1. The impact of globalisation on defining the NACE code Nordisk Statistikermøde i København 11.-14. august 2010 Tema 1. Udvikling af statistikken: Globalisering Tarja.Hatakka@stat.fi

2. Tarja Hatakka / Business Register2 Disposition Introduction Context The phenomenon of International sourcing ”The jungle” of concepts The problem statement A fictitious example Contradictory international recommendations and practices? Conclusions

3. Introduction 12/08/20103Tarja Hatakka / Business Register

4. Context Programme for the Modernisation of European Enterprise and Trade Statistics (MEETS) One of the objectives: reviewing and further developing indicators related to globalisation EuroGroups Register (EGR) as a basis for production of comparable statistics on globalisation of the economies  ESSnet to develop and implement a methodology for 'profiling’ of large and complex multinational enterprise groups  Nace Rev. 2 Rules for classification of units outsourcing 12/08/20104Tarja Hatakka / Business Register

5. The phenomenon of International sourcing Production of goods or services outside the compiling country by non-affiliated or affiliated enterprises. Becoming more and more common In Finland (+other Nordic countries and NL) the main business function sourced abroad has (in 2001-2006) been the core business activity Most often the model has been insourcing, i.e. the enterprise sources business functions within the same enterprise group Source: joint publication by the national statistical offices of Denmark, Finland, the Netherlands, Norway and Sweden (2008), International Sourcing - Moving Business Functions Abroad. 12/08/20105Tarja Hatakka / Business Register

6. ”The jungle” of concepts Insourcing production within the enterprise group Outsourcing production outside the enterprise group Offshoring outsourcing activities abroad  however, terms are not used unambiguously another general term used: Global manufacturing can include several types of arrangements: re-exporting, goods under merchanting, goods under processing 12/08/20106Tarja Hatakka / Business Register

7. The problem statement 12/08/20107Tarja Hatakka / Business Register

8. 12/08/20108Tarja Hatakka / Business Register Enterprise A Global decision centre Own activity: head office activities, R&D, marketing, distribution Finland Affiliate B Contractor Own activity: manufacturing Poland Affiliate C Contractor Own activity: manufacturing Germany Affiliate D Distribution Own activity: trade Netherlands A owns raw materials used by B C owns raw materials itself Enterprise group is a manufacturing group. What is the NACE code for enterprise A? A sells all products further to end customers all over the world or to the distribution affiliate D in Netherlands

9. Contradictory international recommendations and practices? 12/08/20109Tarja Hatakka / Business Register

10. International recommendations NACE Rev. 2 and ISIC Rev. 4 Units, which completely (or partly) outsource the transformation process, should be classified into manufacturing only if they own the raw material used as input to the production process The rule is also valid if the contractor is a subsidiary unit (=insourcing)  Should we classify enterprise A under Manufacturing? BR manual The purpose of the principal activity code: ”…important in judging the role of certain units in the enterprise group structure, mainly the group head, the head office and special purpose entities (SPEs included in NACE Rev. 2 class 6430), but also in general in enterprise group structuring and demography. The enterprise group’s worldwide dispersion of employment by activity can also be studied by its constituent units.”  Should we classify enterprise A under Services? 12/08/201010Tarja Hatakka / Business Register

11. International practices Finland queried the national practices from different EU countries concerning the turn-key projects (a special case of global manufacturing)  National practices were largely disparate concerning both the classification issue and the treatment of transactions  Global view vs. national view  Should we approach the definition from a global or national point of view when the activity is defined? an issue discussed in the context of ESSnet on Profiling MNE’s 12/08/201011Tarja Hatakka / Business Register

12. Conclusions 12/08/201012Tarja Hatakka / Business Register

13. Conclusions More guidelines are needed on the issues concerning international sourcing and especially insourcing (sourcing within the enterprise group) Different solutions concerning the classification can have a great impact on the structure of the economy.  Different solutions create a risk for significant incomparability in data collection and compilation of statistics in and between different countries Solutions need to be found in international co-operation. For example “ESSnet on Profiling of MNEs” is a good forum to discuss such things 12/08/201013Tarja Hatakka / Business Register