Jean Ritzen Statistics Netherlands a Eurostat project, a partnership of: 30/11/2011 ESSnet on profiling Statistical units: A consistent model at EU and National level Rome joint Workshop

30/11/2011 ROME joint Workshop 2 Introduction to statistical unitsslide 3 to 5 Statistical units model in the BR slide 8 to 12 Impact of globalisation slides 13 to 15 An improved units and BR modelslides 16 to 18 Proposed adapted definitionsslides 19 to 21 A generalised model slides 22 to 27 Conclusions slide 28 Outline of the presentation

30/11/2011 ROME joint Workshop 3 Statistical units Statistical units are units to which the statistical figures relate. Coherent system of statistical units developed, national and international (UN-ISIC, EU-SU-regulation 1993) EU-statistical units are defined in the Statistical units regulation (early nineties). Introduction of the aspect of autonomy for actors in the economy as the leading criterion (above homogeneity) UN statistical units  report of October 2007 Autonomy as criterion is important because of the need of availability of meaningful relevant real economic information in bookkeeping or reports of units.

30/11/2011 ROME joint Workshop 4 EU-statistical units (1993 regulation) The main statistical units in the present regulation are: The Enterprise Group (EG) The Enterprise (ENT) The local unit (LU) Related to these units, other statistical units are defined, but these are more to be used for analytical purposes and are less appropriate for observation purposes. There is less direct recognition in reality. These units are: The Kind of Activity Unit (KAU), as a part of an enterprise The Local Kind of Activity Unit (LKAU), as a part of a local unit; The Unit of Homogeneous Production (as a part of an Enterprise or of a KAU); The Local Unit of Homogeneous Production (as a part of a local unit or of a LKAU); The Institutional unit (IU)

30/11/2011 ROME joint Workshop 5 EU Statistical units: relationships EG UHP IU EnterpriseLegal Unit KAU Local KAULocal UHP Local Unit Statistical World Administrative World Source: Peter Struijs

30/11/2011 ROME joint Workshop 6 Statistical units: definitions 1993 Definitions in the Units and BR Regulations, 1993 : Enterprise Group An enterprise group is an association of enterprises bound together by legal and/or financial links. A group of enterprises can have more than one decision-making centre, especially for policy on production, sales and profits. It may centralize certain aspects of financial management and taxation. It constitutes an economic entity which is empowered to make choices, particularly concerning the units which it comprises. Enterprise The enterprise is the smallest combination of legal units that is an organizational unit producing goods or services, which benefits from a certain degree of autonomy in decision-making, especially for the allocation of its current resources. An enterprise carries out one or more activities at one or more locations. An enterprise may be a sole legal unit.

30/11/2011 ROME joint Workshop 7 Statistical Units : related units Reporting unit Observation unit Are not part of the SU - model Reporting unit: Unit at which data are collected Observation unit: Unit of which data are collected Observation unit, reporting unit and statistical unit may be the same unit, but not necessarily

30/11/2011 ROME joint Workshop 8 Statistical units in the Business Register In the BR (EGR) actors in the real economic world must be registered. 1. Enterprise group (EG): unit controlling financing or income distribution processes (Institutional sector code) 2. Enterprise (ENT): unit controlling the production processes (SIC-code) 3. Local unit (LU): regional aspects of production processes (SIC-code) Operationalisation: translation of administrative or organisational units into statistical units, e.g. by profiling (national or global approach)

30/11/2011 ROME joint Workshop 9 (Domestic) Legal Entity (LeU) (Legal or natural person) Economic/statistical world Legal/administrative world (Domestic) Enterprise group Local (legal) entity Enterprise Local unit The relationships EG, ENT and LU in the BR, 1993

30/11/2011 ROME joint Workshop 10 (Domestic) Legal Entity (LeU) (Legal or natural person) Economic/statistical world Legal/administrative world (Domestic) Enterprise group Local (legal) person Enterprise Local unit SPE (IU) The SBR model (national)

