Figure 1: Enterprises with at least 100 persons employed
controlling foreign affiliates abroad, 2011

Figure 2: Share of enterprises controlling foreign affiliates by
manufacturing and services sectors, 2011

Figure 3: Foreign affiliate employment abroad as a proportion
of combined employment in manufacturing and services
sectors, 2011

Foreign affiliates statistics - employment by business function

From Statistics Explained

Data from April 2014. Most recent data:Further Eurostat information, Main tables and Database.

This article investigates the employment record of foreign affiliates, by business function, of enterprises in 14 European Union (EU) Member
States and Norway. It shows that employment in foreign affiliates of European enterprises is falling less than in the domestic enterprises.

Most of the foreign affiliates, however, are located within Europe and are found more often in the manufacturing sector than in the services
sector. Furthermore there is no evidence of substantial movement of knowledge-intensive business functions to destinations outside Europe. The
business function with the highest share of employment in foreign affiliates is marketing and sales, indicating enterprises' desire to establish a
commercial presence in foreign markets.

Contents

1 Main statistical findings

1.1 Location of foreign affiliates
1.2 Core business function
1.3 Support business function
1.4 Knowledge intensive employment
1.5 Effects of the economic crisis

2 Data sources and availability
3 Context
4 See also
5 Further Eurostat information

5.1 Publications
5.2 Main tables
5.3 Database
5.4 Dedicated section
5.5 Methodology / Metadata
5.6 Other information

Main statistical findings

The main findings of the analysis are:

Enterprises report more falls in employment domestically than in foreign
affiliates;
The foreign affiliates are mostly located in EU Member States;
Manufacturing enterprises are more likely than services enterprises to
have established foreign affiliates;
Employment relating to knowledge intensive support functions in foreign
affiliates is mainly located in the EU;
The support business function with the most foreign affiliate employment is
sales & marketing, which reflects the importance of commercial presence
and;
Most domestic and foreign affiliate employment is in core business
functions.

Figure 4: Domestic and foreign affiliate employment in core
business functions, 2011

Figure 5: Core business function employment in foreign
affiliates abroad, by sector, 2011

Figure 6: Core business function employment in domestic
enterprises, by sector, 2011

Figure 7: Core business function employment in foreign
affiliates, by location and sector of the reporting enterprise,
2011

Location of foreign affiliates

Manufacturing enterprises are more likely than services enterprises to
have established foreign affiliates

Globalisation has been driven mainly by multinational manufacturing enterprises
fragmenting their value chains by sourcing both production and support activities
globally. Developments in technology and communication have been important
drivers in this process and consequently the international organisation of services
has also grown. Overall, however, far fewer services enterprises than
manufacturing enterprises have established foreign affiliates. Roughly 20 % of
Danish, Finnish and Dutch services enterprises control affiliates abroad, but
typically the proportion is just over 10 % (see Figure 1).

This internationalisation in terms of enterprises establishing foreign affiliates is
rather diverse across European countries and sectors. Traditionally, the Nordic
countries are relatively open small economies and this is reflected in a high
proportion of enterprises with foreign affiliates. Around 55 % of Danish
manufacturing enterprises had affiliates abroad, followed by their Finnish (42 %)
and Swedish (35 %) counterparts. There are also marked differences between
the ‘EU-15’ countries and countries which joined the EU in 2004 and 2007. In
general, enterprises in the latter had the lowest levels of foreign affiliates abroad
– often 10 % or less. The proportions for Bulgaria and Romania are particularly
low.

Figure 2 provides another view of the same data. It shows one group of
countries is clustered around the black line where the percentage of enterprises
controlling foreign affiliates is roughly the same for Services and Manufacturing
and a second group of countries clustered around the grey line where the
percentage in Manufacturing is twice as high as in Services.

For the purpose of comparing across countries and economic breakdowns,
Figure 3 shows foreign affiliate employment as a proportion of combined
employment in domestic enterprises and foreign affiliates. For Denmark,
Sweden, Norway and the Netherlands, foreign affiliate employment is
considerable. In particular, Danish enterprises in services (including construction,
trade and transport & logistics) have internationalised actively, with higher
proportions of foreign affiliate employment than any other country. The second
and third most active countries, Sweden and Norway (also Nordic countries),
are well behind Denmark. In contrast to Denmark, their enterprises have higher
proportions of foreign affiliate employment in manufacturing than in services. For
the countries that joined the EU in 2004 and 2007, foreign affiliate employment
abroad accounted for a very low percentage of combined employment, the one
exception being the Estonian services sector.

