Pierre TEILLET Vincent HECQUET The EU ESSnet project on ESSnet on « profiling large and complex MNEs » State of the art / Crucial questions

Page 2 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs » › the context, approach, programme and actionsslides 3 to 7 › the current state of operationsslides 8 & 9 › about definitions of enterprises slides 10 to 13 › Proposals, questions and optionsslide 14 to 18 › examplesslide 19 › next workslide 20

Page 3 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs » the context The profiling necessity is: › related to two EU 1993 regulations (Statistical Business registers; Statistical units) › that did not allow “measuring the whole elephant” (Statistics Canada report to UNECE / CES 2005) › and lead to a new BR regulation (2008), including as well MNEs as “enterprises”. But we still have to “translate” the previous studies in operational processes.

Page 4 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs » the context The present project is: › part of the MEETS programme (Modernisation of European Enterprise and Trade Statistics) › designed to achieve a streamlined framework of business-related statistics › as a part of the system of the EGR (Euro Groups Registers) › in order to achieve coordinated and meaningful statistical unit structures for enterprise groups › (with maximum use of existing knowledge (EU and non EU))

Page 5 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs the general approach › objectives & results structured into 3 steps: – : a positioning paper on feasibility of profiling; an input on statistical units for an eventual change of EU regulation – : methodology, tools, guidelines … –2013 & on: full implementation of profiling inside EU › throughout the project: testing, iterations and early results

Page 6 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs the work programme › ESSnet, a new way for developing European Statistics: –a partnership of NSIs –cooperating to develop a common methodology –willing to disseminate the results to the whole European Statistical System –with the strong support of Eurostat › The « profiling » partnership: –7 NSIs : CBS –NL, DESTATIS –DE, ISTAT –IT, ONS –GB, SF –FI, OFS –CH, INSEE –FR coordinator

Page 7 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs the actions planned under the partnership › WP A. To define the feasibility and the scope of ‘profiling’ large and complex MNEs. › WP B. To develop a common conceptual framework, methodology, rules and standards for profiling › WP C. To develop processes / workflows, tools,operational guidelines and quality control of profiling, organisational and financial models › WP D. To test and implement 'profiling' › WP E. To develop a model for sharing of 'profiles' (including legal framework) › WP + To disseminate and train › WP M To manage the ESSnet WP = working package; managed by a leading partner (LP), 1 to 3 working partners (WP), all others being reviewing partners (RP)

Page 8 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs current state of operations (1) › Framework partnership agreement: signed in October 2009 › Specific Annual Agreement: signed in December 2009 › Kick-off meeting, 3 all-partners coordination meetings › 2 Workshops : –London Jan on feasibility - the “why” and the “who” with the stress on stakeholder views –Amsterdam Feb on Statistical Units › An organised cooperation between Workpackage leaders with Trilateral meetings › A planned 3 rd workshop on “options” in June

Page 9 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs current state of operations (2) › Consultation with stakeholders is still ongoing › When and if trade-off will be necessary, setting priorities among their wishes could become unavoidable › Current list of main stakeholders: –National Accounts But do we serve first EU needs or National needs? –Balance of Payments and Foreign Direct Investments (FDI) –Foreign Activities and Trade Statistics (I & O-FATS) –Structural Business Statistics (SBS)

Page 10 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs » definition of « enterprise »: main issues In the present EU regulation: Enterprise, defined as the smallest combination of legal units - that is an organisational unit - producing goods and services (for the market) - … with a certain degree of autonomy in decision making - especially for the allocation of its current resources is used at national level, without international comparability: - the sum of the parts usually differs from the total - the required level is not specified (national, European or global?) - the standards for data collection are not consistent either conceptually or in practice so that the ultimate question will be one of « global profiling » versus profiling relative to any kind of territory

Page 11 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs » definition of « enterprise »: main issues Probably necessary to choose between: –present definition of enterprise (easy to use with legal administrative or fiscal data, but not consistent with management structure) –a new one (at least partly) based on group operational segments or divisions (GODs) (listed in Annual Reports according to IFRS8) GODs definition usually crosses the national boundaries, and thus needs a choice between: –enterprises crossing national boundaries –GODs split into enterprises within national boundaries –with a classification dilemma (simplest example next slide) GODs definition is not directly related to legal units: –(some) legal units may be split into more than one enterprise –need to find a way to relate the enterprise to the institutional unit –need (eventually) to create “rest of world” units for outside EU There is no role, in the EU, for the local unit.