30/11/2011 ROME joint Workshop 11 Enterprise Group + Enterprises (BR manual) Enterprise 1 Enterprise 4 Enterprise 2 Enterprise 3 Enterprise 5 Head of group A Legal unit E Legal unit D Legal unit C Legal unit B Legal unit F Legal unit G Legal unit I Legal unit H Legal unit J Legal unit K

30/11/2011 ROME joint Workshop 12 Introduction of the profiling method for large units Definition of profiling: Profiling is a method to analyse the legal, operational and accounting structure of an enterprise group at national and world level, in order to establish the statistical units within that group, their links, and the most efficient structures for the collection of statistical data (and the compilation of statistical figures (tables)).

30/11/2011 ROME joint Workshop 13 Reasons for international incomparabilities in statistics - the data collection method, including sampling (primary data collection/use of data in administrative registrations) - the nationally applied definitions of variables - differences of classification or in the use of classifications - errors in reporting data - use of different types of units (e.g. enterprise or local KAU) - deviating (definitions of) statistical units (e.g. different criteria like that of autonomy) - deviating methods used in the consolidation of data - decentralised (national) data compilation at MNEs

30/11/2011 ROME joint Workshop 14 The Enterprise Group (EG): differentiation Global EG and Truncated EG The Enterprise (ENT) : differentiation Global Enterprise and truncated Enterprise The Local Unit (LU) The position and definition of the KAU could be unchanged, but is to be discussed The Local Kind of Activity Unit (LKAU) The Unit of Homogeneous Production The Local Unit of Homogeneous Production The Institutional Unit (IU) Proposition: These units remain national units as parts of (truncated) enterprises from their nature and use, e.g. National Accounts Statistical Units : proposal for revision for international dimension

30/11/2011 ROME joint Workshop 15 Fundamental changes in interpretations of unit definitions - Definition or interpretation of the EG: Not longer combination of enterprises, but combination of legal entities which are under common control, direct or indirect - Definition or interpretation of enterprise: Enterprise is result of top down analysis of EG. Enterprise as smallest combination of legal units can lead to problems, e.g. with ancillary activities Issue: Identification of the enterprise unit

30/11/2011 ROME joint Workshop 16 An improved model (global EG --> truncated EG + SPEs) Economic/statistical World (global) Global Enterprise group Legal entity Legal/administrative World (global) Local (legal) entity Economic/statistical World (sub-global) “National” part of Enterprise group (“truncated EG”) SPE Local unit Legal/administrative World (sub-global) Legal or operational unit (sub global) Local unit (legal or Operational) “National” enterprise

30/11/2011 ROME joint Workshop 17 Enterprise Group by control + international Dimension Head of group A Legal unit E Legal unit D Legal unit C Legal unit B Legal unit F Legal unit G Legal unit I Legal unit H Legal unit J Legal unit K Country A Country B Country C Country D Bottom upBottom up

30/11/2011 ROME joint Workshop 18 An improved model (global EG --> truncated EG), cont’d Sub-global (=truncated) can be national, but also e.g. European Advantage: -Co-ordination at EG-level: international tuning -Full coverage of MNE - National responsibilities remain Disadvantage: -Does not solve (international) consistency problem Consequence: introduction additional unit, “truncated EG”

30/11/2011 ROME joint Workshop 19 Proposed definitions (1) Enterprise Group Present definition in Regulations: An enterprise group is an association of enterprises bound together by legal and/or financial links. A group of enterprises can have more than one decision-making centre, especially for policy on production, sales and profits. It may centralize certain aspects of financial management and taxation. It constitutes an economic entity which is empowered to make choices, particularly concerning the units which it comprises. Proposed new definition: The enterprise group is a set of legal units under common direct or indirect control. It mostly appears as a combination of legal units bound together by legal and/or financial links.

