Archive:Foreign affiliates statistics - FATS
Foreign-owned multinationals play an increasingly important role in the economies of many developed and developing countries, with the level of foreign direct investment increasing consistently over the past few decades.
There is competition among countries to attract affiliates of foreign multinationals as they contribute to the welfare of the host economy. Foreign affiliates of European companies also play a very important role in the global economy.
Foreign affiliate statistics describe the activities of an economy's affiliates based abroad (outward FATS) and the contribution made by foreign affiliates resident in that economy (inward FATS).
This article considers data on the role of European-controlled foreign affiliates - outward FATS - and examines the contribution made by European-controlled affiliates both within and outside the European Union.
FATS measure the commercial presence, as clarified by the General Agreement on Trade in Services, through affiliates in foreign markets. This article discusses statistics on the number of people employed and the turnover for foreign affiliates.
Main statistical findings
.PNG)
The scale of activities of European-controlled foreign affiliates was bigger within the EU than outside it in the year 2004. The intra-EU share of the number of people employed by European-controlled foreign affiliates was 57.7 %, with figures ranging from 34.5 % for Portugal to 81.2 % for Austria. The share of turnover was 54.5 %, ranging from 50.9 % for Germany to 89.8 % for the Czech Republic. The only exception was in relation to the number of people employed in Portuguese-controlled foreign affiliates, where the extra-EU share was 65.5 % (see Graph 1).
Foreign affiliates were most active in neighbouring countries (France for Belgium, Slovakia for the Czech Republic, Cyprus for Greece, Germany for Austria, Spain for Portugal, and Sweden for Finland). However, the United States was the principal destination in terms of both turnover and number of people employed for German foreign affiliates. The activity of European affiliates outside the EU was highest in North America, with shares of 38.6 % for the number of persons employed and 57 % for turnover (the USA accounted for 91 % of the total).
In terms of turnover, the services sector was the main field of activity for EU affiliates in 2004, with 54.7 % of total, followed by manufacturing with 40.9 %. Only in Finland did manufacturing take a higher share of total turnover than services. However, in terms of the number of people employed in foreign affiliates, the manufacturing sector accounted for 54.8 % of the total, compared with 41 % for services.
Among the activity categories of the services sector, ‘Trade and repairs’ had the biggest share in terms of both number of people employed and turnover (47.6 % and 67.2 % respectively). However, this share differed from country to country, ranging from 10.4 % in Greece to 62.5 % in Finland for the number of people employed. For turnover, the share ranged from 12.9 % in Greece to 88.3 % in the Czech Republic. ‘Trade and repairs’ was followed by ‘Transport and communication’ in terms of the number of workers employed and by 'Financial intermediation' in terms of turnover.
The impact of foreign affiliates on the labour market differs significantly from country to country, being substantial in some countries and almost negligible in others. While German affiliates were by far the biggest employer abroad, Finland had the highest proportion of people employed by foreign affiliates, accounting for 13.9 % of total employment in the country. It was followed by Austria and Germany, both with a ratio of about 11 % of people employed by foreign affiliates to total employment. At the other end of the scale, the ratio for the Czech Republic was only 0.3 % and for Portugal 0.6 %. Taking only affiliates outside the EU into account, these figures ranged from 5 % for Finland and Germany to 0.1 % for the Czech Republic and 0.4 % for Portugal.
Data sources and availability
Foreign direct investment (FDI) and FATS reflect two different aspects of the role of multinationals in the global economy. While FDI provides data on the monetary value of investment flows and stocks, FATS describe the economic activity of companies receiving the investment.
FATS focus on affiliates that are majority-owned by a single investor or group of associated investors acting in concert and owning more than 50 % of ordinary shares or voting power. However, other criteria may also be relevant for defining foreign control, and thus other cases (multiple minority ownership and joint ventures, for example) should be covered when considering assessment of control. Control is defined in this context as the ability to determine the general policy of an enterprise by choosing appropriate directors, if necessary. However, control is often difficult to determine and, in practice, the share of ownership is often used as a proxy for control.
FATS encompass inward and outward FATS data. Similarly, FDI contains inward and outward investment.
