Developing Method for Profiling Complex Enterprises

1. ESSnet on profiling: developping a method to treat Complex EnterprisesRome joint Workshop

2. ESSnet on « profiling large and complex MNEs » • The present situation of enterprise slide 3 to 5 • Objectives and main features of profiling slide 6 • Change in the approach slides 7 to 13 • « Process » changes incoming slides 14 and 15 • Future work: tests, tests, tests slide 16 • Consultation and dissemination slide 17 • Annex slides 12 to 15 ROME joint Workshop

3. ESSnet on « profiling large and complex MNEs »present situation of the statistical unit « enterprises  » (1) • > they are theoretically included in the EGR • > supposed to be largely used, e.g in Structural Business Statistics • > defined as -thesmallest combinationof legal units - that is an organisational unit - producinggoods and services (for the market) - … witha certain degree of autonomyin decision making - especially for the allocation of its current resources ROME joint Workshop

4. ESSnet on « profiling large and complex MNEs »present situation of the statistical unit « enterprises  » (2) > but created nationally without international comparability: - the sum of the parts usually differs from the total - the required level is not specified (national, European or global?) - standards not consistent for data collection > with consequences of the increasing “globalisation”: - a deepening gap between managerial structure and legal units - amplifying problems in statistics (intra group flows, M-X port, split of VA among countries, R&D, ancillary activities etc) > so that national as well as European statistics are loosing their accuracy ROME joint Workshop

5. ESSnet on « profiling large and complex MNEs »present situation of the statistical unit « enterprises  » (3) > national and international studies for a long time: - “enterprise”-type units operational for years in NL and UK - decision to change soon in France (2011/2012 program), etc - “international 2005 study” on MNEs (CN, UK, NL, FR, IT, etc) which results are known as “seeing the whole elephant”: > leading to MEETS decision to work on better accuracy and consistency of: - statistical units for national collection of data - statistical European aggregates > embedded in the ESSnet Profiling, part of the EGR program, towards an economic definition of enterprises. ROME joint Workshop

6. ESSnet on « profiling large and complex MNEs »the main objectives of the ESSnet Profiling project “To see more clearly the whole elephant” (and its different parts), the ESSnet has been assigned to prepare, for the future, to: > describe consistently the same MultiNational Enterprises (MNEs) in all the EU countries => “enterprises” linked between countries through the EGR • > support efficient data collection in SBS, FATS, FDI and if possible in STS => a system of statistical units for all business statistics • > for direct dissemination and indirect use (National accounts etc) => most statistical productions concerned ROME joint Workshop

7. ESSnet on « profiling large and complex MNEs »change in the approach (1): operational & accounts analysis Profiling is a method: • > to analyse the • legal – operational and – accounting • > structureof an enterprise group • > in order to • - establish the statistical unitswithin that group and • - their links and • - the most efficient structures • > for the collection of statistical data Analysis of business structures is used instead of pre-existent units (admin or legal background); the SUs must have collection capabilities ROME joint Workshop

8. ESSnet on « profiling large and complex MNEs »change in the approach: (2): negociation with MNEs Profiling : > uses the MNEs information system for accounting consolidation > takes the (organisational or management) operating segment as a starting point for delineation of economic “enterprises” (IFRS8), but can differ at the end > with the result that an enterprise is (can be): - a single legal unit (if independant) • - an enterprise group (i.e a set of legal unit under common control) • - a part of an enterprise group. > as “enterprises” are organisational units, theirautonomy(in decision making for allocation of their current resources) is an essential characteristic. Delineation, list, names of “enterprises” built with & agreed by the MNEs. ROME joint Workshop

9. ESSnet on « profiling large and complex MNEs »change in the approach (3): Intra-ESS cooperation to list the SUs Profiling proposes to: • > drop the previous “smallest combination of legal units”which is usually: - national • - bottom-up • - usually non autonomous as basis of the enterprise; • > use “a part of an enterprise group” called “global enterprise (GEN)”which is usually: • - top-down • - multinational • - compulsarily autonomous • > complement it by “truncated enterprises”as national parts of GENs. • > and include “enterprise” in a system of statistical units From bottom-up/national to top-down/global analysis ROME joint Workshop

10. ESSnet on « profiling large and complex MNEs »change in the approach (4): the system of Statistical Units ROME joint Workshop

11. ESSnet on « profiling large and complex MNEs »change in the approach(5): testing « ability » > For the majority of EU statisticians, a large change to the usual way: • - from surveying SUs (statistical units), predetermined in the BR, • - to a dialog with MNEs, • - using their common language: the standardised business accounting > Leads to necessary pre-checkings, from BR staff: • - are the priority variables we need available in the MNE information system at the level of the “enterprises”? • - if yes, are they economically significant? > The checks are to be made first at EU level (then at national level): • - are there theoretically consistent data all over the EU? • - will we be able to gather them consistently from the truncated national parts of the “enterprises”? Is the « enterprise » able to produce structural statistical data ? ROME joint Workshop