30/11/2011 ROME joint Workshop 20 Proposed definitions (2) Enterprise Present definition in Regulations: The enterprise is the smallest combination of legal units that is an organizational unit producing goods or services, which benefits from a certain degree of autonomy in decision-making, especially for the allocation of its current resources. An enterprise carries out one or more activities at one or more locations. An enterprise may be a sole legal unit. Proposed new definition: The enterprise is a single legal unit (including a natural person), an enterprise group as a set of legal units under common control, or a part of an enterprise group, producing goods or services. It benefits from a certain degree of autonomy in decision-making, especially for the allocation of its current resources. The enterprise will mostly appear as an organisational unit that can provide meaningful data for statistics.

30/11/2011 ROME joint Workshop 21 Proposed definitions (3) The global enterprise may be part of an all-resident enterprise group or be a single legal unit, if it is not part of a set of legal units under common control. The truncated enterprise is the part of the global enterprise that belongs to the “truncated enterprise group” of the “multinational enterprise group” (MNE). Within an all-resident enterprise group, the global enterprise and the truncated enterprise are one and the same unit. SPEs are to be dealt with as “quasi enterprises”. These mostly are national.

30/11/2011 ROME joint Workshop 22 Legal Entity (LeU) (Legal or natural person) Economic/statistical worldLegal/administrative world Global Enterprise group Local (legal) entity Global Enterprise Local unit EGREGR SPE A generalised SBR model (global)

30/11/2011 ROME joint Workshop 23 A generalised SBR (EGR) model (global --> truncated) Economic/statistical World (global) Global Enterprise group Legal entity Legal/administrative World (global) Local (legal) entity Global Enterprise Local unit EGREGR Economic/statistical World (sub-global) Truncated Enterprise group Truncated Enterprise Local unit Legal/administrative World (sub-global) Legal or operational entity (sub global) Local unit legal or operational SPE

30/11/2011 ROME joint Workshop 24 Requirements - Autonomy (still possible at sub-levels?) - Identifiability - Recognition (administrative, operational and statistical) - Accepted and acceptable (both MNE and statistics) - Data availability - Observable - Meaningful data at all levels (global and sub global) and for the specified uses Related to the available business information systems

30/11/2011 ROME joint Workshop 25 Enterprise Group by control + International Dimension Enterprise 1 Enterprise 4 Enterprise 2 Enterprise 3 Truncated Enterprise 5a Head of group A Legal unit E Legal unit D Legal unit C Legal unit B Legal unit F Legal unit G Legal unit I Legal unit H Legal unit J Legal unit K Country A Country B Country C Country D Truncated Enterprise 5b Global Enterprise 5 Bottom upBottom up Top downTop down

30/11/2011 ROME joint Workshop 26 Enterprise Group + global Enterprise profile (top down) Global Group (IFRS) Global Group TEN1 TEN2 TE3 TE4 GOD1 GOD2 GEN1 GEN3 GEN2 Country A Country B Country C Country D

30/11/2011 ROME joint Workshop 27 A generalised SBR (EGR) model (global --> truncated) Economic/statistical World (global) Global Enterprise group Legal entity Legal/administrative World (global) Local (legal) entity Global Enterprise Local unit EGREGR Economic/statistical World (sub-global) Truncated Enterprise group Truncated Enterprise Local unit Legal/administrative World (sub-global) Legal or operational entity (sub global) Local unit legal or operational SPE

30/11/2011 ROME joint Workshop 28 Conclusions - Globalisation leads to the need of adaptation of systems (frames and processes) - More and more mutual interdependencies - Globalisation goes beyond European boundaries  need for tuning different statistical systems (e.g. EU and UN) - Profiling MNEs requires international communication and co-operation - Implementation using prototyping approach and gradually -Revision SU-regulation to be considered -More MNE commitment because of recognition -Lower response burden at MNEs (after initial investments) -Dual coding can contribute in bringing together (sub)global and national interests

30/11/2011 ROME joint Workshop 29 Thank you