Inward FATS describe the overall activity of foreign affiliates resident in the compiling economy. A foreign affiliate within the terms of inward FATS is an enterprise resident in the compiling country over which an institutional unit not resident in the compiling country has control. In simpler terms, inward FATS describe how many jobs, how much turnover, etc. are generated by foreign investors in a given EU host economy. While FDI statistics give an idea of the total amount of capital invested by foreigners in the EU economy, FATS add to that information by providing insight into the economic impact those investments have in the EU in terms of job creation, etc.
Outward FATS describe the activity of foreign affiliates abroad controlled by the compiling country. A foreign affiliate within the terms of outward FATS is an enterprise not resident in the compiling country over which an institutional unit resident in the compiling country has control. In simpler terms, outward FATS data describe, for example, how many employees work for affiliates of EU enterprises based abroad. In this case, outward FATS give an idea of the economic impact of EU investments abroad (e.g. how many employees work for affiliates of German enterprises in China, what the exports of affiliates of British firms based in India are, etc.).
FDI VERSUS FATS
FDI and (outward) FATS are closely related statistical domains. Their subject of interest is the same – businesses investing abroad in other business units, existing ones and/or newly founded ones. This similarity in substance is also expressed in compilation practice, as outward FDI stock and outward FATS data are often compiled with the help of the same survey. Yet, despite all these similarities, there are a number of important methodological differences between them. These differences limit the scope of comparability between the two datasets. The most important methodological differences are:
50 % (FATS) rule versus 10 % (FDI) rule
FATS comprise all affiliates that are foreign-controlled (where foreign investors have more than 50% of the voting rights) while FDI statistics include all foreign interests amounting to 10 % or more of the voting power. Broadly speaking, it could be said that the outward FATS population is a sub-group of the population of foreign direct investments relevant for FDI statistics.
The principle of the Ultimate Controlling Institution (UCI) versus immediate counterparty country
FATS are based on the concept of control when assigning statistical values to institutional units. According to Eurostat’s FATS recommendations manual, control is defined as “the ability to determine the general policy of an enterprise by choosing appropriate directors, if necessary”. Typically, equity ownership is taken as a proxy to determine control and, while cases of minority ownership are also acknowledged, the ownership of more than 50 % of the voting power or of the shares (directly or indirectly) is generally taken as an indication of effective control over another institutional unit. As control and ownership chains often extend across a number of institutional units, FATS statistics according to the 'FATS recommendations manual' are always assigned to the Ultimate Controlling Institution (UCI), which is colloquially (although less accurately) referred to as the ‘parent company’. The core FDI statistics, on the other hand, are based on the immediate counterparty country principle. FDI flows and positions are attributed to the country of the immediate investor or recipient of the investment, even if the capital may be passing through to a third country.
Context
The EU is one of the world’s biggest investors and foreign affiliates of European companies play a very important role in the global economy. Therefore, outward Foreign Affiliates Statistics (FATS), which can be defined as statistics describing the activity of foreign affiliates abroad controlled by the compiling economy, are increasingly relevant to the formulation of the EU's economic policies as they provide information on the role that European capital plays in the world’s economy, especially in terms of sales and employment.
Reporting of outward FATS data in Europe still takes place on a voluntary basis only, and for most countries the variables covered are turnover and number of people employed. For 2004, which is the most recent year for which figures are available, seven Member States provided data.
In 1994, the United Nations Statistical Commission established a task force to develop a 'Manual on statistics of international trade in services' that would provide guidelines for definitions, classification and coverage for statistics in this area. It also provides guidance and assistance to countries in the implementation of the recommendations contained in the manual, with particular emphasis on the compilation of statistics on foreign affiliates trade in services. The task force comprises Eurostat, the International Monetary Fund, the Organisation for Economic Co-operation and Development, the United Nations Statistical Division (UNSD), the United Nations Conference on Trade and Development, and the World Trade Organization, with the OECD as chair and secretariat.
Further Eurostat information
Publications
Main tables
- Balance of payments statistics and International investment positions (t_bop_q)
Database
- European Union Foreign Affiliates Statistics (Outward FATS) (bop_fats)
Dedicated section
Methodology
- European Union Foreign Affiliates Statistics (Outward FATS) (ESMS metadata file - bop_fats_esms)
Other information
- Balance of payments and international investment position manual (BPM6)
- OECD Book shop OECD handbook of economic globalization indicators (HEGI)
External links
- International Monetary Fund
- OECD
- United Nations Statistical Division
- United Nations Conference on Trade and Development
- World Trade Organization General Agreement on Trade in Services (GATS)