12. ESSnet on « profiling large and complex MNEs »change in the approach (6): testing « ability » (continued) Is the « enterprise » able to produce structural statistical data ? > What are the priority variables to check, (statisticians view)? • - the usual BR variables (to identify, assess the continuity and link different kind of units, split the populations and stratify); • - the SBS variables; as such and as SBS are main providers of NA; • the NA themselves; • - special attention to outward-FATS statistics, that operate at the MNE level on “enterprises” > How can the MNEs work on checkings (the business view)? • - they ask for a priority list; • - they want this list to be common to all European countries; • - they ask for common questionnaires for priority variables; • - they know better accounting data than any other. • => priority to components of value added (in an accounting shape), the “core variables” ROME joint Workshop

13. ESSnet on « profiling large and complex MNEs »change in the approach (7): the common language to use • Profiling proposes to use (largely) the IFRS (the EU-GAAP): knowing their pros and cons: • Pros: • Widespread and the only “administrative” “ EU standards • Good standardisation of elementary flows and stocks • Compulsory for stock-traded and bond-traded groups • Include “operational segments” (with usually displayed turn-over, operational results and employment figures) • Cons: • Consolidated data at world level (needs extra data if intra-group flows) • Sometimes at levels lower than UCI • No standardised publication tables • Still uncertain stability for operational segments (as compared to legal units ?) • “operational segments” can be geographical splits not segmental ones talking the business only common language: the « IFRS » ROME joint Workshop

14. ESSnet on « profiling large and complex MNEs »Process changes incoming: networking and platforming (1) • > For the NSI of the UCI country of a MNE, the tasks are: No more registering SUs (statistical units) directly from admin or legal world, but: • - check the global perimeter of the MNE , • - visit the MNE, • - propose GENs (global enterprises in agreement with the MNE) and TENs, • - link the GENs with legal units (can be “m to n” links), • - test at EU (then at world) level the ability to produce adequate statistics, • - send the resulting TENs to partnering NSIs and discuss with them, • > For the partnering NSIs: • - receive proposed TENs (and links with legal units) from the leader NSI • - validate them (existence, ability, agreement from the national managers) • - accept or re-discuss them with the leader NSI • > Each NSI plays alternatively the 2 roles « networking » the global and national statistical units ROME joint Workshop

15. ESSnet on « profiling large and complex MNEs »Process changes incoming: networking and platforming (2) • > For the profilers, a WEB platform (mid-2012) will support the process : - maintaining the global perimeter of the MNE (if updates), • - supporting the dialog UCI NSI / partnering NSIs, • - recording the GENs, TENs, and their characteristics • - recording the GENs / TENs links with Legal Units (can be “m to n” links), • - recording the tested ability to produce adequate statistics, • > For the EGR, consistency & completion will be organised (end 2012-13): • - all new LeU will be identified through the EGR ID service • - all GENs will be introduced by the UCI country of the MNE • - all TENs will be introduced by its country • > Each NSI is potentially a profiler and an EGR contributor: • - but the services can be, or not, different > Enterprises are EGR SUs Profiling web platform and links with the EGR ROME joint Workshop

16. ESSnet on « profiling large and complex MNEs »Future work: manual, guidelines … and tests, tests, tests ! • > manual, guidelines, etc - manual: version 1 at the end of 2011; final version end of 2013 • - guidelines: version 1 March 2012; final version end of 2013 • - material for training: initial June 2012; final February 2013 • - organisational and financial models for profiling: June 2013 • > Tests, tests, tests ! : • - partners profiling tests: 20 MNEs in 2011; 40 in 2012-13 + 40 “light” • - 5/6 new testing countries in 2012 • - all other ESS countries invited as “piloting” countries in 2013 • > Implementation in the future operational process (from 2014): • - a target population of 500 MNEs for “complete profiling” • - a target to be defined for “light profiling” Partnering, testing, piloting … and implementation ROME joint Workshop

17. ESSnet on « profiling large and complex MNEs » consultation and dissemination • Our project lasts until the end of 2013, now mainly on testing • We are in constant coordination with: • - the EGR ESSnet • - the Consistency ESSnet • - the EU studies on globalisation (e.g on value chains) and on MNEs • - the Eurostat groups on BR, SBS, FATS, NA etc • - other interested countries (US, Canada, Australia, China, …) • - international bodies such as OECD, UNECE, etc • We will appreciate your comments: pierre.teillet@insee.fr --------------------------------------------------------------------------------------------------- Thank you for your attention ROME joint Workshop

18. ESSnet on « profiling large and complex MNEs » AnnexCore variables: the highest priority to test ability for SBS & NA: ROME joint Workshop

19. ESSnet on « profiling large and complex MNEs » AnnexCore variables: reconciliation with the P&L ROME joint Workshop

20. ESSnet on « profiling large and complex MNEs » AnnexCore variables: where to find the right variables in the financial statement? ROME joint Workshop

21. ESSnet on « profiling large and complex MNEs » AnnexCore variables: what if a complete balance-sheet for the enterprise? ROME joint Workshop