of footwear"

– GEN2 performs an activity of "manufacture of wearing apparel".

In C1, 3 LeUs: – LeU1 in TEN1, – LeU3 in TEN3 – LeU4 is a wholesaler

for both activities of TEN1 and TEN3.

– Only LeU4 sells production outside the group (in country C1).

TEN1Nace:152

TEN2Nace:152

TEN3Nace:141

GEN1Nace:152

GEN2Nace:141

C1

C2


Turnover:1000


Turnover:2000


Turnover:1200

LeU4Nace:4642


1200

200

800


Vignette6: Two activities, one common wholesale trade

Proposed solution

Current solution

a- Split LeU4 into TEN1 and TEN3 according to a sharing key and consolidate the figures in both TEN1 (NACE:152) and TEN3 (NACE:141)

14 1

b- Attribute the total LeU4 to TEN3 (NACE: 141) which generates the highest value added in LeU4 and consolidate the figures

1 1

c- Consider LeU4 as a separate TEN with an activity of wholesale (4642)

26 17

d- Other solution 6 4 YES NO Did you already encounter this kind of situation in your country? 23 19


Vignette7: Two countries / One global head quarterA MNE has 2 GENs in 2 countries C1 and C2.

– In C1: the head quarter has a role of animating and controlling the operational entities worldwide.

– Financial flows Between HQ and all the LeU in both GEN1 and GEN2 and in both countries C1 and C2.

– HQ does not have extra-group revenue

TEN1

TEN2

TEN3

GEN1 GEN2

HQNace: 7010


C1

C2

LeU1Nace:151

Empl:0Turnover:1000


Turnover:360


Turnover:2000

LeU5Nace:141

Empl:0Turnover:2000


Turnover:300


Vignette7: Two countries / One global head quarter

Proposed solution

Current solution

a- Split the activity of HQ into GEN1 and GEN2 and consolidate its results in TEN1 and TEN3 in country C1 (removing flows between HQ and GEN1 and HQ and GEN2)

7 2

b- Split the activity of HQ into GEN1 and GEN2 and consolidate its results? in TEN1 and TEN2 in country C1 and country C2 (removing the flows HQ and GEN1 and HQ and GEN2)

3 0

c- Split the activity of HQ into GEN1 and GEN2 and aggregate its results in TEN1 and TEN3 in country C1 (without removing the flows between HQ and GEN1 and HQ and GEN2)

0 0

d- Consider HQ as a separate GEN 27 21 e- Other solution 4 2 YES NO Did you already encounter this kind of situation in your country? 27 15


Preliminary conclusions

A door is open for the change

Answers provided contradicted opinion expressed in working groups– A majority of respondents open to consider the enterprise as a set of legal

units – Use of administrative data does not win unanimous support: the NSIs

prefer in majority to survey the new TEN – Consolidated data are preferred

Distinguish the definition and the principles proposed by the ESSnet profiling from their application– As results of the top down approach

• One GEN / one TEN• Split of legal units

– In practice• Double classification to adapt the NACE code of the TEN to the activity

performed in the country• Try to avoid the split of legal units as much as possible

(recommendation for profilers)


Preliminary conclusions

Need for pedagogy from the ESSnet profiling to the future users of the new statistical units

Provide them with solutions on how to concretely proceed– Aim of the documents:

• Methodological document• Guidelines• Instructions

Need to further explore how to use administrative data on legal units to build statistics on enterprises


Thank you for your attention!!

Documents

13-Jul-07 Results of the vignettes on the test of a new definition of enterprises