Factoryless Goods Production – a Case Example from Current Prices to Volume Measures in Finland Ville Lindroos, based on presentation by Mirjami Rajala & Lotta Sjöblom Price and Volume Measures for Service Activities, 10 – 11 October 2017

1 2 3 Contents Global production adjustments FGP case company: Identification & Decision Challenges 10 – 11 October 2017 Ville Lindroos

Global production adjustments 1 10 – 11 October 2017 Ville Lindroos

Global production adjustments – Finland, 2014 % of export/import of goods totals % of export/import of services totals Kalvot 3-7 yhteen, muutokset animaatioilla. 10 – 11 October 2017 Ville Lindroos

Effects on inward processing Global production adjustments – Finland, 2014 % of export/import of goods totals % of export/import of services totals Effects on inward processing Kalvot 3-7 yhteen, muutokset animaatioilla. 10 – 11 October 2017 Ville Lindroos

Effects on outward processing Global production adjustments – Finland, 2014 % of export/import of goods totals % of export/import of services totals Effects on outward processing Kalvot 3-7 yhteen, muutokset animaatioilla. 10 – 11 October 2017 Ville Lindroos

Effects on merchanting Global production adjustments – Finland, 2014 % of export/import of goods totals % of export/import of services totals Effects on merchanting Kalvot 3-7 yhteen, muutokset animaatioilla. 10 – 11 October 2017 Ville Lindroos

Global production adjustments – Finland, 2014 % of export/import of goods totals % of export/import of services totals Effects on factoryless production Kalvot 3-7 yhteen, muutokset animaatioilla. 10 – 11 October 2017 Ville Lindroos

Global production adjustments – Observations Influence on total trade is not very big Finland is a small economy – big firms dominating, change in a global production activity could affect the surplus/deficit in trade balance Case by case analysis, covering about 70 companies Otsikko muutettu 10 – 11 October 2017 Ville Lindroos

FGP case company: Identification & Decision 2 10 – 11 October 2017 Ville Lindroos

COMPANY, OUTPUT, PRODUCT, INDUSTRY AND COUNTERPART COUNTRY INFORMATION FGP case company – Identification & Analysis in NA Identification & Analysis in NA Decision in NA COMPANY, OUTPUT, PRODUCT, INDUSTRY AND COUNTERPART COUNTRY INFORMATION Otsikko muutettu 10 – 11 October 2017 Ville Lindroos

COMPANY, OUTPUT, PRODUCT, INDUSTRY AND COUNTERPART COUNTRY INFORMATION FGP case company – Identification & Analysis in NA Identification & Analysis in NA Decision in NA PRIMARY SOURCES business statistics data warehouse YTY FINANCIAL STATEMENTS INQUIRY FOR ENTERPRISES * turnover from trade MARGIN – not deliveries of products * no raw-material costs, high costs on R&D, marketing, subcontracting SALES INQUIRY * high share of turnover from sales abroad to abroad INQUIRY ON INTERNATIONAL TRADE IN SERVICES AND INTERNATIONAL FLOWS OF GOODS * records sales and purchases of FGP incl. counterpart countries PRODCOM * no product information BUSINESS REGISTER * NACE – manufacturing INTERNATIONAL TRADE IN GOODS STATISTICS (CUSTOMS) * small share of goods export compared to turnover COMPANY, OUTPUT, PRODUCT, INDUSTRY AND COUNTERPART COUNTRY INFORMATION Otsikko muutettu 10 – 11 October 2017 Ville Lindroos

FGP case company – Identification & Analysis in NA Case: Equipment Ltd. 10 – 11 October 2017 Ville Lindroos

FINANCIAL STATEMENTS INQUIRY FOR ENTERPRISES FGP case company – Identification & Analysis in NA Case: Equipment Ltd. FINANCIAL STATEMENTS INQUIRY FOR ENTERPRISES TURNOVER Deliveries of products 0€ Trade 1 100 000 000€ COSTS Purchased trade goods 1 000 000 000€ Raw materials R&D HIGH € Marketing Subcontracting BUSINESS REGISTER NACE 28 (Manufacturing) PRODCOM Product information NULL Raw material information SALES INQUIRY Abroad to abroad HIGH € 10 – 11 October 2017 Ville Lindroos

