WHAT GLOBALISATION MEANS FOR MANUFACTURING Jennifer Ribarsky National Accounts Division, OECD The changing shape of UK manufacturing conference 22 October

WHAT GLOBALISATION MEANS FOR MANUFACTURING

Jennifer RibarskyNational Accounts Division, OECD

The changing shape of UK manufacturing conference

22 October 2014

Introduction

• Short general overview of the phenomenon of globalisation

• Overview of global value/production chains• What is manufacturing?• Future work

2

Increasing globalisation apparel, cars, toys, planes, electronics…

3

Escape slides: Air Cruisers (USA)

Horizontal Stabiliser:Alenia Aeronautica (Italy)

Centre fuselage: Alenia Aeronautica (Italy)

Final assembly: BoeingCommercial Airplanes (USA)

Vertical Stabiliser: BoeingCommercial Airplanes (USA)

Landing gear: Messier-Dowti (France)Electric brakes: Messier-Bugatti (France)Tires: Bridgestone Tires (Japan)

Doors & windows:Zodiac Aerospace (USA)PPG Aerospace (USA)

Tools/Software: Dassault Systemes (France)Navigation: Honeywell (USA)Pilot control system: Rockwell Colins (USA)Wiring: Safran (France)

Centre wing box:Fuji Heavy Industries (Japan)

Engines: GE Engines (USA),Rolls Royce (UK)

Wing box: Mitsubishi Heavy Industries (Japan)Wing ice protection: GKN Aerospace (UK)

Engine nacelles: Goodrich (USA)Aux. power unit: HamiltonSundstrand (USA)

Flight deck seats:Ipeco (UK)

Lavatories:Jamco (Japan)

Cargo doors: Saab (Sweden)

Forward fuselage:Kawasaki Heavy Industries (Japan)Spirit Aerosystems (USA)

Raked wing tips: Korean AirlinesAerospace division (Korea)

Passenger doors:Latécoère Aéroservices (France)

Prepreg composites:Toray (Japan)

Rear fuselage:Boeing South Carolina (USA)

Source: Rivoli (2005), WTO (1998), Feenstra (1998), www.newairplane.com, Linden et al. (2009)

Industry’s share of total value added

4Source: OECD, Factbook, 2014

• Global value chains

• Fragmentation of production across borders

• Initiated by lead entity, the principal

• Principal exerts a certain amount of control over the process

• Tasks may be performed by an enterprise’s own affiliates or through independent contractors

Global production arrangements

5

Simple global value chain

6

FIGURE 1 Illustration of a simple supply chain

Source: U.S. International Trade Commission compilation

S

uppl

y ch

ain

man

agem

ent a

ctiv

ity

Global production (1)

Principal(domestic economy)

Processor (abroad)

Material inputs

Material outputs

= information= products

turnover productioncost

= money

Processing fee

Manufacturing services on physical inputs owned by others



Processor (abroad)

Material inputs Material outputs



= money

Processing fee

Manufacturing services on physical inputs owned by others



Contractproducer

(abroad) Material inputs

Material outputs

Blueprints ofproduction



productioncost

= money



Contractproducer

(abroad) Material inputs

Material outputs

Blueprints ofproduction



productioncost

fee or purchase of products?

economic ownership of material inputs?

= moneyTrader or Manufacturer?

Industrial Classification

• Industrial classification not designed to capture the global manufacturing model very well

• Industrial Classification (ISIC rev. 4 and NACE rev 2) provides guidance on outsourcing

• Manufacturers can outsource part of or fully the physical transformation process

• However, if they outsource fully the physical transformation process they are classified to manufacturing if and only if they own the raw material inputs.

What’s included in Manufacturing Sector?

• Traditional view…

• Units engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products. Often described as plants, factories, or mills…

• When we eliminate ‘smokestacks’ and ‘production workers’ as classification characteristics units appear to have similar characteristics of Wholesale/Retail Trade.

• ISIC defines wholesalers and retailers as buying and selling goods without transformation of the goods

• But are FGPs really traders?

