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Majda RANT

14 th Statistical Days, Radenci 2004. Development of international standards for monitoring economic activities of multinational enterprises. Majda RANT. Introduction. Two main problems of researchers on international level: - availability of appropriate indicators for all countries

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Majda RANT

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  1. 14th Statistical Days, Radenci 2004 Development of international standards for monitoring economic activities of multinational enterprises Majda RANT

  2. Introduction • Two main problems of researchers on international level: - availability of appropriate indicators for all countries - international comparability • Statistical measurement of economic globalisation: new views on statistics • OECD Handbook on Economic Globalisation Indicators Chapter 3: The Economic Activity of Multinational Enterprises (AMNE) • OECD recommendations versus EU legislation in preparation 14th Statistical Days, Radenci 2004

  3. Target populations in compiling country Four mutually exclusive categories of enterprises are recommended for AMNE data: • Under foreign control 1. Foreign controlled affiliates (CAs) without CAs abroad 2. Foreign controlled affiliates with CAs abroad (parent companies under foreign control) • Controlled by residents of compiling country 1. Parent companies with CAs abroad 2. non-MNE (no CAs abroad) 14th Statistical Days, Radenci 2004

  4. Target populations for AMNE abroad • For AMNE abroad two target populations are determined: 1. Parent companies controlled by residents of the compiling country and those under foreign control 2. CAs abroad including affiliates under direct and indirect control • Priorities in providing data on CAs’ activity abroad and parent companies’ activity • Two options to resolve double-counting problem: The immediate control approach: target population includes all parents but only measures the CAs abroad under the direct control of parent companies residing in the compiling country The ultimate control approach: target population includes only enterprises under the ultimate control of residents of the compiling country with all CAs abroad (under direct and indirect control) • Differences between target populations in the OECD Handbook and target populations covered by the Draft Council and Parliament Regulation on FATS 14th Statistical Days, Radenci 2004

  5. Proposed indicators for measuring the extent of globalisation related to MNEs 1. Reference indicators • Extent of foreign control in the compiling country (total and by industry) Foreign-CAs’ share of value added Foreign-CAs’ share of turnover (sales) or gross production Foreign-CAs’ share of gross fixed capital formation Foreign-CAs’ share of employment Foreign-CAs’ share of compensation of employees Foreign-CAs’ share of the number of (consolidated) enterprises • Extent of parent companies’ activities in the compiling country (total and by industry) Parent companies’ share of value added Parent companies’ share of turnover (sales) Parent companies’ share of gross fixed capital formation Parent companies’ share of employment Parent companies’ share of compensation of employees • Extent of MNE’ activities in the compiling country (total) MNE’ share of value added MNE’ share of gross fixed capital formation MNE’ share of employment MNE’ share of compensation of employees MNE’ share of number of consolidated enterprises 14th Statistical Days, Radenci 2004

  6. Proposed indicators for measuring the extent of globalisation related to MNEs 2.Suplemental indicators • a) Outward activities of compiling country Extent of CA’s activities abroad (total and by Industry) CAs’ abroad share of employment in the total of parent companies in the compiling country and their CAs abroad CAs’ abroad share of turnover done by parent companies in the compiling country and their CAs abroad Degree of geographical diversification of CAs’ activities abroad (total and by industry) Herfindahl index of employment Herfindahl index of turnover (sales) • b) Inward activities of compiling country Extent of foreign control in the compiling country (total and by industry) Foreign CAs’ and parents’ share of: Gross operating surplus Taxes on income Assets (financial and non-financial) Degree of geographic diversification of foreign control (total and by industry) Herfindahl index of value added Herfindahl index of turnover (sales) Herfindahl index of employment 14th Statistical Days, Radenci 2004

  7. Identifying foreign control of an enterprise • Controlmeans the ability to determine the general politics of an enterprise by the appointment of appropriate directors. An enterprise is under the foreign control if more than half of shareholdings with voting rights is held directly or indirectly by a single foreign investor or a group of foreign investors acting in concert. • The Handbook mentions also other accepted but not recommended cases of control, where control can be demonstrated objectively (joint ventures, multiple ownership etc.). It is recommended that countries follow special rules in these cases. 14th Statistical Days, Radenci 2004

  8. 60% 90% X Y Z Compiling country 1 Country 3 Idirect control in inward perspective: case 1 Country 2 14th Statistical Days, Radenci 2004

  9. 70% 80% 60% 90% Y X X1 Country 2 X3 X2 Indirect control in inward perspective: case 2 Compiling country 1 14th Statistical Days, Radenci 2004