Core business function

Employment mainly in core business functions

Domestic employment (and, to a lesser extent, foreign affiliate employment) is
mainly in enterprises’ ‘core business functions’, which account for 70 % to 90 %
of all domestic employment (see Figure 4). The importance of core business
functions in foreign affiliate employment abroad varies more from country to
country. Typically, foreign affiliate employment is less focused on core business
functions than domestic employment, but the proportions for the foreign affiliates
of Danish, Norwegian, Latvian and Bulgarian enterprises were higher than for
their domestic operations. Overall, proportions varied between 40 % in Portugal and 90 % in Bulgaria.

Figure 8: Support function employment in foreign affiliates
by type of function, 2011

Table 1: Support function employment in domestic
enterprises, by type of function, 2011

Table 2: R & D and engineering support function
employment in foreign affiliates, by location, 2011

Figure 9: Enterprises reporting a decrease in employment,
2009-11

Figure 5 shows the proportion of core business function employment in foreign affiliates broken down according to manufacturing and services.
For all countries except Portugal, the proportion is higher in the services sector than in manufacturing. Figure 6 shows the proportion of core
business function employment in domestic enterprises, broken down according to manufacturing and services. Here the importance of core
business function employment in both sectors is obvious in all countries
concerned.

A geographical breakdown of core business function employment in foreign
affiliates shows that employment remains largely inside the EU (see Figure 7).
This is consistent with the survey’s general finding that a large proportion of
international sourcing in 2009-11 took place in the EU. Over 40 % of core
business function employment in foreign affiliates, in both manufacturing and
services, is in EU-15 countries and 15 % is in countries that joined the EU in
2004 and 2007. EU Member States therefore capture most of the affiliate
employment. ‘Oceania & other Asian countries’ is the third most popular
location for affiliate employment in both manufacturing (8 %) and services
(17 %).

Support business function

Sales & marketing is the most important support business function in
foreign affiliates

Business functions to support the execution of core functions comprise an
integral part of the value chain for both manufacturing and services enterprises.
Support functions have ‘services-like’ characteristics and relate to pre-
production (e.g. R&D or logistical support) and post-production (e.g. sales &
marketing). A few support functions account for the highest proportions of total
support function employment in foreign affiliates (see Figure 8). The main one is
‘sales & marketing’, which typically covers 30-60 % of all employment in
support functions (as much as 80 % in the case of Portugal). This suggests that a
key driver for establishing foreign affiliates is having a commercial presence
abroad.

‘Distribution & logistics’ and ‘administration & management’ are the other
support functions most often handled by foreign affiliates, accounting for 10-
20 % of total support function employment in foreign affiliates. Together, sales &
marketing, distribution & logistics and administration & management often make
up as much as 80-90 % of total support function employment in foreign affiliates.
In contrast, sales & marketing accounts for a lower proportion of support
function employment in domestic enterprises and the proportions for the other
functions are consequently higher (see Table 1).

Knowledge intensive employment

Knowledge-intensive functions mainly located in foreign affiliates in
other Member States

Knowledge-intensive jobs are of particular interest, because they are crucial for
maintaining and improving the competitiveness of European economies and thus
the well-being of European societies. The list of support business functions used
in the survey therefore specifically identifies knowledge intensive support
functions such as R & D and engineering. Below we analyse the location pattern
of such functions in foreign affiliates. A general observation is that employment in
R&D and engineering support functions is located in the EU (see Table 2). For
all participating countries except Denmark, over half of those employed in
enterprises’ foreign affiliates work in other EU countries. Danish enterprises are
frequently present, through their foreign affiliates, in China, the USA and
Canada. Portuguese enterprises employ significant numbers in R & D and
engineering outside the EU, often in Africa.

The locations of affiliates’ R & D and engineering employment vary greatly across the participating countries. In the case of Swedish, Portuguese
and Dutch enterprises, they are often based in other ‘EU-15’ countries, whereas for Estonia and Slovakia they are more likely to be working in
other Member States that joined the EU in 2004 and 2007.

Effects of the economic crisis

Domestic employment most affected by the economic crisis

The impact of the crisis is reflected in Figure 9, which shows the proportions of different types of enterprises reporting a fall in the number of
people they employ. Due to the economic crisis, 2009-11 has generally been characterised by enterprises employing fewer people and this is
reflected especially in enterprises sourcing internationally. In eight out of 12 countries, over 50 % of such enterprises reported a decreasing
number of jobs. Only in the Netherlands (24 %) and Latvia (12 %) were the proportions considerably lower.

Another way in which European enterprises have been trying to overcome the crisis is by cutting employment less in foreign affiliates than at
home. In seven countries, less than 25 % of enterprises reported a fall in employment in their foreign affiliates. Only in Estonia was this
proportion significantly higher (45 %). European enterprises have been cutting employment much more domestically. In ten out of 12 countries,
30 % to 50 % reported fewer jobs in 2009-11. Only in Denmark and Latvia did fewer than 30 % of domestic enterprises report decreasing
employment.