COMPANY, OUTPUT, PRODUCT, INDUSTRY AND COUNTERPART COUNTRY INFORMATION FGP case company – Identification & Analysis in NA Identification & Analysis in NA Decision in NA PRIMARY SOURCES business statistics data warehouse YTY FINANCIAL STATEMENTS INQUIRY FOR ENTERPRISES * turnover from trade MARGIN – not deliveries of products * no raw-material costs, high costs on R&D, marketing, subcontracting SALES INQUIRY * high share of turnover from sales abroad to abroad INQUIRY ON INTERNATIONAL TRADE IN SERVICES AND INTERNATIONAL FLOWS OF GOODS * records sales and purchases of FGP incl. counterpart countries PRODCOM * no product information BUSINESS REGISTER * NACE – manufacturing INTERNATIONAL TRADE IN GOODS STATISTICS (CUSTOMS) * small share of goods export compared to turnover COMPANY, OUTPUT, PRODUCT, INDUSTRY AND COUNTERPART COUNTRY INFORMATION Otsikko muutettu 10 – 11 October 2017 Ville Lindroos

COMPANY, OUTPUT, PRODUCT, INDUSTRY AND COUNTERPART COUNTRY INFORMATION FGP case company – Identification & Analysis in NA Identification & Analysis in NA Decision in NA PRIMARY SOURCES business statistics data warehouse YTY FINANCIAL STATEMENTS INQUIRY FOR ENTERPRISES * turnover from trade MARGIN – not deliveries of products * no raw-material costs, high costs on R&D, marketing, subcontracting SALES INQUIRY * high share of turnover from sales abroad to abroad INQUIRY ON INTERNATIONAL TRADE IN SERVICES AND INTERNATIONAL FLOWS OF GOODS * records sales and purchases of FGP incl. counterpart countries PRODCOM * no product information BUSINESS REGISTER * NACE – manufacturing INTERNATIONAL TRADE IN GOODS STATISTICS (CUSTOMS) * small share of goods export compared to turnover GUIDELINE GUIDE TO MEASURING GLOBAL PRODUCTION (2015) * recommendations for FGPs ESA2010 and BPM6 ARTICLES ABOUT FGP COMPANY, OUTPUT, PRODUCT, INDUSTRY AND COUNTERPART COUNTRY INFORMATION Otsikko muutettu 10 – 11 October 2017 Ville Lindroos

COMPANY, OUTPUT, PRODUCT, INDUSTRY AND COUNTERPART COUNTRY INFORMATION FGP case company – Identification & Analysis in NA Identification & Analysis in NA Decision in NA PRIMARY SOURCES business statistics data warehouse YTY FINANCIAL STATEMENTS INQUIRY FOR ENTERPRISES * turnover from trade MARGIN – not deliveries of products * no raw-material costs, high costs on R&D, marketing, subcontracting SALES INQUIRY * high share of turnover from sales abroad to abroad INQUIRY ON INTERNATIONAL TRADE IN SERVICES AND INTERNATIONAL FLOWS OF GOODS * records sales and purchases of FGP incl. counterpart countries PRODCOM * no product information BUSINESS REGISTER * NACE – manufacturing INTERNATIONAL TRADE IN GOODS STATISTICS (CUSTOMS) * small share of goods export compared to turnover GUIDELINE GUIDE TO MEASURING GLOBAL PRODUCTION (2015) * recommendations for FGPs ESA2010 and BPM6 ARTICLES ABOUT FGP COMPANY, OUTPUT, PRODUCT, INDUSTRY AND COUNTERPART COUNTRY INFORMATION SUPPORTING SOURCES FIRM’S ANNUAL REPORT * information about outsourcing production abroad LCU COMPANY VISIT * company defined itself to be FGP Otsikko muutettu EMPLOYMENT STATISTICS * major share of company workers are experts (engineers, designers etc.) 10 – 11 October 2017 Ville Lindroos

PRICE SOURCES FOR NET BASIS FGP case company – Identification & Analysis in NA Identification & Analysis in NA Decision in NA PRICE SOURCES FOR NET BASIS EXPORT PRODUCER PRICE INDICES PRICE AND VOLUME INFORMATION VOLUME INDEX FOR WHOLESALE TRADE Bigger 10 – 11 October 2017 Ville Lindroos

PRICE SOURCES FOR NET BASIS GUIDELINE & LEGISLATION FGP case company – Identification & Analysis in NA Identification & Analysis in NA Decision in NA PRICE SOURCES FOR NET BASIS GUIDELINE & LEGISLATION HANDBOOK ON PRICES AND VOLUME MEASURES IN NA (2016) THE MANUAL ON PRODUCE PRICE INDICES (IMF) PRODUCER PRICE INDICES PRICE AND VOLUME INFORMATION VOLUME INDEX FOR WHOLESALE TRADE STS REGULATION THE METHODOLOGICAL GUIDE FOR DEVELOPING PRODUCER PRICE INDICES FOR SERVICES (EUROSTAT&OECD) Text bigger 10 – 11 October 2017 Ville Lindroos