  10. Parent company and unit of ultimate control • Parent company Inward investment The parent company of a foreign-CA in a compiling country is the first foreign investor outside the borders of the country exercising direct or indirect control over the foreign affiliate. Outward investment The parent company of an affiliate abroad controlled by residents of the compiling country is the consolidated enterprise group comprising the domestic unit of ultimate control and all domestic firms which it controls directly or indirectly. • Unit of ultimate control An investor (company or individual) is considered to be unit of ultimate control if it is at the head of chain of companies and directly or indirectly controls all the enterprises in the chain without itself being controlled by any other company or individual. 14th Statistical Days, Radenci 2004

  11. Country 3 90% Country 5 E B 30% A 40% C D F 70% Compiling country 1 60% 80% Country 2 Country 4 Country 6 Identification of the parent company and the parent company group abroad: difference between ownership and control 14th Statistical Days, Radenci 2004

  12. 60% 70% 60%40% 20% Company A Country 3 60% Company F Company B Company X 100% Country 4 Company C Company G Company D 70% Country 5 Country 1 15% Company H Company E Country 2 Outward investment: identifying the parent company of compiling country 1 14th Statistical Days, Radenci 2004

  13. C Country 3 80% A 70% B Country 2 Compiling country 1 Parent company under foreign control 14th Statistical Days, Radenci 2004

  14. Recommendations for identifying the country of control and the country of location • The country of control of foreign-CAs is the country of residence of the ultimate controller. • If there is no single majority investor, efforts should be made to find some basis on which country of control can be attributed to just one country. • Possible additional guidelines in these cases could be: the presence of dominant investor, more investors acting in concert who have together majority of shares, preference to an investor who has direct control, preference to a public entity, preference to an investor, who is not placed in a tax heaven. • The country of location of CAs abroad is that where CAs abroad are residents. 14th Statistical Days, Radenci 2004

  15. Recommendations on collecting data on activity by industry and product • The classification of AMNE data on activity by industrial sector is considered the top priority. The chosen classification is ISIC Rev3 (NACE Rev.1 or NACE Rev.1.1). • The industry classification of a CA abroad should be based on its own main activity and not that of its parent company. As a second priority data for some variables such as R&R and employment could be provided both by industry of affiliate and by industry of parent. • Data collection by product ought to be long term objective. The classification system proposed for goods is HS (CPC, Version 1.) and EBOPS Classification for services. 14th Statistical Days, Radenci 2004

  16. Selecting the statistical unit • Statistical units include: establishment (local kind of activity unit), enterprise and enterprise group. • No statistical unit in particular is recommended. Emphasis is put on comparability between AMNE data and national totals, but limited with the fact that certain variables are available only at the establishment level and certain others only at the enterprise level. • Identification of all members of a global enterprise group is important for enterprises of these groups to be able to provide data on certain variables such as intra-firm trade or technology transfers. 14th Statistical Days, Radenci 2004

  17. Consolidation issues • The level of accounts consolidation within an enterprise group have serious implication for certain variables, such as turnover, gross output, assets and number of enterprises. Other variables such as employment and value added are not affected by the level of consolidation. • It is important to ensure that national totals correspond to the consolidation level used in the target populations. • The statistical concept of an enterprise group is different to the accounting concept. 14th Statistical Days, Radenci 2004

  18. International comparability • Basic concepts and definitions of AMNE data were developed in the Manual on Statistics on International Trade in Services and are with the OECD Handbook extended to all of the activities of multinational enterprises. • All methodological problems will not be solved in the short term: essential importance of meta-data. • Factors which most frequently affect the international comparability due to non-compliance with international standards: - Different concepts of activity data for inward and outward investment - Different approaches to the control of an enterprise - Divergences in identifying the country of control, when there is no single majority shareholder - Immediate and ultimate unit of control - Definition of variables - Industry classification - Different statistical units and different methods of consolidating accounts - Trade data for foreign enterprises and national enterprises - Double counting problems in the case of affiliates controlled by geographical areas - Double counting problems in the case of parent companies and affiliates under foreign control. 14th Statistical Days, Radenci 2004

  19. Lek Lek Bulgaria Novartis operate in 140 count. Romania Switzerland Poland Czech Rep. Slovakia Slovenia Lek Russian Federation Lek Lek Sandoz Lek Lek Lek Austria Croatia Lek Lek Lek Yugoslavia Macedonia Bosnia and Herzegovina Who is reporting data for CAs abroad: double-counting problem EU 14th Statistical Days, Radenci 2004

  20. Conclusions • Further development of international standards in the field of globalisation: the issue of OECD Handbook on Economic Globalisation Indicators, which will cover also other aspects of globalisation • Eurostat Recommendation Manual on the Production of Foreign Affiliates Statistics • Methodological recommendations from the point of view of current development tasks in SORS: - in the framework of the proposal of FATS Regulation - in the framework of the proposal of Business Register Regulation. 14th Statistical Days, Radenci 2004

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