Data sources and availability

In today’s economy, enterprises increasingly organise their production globally by sourcing activities to foreign affiliates or external providers.
The cross-border restructuring of business functions is a key feature of European businesses. It poses challenging questions for policy makers,
and there is therefore a big demand for adequate statistical data.

In 2012, 15 European countries gathered data on the international organisation and sourcing of business functions. The survey covered nearly 40
000 European enterprises employing at least 100 persons in the non-financial business economy. This represents 17 million persons employed,
or around 38 % of all employment in the non-financial business economy in the countries in question. The results presented here focus on the
organisation of business functions between enterprises and their foreign affiliates (see methodological notes). The survey was a revision of the
first survey conducted in 2007 in which 14 national statistical institutes participated.

Enterprises were asked to estimate how many people they employed and whether the numbers had increased, decreased or remained
unchanged in 2009-11. They also provided details on how employment was distributed across the various business functions. They answered
the same questions for their foreign affiliates (if applicable), regardless of their size, and the location (broad geographical region) of the affiliates
was also recorded.

This article does not cover foreign affiliates other than those linked to enterprises in the survey population. Also, the graphs do not always show
results from all participating countries due to differences in national questionnaires, data quality or confidentiality restrictions.

The data presented in this article are from a survey on "International organisation and sourcing of business activities". The data, which cover the
period 2009-2011, has been collected in 15 countries:

Belgium
Bulgaria
Denmark
Estonia
Ireland
France
Latvia
Lithuania
the Netherlands
Portugal
Romania
Slovakia
Finland
Sweden
Norway.

The international sourcing statistics cover NACE Rev.2 (Statistical classification of economic activities in the European Community) sections B
to E and F to N excluding K which, broadly speaking, cover non-financial market activities. The data refers to enterprises with 100 or more
persons employed.

Context

A new and important feature of globalisation is that enterprises split their production processes into a number of business functions which they
then move around the world to gain efficiency and/or new markets. This is called international sourcing. International sourcing is not only about
moving manufacturing core functions from EU-15 to the Member States which joined the EU in 2004 and 2007. It is increasingly about moving
these functions out of the EU to new emerging markets. This can be done either through foreign affiliates or to unaffiliated enterprises.

Additionally, development within information and communication technologies in the last decades has enlarged the sourcing model to include
service functions and service sectors of the economy.

See also

Foreign affiliates statistics - FATS
Global value chains
Global value chains - international sourcing to China and India
International sourcing of business functions - Statistics in focus 8/2013
International sourcing statistics

Further Eurostat information

Publications

Features of International Sourcing in Europe in 2001-2006 - Statistics in focus 73/2009 (http://ec.europa.eu/eurostat/product?code=KS-
SF-09-073&language=en)
International Sourcing in Europe - Statistics in focus 4/2009 (http://ec.europa.eu/eurostat/product?code=KS-SF-09-004&language=en)
Plans for International Sourcing in Europe in 2007-2009 Statistics in focus 74/2009 (http://ec.europa.eu/eurostat/product?code=KS-SF-
09-074&language=en)

Main tables

Structural business statistics (http://epp.eurostat.ec.europa.eu/portal/page/portal/european_business/data/main_tables)

Database

Structural business statistics (http://epp.eurostat.ec.europa.eu/portal/page/portal/european_business/data/database)

Dedicated section

Structural business statistics (http://epp.eurostat.ec.europa.eu/portal/page/portal/european_business/introduction)

Methodology / Metadata

International sourcing statistics - all activities (http://epp.eurostat.ec.europa.eu/cache/ITY_SDDS/EN/iss_esms.htm) (ESMS metadata file
- iss_esms)
Structural business statistics (http://epp.eurostat.ec.europa.eu/cache/ITY_SDDS/EN/sbs_esms.htm) (ESMS metadata file - sbs_esms)

Other information

Global Value Chains and Economic Globalization - Towards a New Measurement Framework
(http://epp.eurostat.ec.europa.eu/portal/page/portal/european_business/documents/Sturgeon_report_Eurostat.pdf) - Dr. Timothy J.
Sturgeon, Industrial Performance Center, MIT

Youtube video of Eurostat Seminar on the measurement of Global Value Chains and Economic Globalisation
(http://www.youtube.com/watch?v=2DV78MnHtQI)
Details of the Seminar mentioned above
(http://www.cso.ie/en/newsandevents/conferencesseminars/eurostatseminarglobalvaluechainsandeconomicglobalizationtheeurostatinitiative)

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