Page 12 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs » definition of « enterprise » The territorial classification dilemma: What is › global classification? › national classification? › when France and Germany › distribute GB output France (UCI & Distribution) GB (Manufacturing) Germany (Distribution)

Page 13 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs » definition of « enterprise » The territorial classification dilemma: can be more complex if flows of manufactured goods are implied What is › global classification? › national classification? › when Spain and France are manufacturers of goods conceived in France and sold in the whole of Europe through a unique French “trade” company › distributed in all EU countries through specialised affiliates FR (UCI, R&D, Manuf and trade) Spain (Manufacturing and distribution) All EU countries (Distribution)

Page 14 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs » Two operational proposals: › 1 Sharing a model: –a “model” of statistical units is essential for successful profiling –all countries need to use the same standards (for profiling both MNEs and large domestic groups) –national accounts systems: we recognise that the new UN-SNA manuals focuses on the legal units; what about the new EU-ESA? › 2 Dealing with complexity: –we cannot deal with all cases (initially or indeed in the future) –we need a mechanism to develop rules based on new cases (within the BRWG or the EGR Steering Group?) rather than a complete set of new rules –new rules and mechanism must include treatment of holdings, SPEs, off-shoring, family closed companies, family groups, accountancy firms and other partnerships, etc

Page 15 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs » Three operational questions(1) : › Do we propose a process with, first, top-down profiling, then, completed with bottom-up information? –delineating the global enterprise group by creating a cluster of all legal units belonging to the group –investigating the operational structure (as independently as possible from “legal” or administrative structure) –identifying all market-oriented entities (as the basement for the future enterprises) and allocating all other entities to these –link (at least try to ) all legal units to enterprises (recognising that relationships can be: 1 to1; several to 1; many to many) › Which is very different from the present definition (largely bottom-up): –only way to deal with groups with hundreds of affiliates, –avoiding time lag and quality problems of administrative data, –improving the cost /efficiency ratio But leading to the following questions:

Page 16 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs » Three operational questions (2): › Do we propose to use (largely) the IFRS (the EU-GAAP)? thus needing to study their pros and cons: –Pros: –Most widespread “administrative” “ EU” standards –Good standardisation of elementary flows and stocks –Compulsory for stock-traded and bond-traded groups –Include “operational segments” (with turn-over, operational results and employment figures) –Cons: –Consolidated data (no national figure if intra-group flows) and sometimes at levels lower than UCI –No standardised publication tables –Uncertain stability for the operational segments

Page 17 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs » Three operational questions (3): › Do we propose to restore consistency between EU and national statistics, through assigment of dual (plural) classifications to statistical units –Group-consistent classification –Own-activity classification (solves ancillary activities problem and also commercial but not trade activities problems)

Page 18 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs » leading to 3 main types of options: › 1 the so-called “no change” option: –sticking to the present definition of enterprises –with necessary operational changes to really apply it › 2 the “minor change” option –clarifying the definition of enterprises (what reference territory: each country / a zone / the world? what type of relations with legal units?) in comparison to operational segments of the Group –introducing either “truncated GODS” as enterprises or “truncated enterprises” –with international coordination (list and composition of enterprises) –Statistical work remaining purely national › 3 the “complete change” option –First global: for the listing of GODs and enterprises –Statistics mainly based on consolidated information (highest level possible) or on “consolidation system” at least for FATS data (ISIC/NACE; turn-over; employment) –Then allocation to countries (process to be designed)

Page 19 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs the first « examples » studied › testing, iterations and early results are objectives throughout the project › but restricted to “examples” until now › first “cases” studied in common: –4 groups within the motorcar industry (to check their similarities and differences) –a list of differentiated MNEs (in industry, trade and services, all largely widespread in EU, some with SPEs), most of them being seen from at least two countries point of view

Page 20 ESSnet & Insee (but personal views of the authors) Q May 2010 ESSnet on « profiling large and complex MNEs the future work › Next Workshop in Paris in June, main discussion on: –Options for the profiling –Draft report on statistical units › Needed discussion from EU and non EU statisticians › For EU members, all papers of the ESSnet on CIRCA / BRnet / Profiling, for information and comment Thank you for attention and comments