Multinational enterprises and international trade: different country profiles

Enterprises can internationalize through exportations or through the development of foreign affiliates. These affiliates have grown in size, supported by foreign direct investments (FDI, inward or outward; box).

Nowadays, multinational enterprises (MNE) play a determining role in economic globalization. Therefore, a study comparing countries' internationalization cannot be limited to exports and imports of goods and services.

Indeed, in 2011, MNEs under French control had half of their sales and total employment abroad (respectively 52% and 53%). Additionally, in the French economy, all MNEs, whether French of foreign controlled, represented roughly half of the employment (47%) and the value added (56%) of all enterprises located on French territory; of which MNEs under foreign control respectively weighed 12 and 15 percentage points.

In 2011, exports of goods and services from France represented 27% of gross domestic product (GDP), the same proportion as Spain and the United Kingdom, but much less than Germany (51% of German GDP). However, for both France and Germany, outward sales of the foreign affiliates of their MNEs amounted to a similar proportion of their GDP (69%, respectively 1,400 and 1,800 billion Euros; figure 1).

Conversely, the proportion of outward sales for Spanish controlled MNEs was much lower (26% of Spanish GDP); Spain does not have as many large MNEs as France or Germany.

As a comparison, in the USA exports represent a relatively small part of GDP (14%), mainly because of the size of the US economy. This size also moderates the weight of outward sales (38% of US GDP against 69% for France and Germany). On the other hand, these US outward sales are higher than US exports: they amount to 4,600 billion Euros, three times as much as outward sales by French controlled MNEs.

Wholesale trade and sales of cars represent 29% of the outward sales of German controlled MNEs. For French and British controlled MNEs, this rate is only 8% (figure 2). These sales amount to 528 billion Euros for German controlled MNEs (of which 200 billion for car sales) against respectively 116 billion and 96 billion Euros for French and British controlled MNEs. These differences can be partly explained by significant resales of German exports via their foreign affiliates abroad. Conversely, for French controlled MNEs, production abroad seems to be more developed than exports. Indeed, almost 60% of the outward sales of French controlled MNEs are realized by industrial foreign affiliates (against 42% for Germany). As a comparison, for the USA the proportion of industrial foreign affiliates (50%) in outward sales is between Germany and France, and the share of affiliates in wholesale trade and sales of cars is very high: 25% of outward sales, mainly focused on agricultural and food products, electrical products, then sales of cars.

The outward sales by retail trade affiliates (malls in particular) are substantially higher for France than for Germany: respectively 127 billion and 107 billion Euros.

Finally, finance and insurance are proportionately strongly represented in British and Spanish outward sales.

However, the level of Spanish outward sales (270 billion euros) is much lower than that of the other countries in this study (for instance 1,400 billion Euros for France).

A large level of outward sales in a specific country does not necessarily mean that production by the foreign affiliates in this country is high, especially in the wholesale trade and sales of cars sectors. Therefore, outward employment figures help understand the development of the activity in these countries and supplement the findings derived from outward sales figures.

In fact, half of outward employment in the foreign affiliates of German controlled MNEs is in an industrial affiliate and 14% in an affiliate in the wholesale trade and sales of cars sectors (figure 2). These proportions are respectively 43% and 5% for foreign affiliates of French controlled MNEs. Thus for both Germany and France, the proportion of these two activities taken together is smaller in outward employment than in outward sales (respectively 66% and 48% in employment against 71% and 67% for sales). Conversely, the proportion of market services and the retail trade is higher in employment than in sales: 28% for Germany and 44% for France, against respectively 17% and 23%. These activities are relatively more labor intensive. In particular, the proportion of the retail trade and food services and accommodation sectors in outward employment is higher for France (23%) than for Germany. This gap is not only due to retail (French malls companies) but also to food services and accommodation (9% for France against 1% for Germany). Lastly, the proportion of outward employment in business services and transport is similar between the different countries, with the exception of Spain, which has a higher proportion.

Looking at the geographical distribution of foreign affiliates, those of German controlled MNEs are proportionally twice as present in the new UE member states than the foreign affiliates of French controlled MNEs (18% of their foreign affiliate employment against 9% for the French).

The sectoral distribution of outward employment for French controlled MNEs is close to that of British and US controlled affiliates, with the exception of finance and insurance for British controlled affiliates, which have a high proportion (15%). Finally, foreign affiliates of Spanish controlled MNEs have a peculiar distribution: the proportion of their outward employment in industrial activities is much smaller than for the other countries whereas business services and finance and insurance represent more than half of their outward employment.

French controlled MNEs employ 5.3 million persons in their foreign affiliates. For German and British controlled MNEs, outward employment amounts respectively to 4.9 million and 4.4 million persons employed. For French controlled MNEs, outward employment is equal to 37% of the number of persons employed by all the enterprises located in the country (domestic employment; figure 3), almost twice as much as for Germany (20%) and three times as much as for the USA (13%, 11.8 million persons employed).

Conversely, in France, foreign controlled affiliates of MNEs have 1.7 million persons employed in 2011 (inward employment), representing almost 12% of French domestic employment. Foreign presence is similar in Germany but is much bigger in Spain (15%) and especially in the United Kingdom (20%, 3.3 million persons employed).

These ratios reveal different situations concerning the globalization of the economies: France and Germany are highly developed abroad and their inward employment is smaller than that of the United Kingdom, which is also very open abroad. These differences are mainly due to US controlled enterprises: in the United Kingdom they represent 31% of inward employment, against 23% in France and 21% in Germany.

As a comparison, with almost 12 million persons employed abroad and 5.7 million domestic employment under foreign control, the USA is, relatively to the size of its economy, much less present abroad and much less penetrated (respectively 13% and 6% of domestic employment).

Similarly to the view of exports and outward sales, the international penetration of economies is described by jointly taking into account imports and inward sales (sales by affiliates under foreign control), both compared to GDP (figure 4). In terms of sales, as seen with employment, the presence of foreign controlled affiliates is lower in France. In Germany, despite a similar proportion in employment, the proportion of inward sales is higher than in France, relatively to GDP. This gap is due to the higher proportion of foreign controlled affiliates in the industrial sector compared to France (25% of GDP against 14%).

In the United Kingdom, the proportion of inward sales is much higher than in France, in the same way as that seen for employment. However, in value added, an indicator which better describes the production carried out in the country, the proportions are closer, reaching 16% of GDP against 10% in Germany and 7% in France.

Taking the European Union (EU) as a single entity, the development of EU controlled MNEs outside of the EU can be compared to the development of US controlled MNEs outside of the USA.

Thus in 2011, the MNEs of EU countries had 13.6 million persons employed outside of the EU (representing 11.8% of EU domestic employment). The United Kingdom, France and Germany contribute two-thirds of the extra-EU employment of EU controlled MNEs whereas these three countries account for half of EU GDP. The rest of the extra-EU employment comes mainly from the MNEs under Italian, Dutch, Spanish, Swedish and Danish control.

MNEs from EU countries seem to be more present abroad than US controlled MNEs, which have 11.8 million persons employed in their foreign affiliates (representing 13.2% of US domestic employment). However, focusing only on the foreign affiliates on the two respective territories, the situation is reversed: MNEs from EU countries employ 3.2 million persons in the USA whereas US controlled MNEs employ 3.8 million persons in the EU.

Therefore, one third of US MNEs' outward employment is located in the EU whereas for EU controlled MNEs the USA represents only one fourth of their outward employment. This difference can mainly be explained by the foreign affiliates located in Africa and under control of an EU country (1.6% of US outward employment against 9% of EU outward employment).