View From 30,000 feet: Factoryless goods producer

13

iPhone Study

14

Future work for classification

• UNECE Task Force on Global Production (TFGP) recommends that…– Factoryless Good Producers (FGPs) be classified as

manufacturers

– Reviewed by Advisory Expert Group on National Accounts (agreed that FGPs should not be classified as traders; should be identified as a separate subset of manufacturers)

– However, not consistent with current ISIC guidelines

– Recommend at least Flagging FGPs within trade so that we can better track these activities

15

UK Jobs in “Manufacturing”? (millions)

16

A ‘vertical’ view of UK manufacturing?

17

Expert Group on Extended SU tables

• To create an integrated economic accounting framework for globalisation • More detailed SU tables:

– Imports• With all products at fob and separate column for residents expenditure abroad• Broken down by firm characteristics – and used to inform import flow tables

– Industries• More heterogeneity: Foreign/Domestic, Export/non-export, S/M/L

– Exports• Broken down by firm characteristic

– In the export column but also as an ‘of-which’ of output

• With non-residents expenditure and re-exports separately identified

– With transparent adjustments for some non-observed items (e.g. own account agricultural production)

– Jobs by industry row– Emissions by industry row– With new rows for property income flows: interest, distributed income of corporations,

reinvested earnings on FDI– And, for BEPS: current taxes on income, wealth etc

18

Use Table

19

ExporterNon-

ExporterExporter

Non-Exporter

ExporterNon-

ExporterExporter

Non-Exporter

ExporterNon-ExporterExporter Non-ExporterExporterNon-ExporterExporterNon-ExporterTaxes on ProductsSubididies on Products

Total Domestic intermediate Consumption

Total importsTotal intermediate ConsumptionValue-Addedof which

Mixed Income

Compensation of Employees

Gross Operating Surplus

Other Taxes on Production

Other Subsidies on Production

Total Outputof which

own-account production of software

own-account prodduction of R&D

other own-account production

of which - non-

residents expenditure

Industry 1 Industry 2Foreign Domestic Foreign Domestic HHFC GGFC GFCF

Changes in

Inventories

Vauables Exports of which re-exports

Industry 1

Industry 2

Foreign

Domestic

Foreign

Domestic

With exports broken down,

ideally, by destination (main

partner countries/regions

)

Import Use table

20

ExporterNon-

ExporterExporter

Non-Exporter

ExporterNon-

ExporterExporter

Non-Exporter

Industry 1Industry 2

Total importsTaxes/Subsidies on Imports

Industry 1 Industry 2Foreign Domestic Foreign Domestic HHFC GGFC GFCF

Changes in Inventories

Vauables Exports

of which: Residents

expenditure abroad

With separate tables made available broken down by main country or region of

origin ‘groupings’

Supply Table

21

ExporterNon-

ExporterExporter

Non-Exporter

ExporterNon-

ExporterExporter

Non-Exporter

ExporterNon-ExporterExporter Non-ExporterExporterNon-ExporterExporterNon-ExporterTotal of which

own-account production of software

own-account prodduction of R&D

other own-account production

Memorandum itemIndustry 1 Industry 2

Foreign Domestic Foreign DomesticTotal

Domestic Supply at Basic

Prices

Imports F.O.B

Taxes and Subsidies

on Products Total Supply

of which import taxes

/ subsidies

Industry 1

Industry 2

Foreign

Domestic

Foreign

Domestic

Extensions?

22

ExporterNon-

ExporterExporter

Non-Exporter

ExporterNon-

ExporterExporter

Non-Exporter

Property income payments - to abraod

of which

Interest

Distributed Income of Corporations

Reinvested Earnings on FDI

Investment Income Disbursements

Property Income payments - to abroad

of which

Interest

Distributed Income of Corporations

Reinvested Earnings on FDI

Investment Income Disbursements

Current taxes on income and wealth

Employment

Employees

Hours worked

Co2 emissions

Industry 1 Industry 2Foreign Domestic Foreign Domestic

Property income receipts – from abroad

Thank you for your attention!

23

Increasing globalisation

Significant value-added is generated by foreign affiliates, with a large share of value-added repatriated to parents as property income:

24

Increasing globalisation

25Source: OECD, Science, Technology and Industry Scoreboard, 2013

Jobs in the business sector (ISIC Rev.3, 10 – 74) sustained by foreign final demand As a % of total business sector employment

Documents

WHAT GLOBALISATION MEANS FOR MANUFACTURING Jennifer Ribarsky National Accounts Division, OECD The changing shape of UK manufacturing conference 22 October