COMPANY, OUTPUT, PRODUCT, INDUSTRY AND COUNTERPART COUNTRY INFORMATION FGP case company – Decision in NA Identification & Analysis in NA Decision in NA COMPANY, OUTPUT, PRODUCT, INDUSTRY AND COUNTERPART COUNTRY INFORMATION CO-OPERATION IN HOUSE NA ENTERPRISE TEAM NA SUT TEAM DEFLATION GROUP SOURCE STATISTICS and LCU EXPERTS NA SENIOR ADVICER NA GLOBAL PRODUCTION COORDINATOR BOP TEAM SUPPLY AND USE TABLES BY PRODUCTS IN CURRENT AND FIXED PRICES PRICE AND VOLUME INFORMATION Deflation group paikka + coordinator 10 – 11 October 2017 Ville Lindroos

Case: Equipment Ltd. FGP case company – Decision in NA 10 – 11 October 2017 Ville Lindroos

Case: Equipment Ltd. FGP case company – Decision in NA On SUPPLY side EQUIPMENT LTD's production is divided into two products: "final product" CPA 28 (90 %) and wholesale trade services -product CPA 46 (10 %) On USE side EQUIPMENT LTD's production is shown only as a "final product" CPA 28 with value items "basic price" and "wholesale trade margin" DEFLATION: (Export/)PPI (CPA 28) COMPANY INFORMATION SUPPLY USE OUTPUT EXPORT Company ID Company name NACE CPA CPA heading Basic price 118W Wholesale trade margins Purchasers' price 0909090-1 EQUIPMENT LTD. 28 46 Machinery and equipment n.e.c. 90 000 000 10 000 000 100 000 000 Wholesale trade services, except of motor vehicles and motorcycles -10 000 000 DEFLATION: Wholesale trade price index (CPA 46) 10 – 11 October 2017 Ville Lindroos

Identification & Analysis in NA FGP case company – Decision in NA Identification & Analysis in NA Decision in NA Previously: One big player – the electronic and telecommunication cluster outsourced production abroad already mid 2000s, until then FGP was not a topic ESA2010 & BPM6 not available NA decided to split the margin into the service products in SUT according to the activities of these companies in Finland – R&D, head office and agency services Deflation group paikka + coordinator 10 – 11 October 2017 Ville Lindroos

Identification & Analysis in NA FGP case company – Decision in NA Identification & Analysis in NA Decision in NA Previously: One big player – the electronic and telecommunication cluster outsourced production abroad already mid 2000s, until then FGP was not a topic ESA2010 & BPM6 not available NA decided to split the margin into the service products in SUT according to the activities of these companies in Finland – R&D, head office and agency services Now: More companies are acting as FGPs  Wider variety of players and products produced Methodological change from statistical year 2014 onwards to show output in goods Similar treatment in NA and BOP (integrated information system in use since June 2017) Otsikko muutettu 10 – 11 October 2017 Ville Lindroos

Identification & Analysis in NA FGP case company – Decision in NA Identification & Analysis in NA Decision in NA Supporting factors: to identify FGPs In company visit by LCU the company defined itself as FGP to show output in GOODS instead of SERVICES The end-user buys the final product and IPP “services” are only a component of the final product Is also recommended in Global Production Guide to show NET instead of GROSS The principal does not supply material inputs, no information about the content of intermediate consumption, what is the price to use to keep FGPs in MANUFACTURING instead of TRADE Decision of Statistics Finland: manufacturing firms that have outsourced production abroad are classified according to the final products they are producing globally Flagging of FGP firms from merchants because of the high IPP content in products Otsikko muutettu 10 – 11 October 2017 Ville Lindroos

Challenges 3 10 – 11 October 2017 Ville Lindroos

Challenges – Prices and volumes of FGP The current values are ”correct” based on financial statements, but have we chosen the right products and/or prices? At the moment there is no explicit recommendation for volume measures on FGP Statistics Finland studied the question and came to the conclusion, that FGP could be deflated with the same principles that are recommended for the merchanting margin Price information which is available is limited. PPI for exports covers only export from Finland, not export from other countries. Volume index for wholesale trade covers domestic companies total revenues, not the margin Otsikko muutettu 10 – 11 October 2017 Ville Lindroos

Challenges – International challenges Do the international organizations have any plans to support NSIs global production volume calculations in practice? FGPs NACE industry? UN ISIC Rev 4.: Trade but further research needed NAICS 2017 : FGPs recommendation not implemented, further research needed (Federal register notice: 79 FR 46557) Global production adjustments – country practices differ? Otsikko muutettu 10 – 11 October 2017 Ville Lindroos

Ville Lindroos Senior statistician National Accounts Thank you Ville Lindroos Senior statistician National Accounts