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WHAT GLOBALISATION MEANS FOR MANUFACTURING
Jennifer RibarskyNational Accounts Division, OECD
The changing shape of UK manufacturing conference
22 October 2014
Introduction
• Short general overview of the phenomenon of globalisation
• Overview of global value/production chains• What is manufacturing?• Future work
2
Increasing globalisation apparel, cars, toys, planes, electronics…
3
Escape slides: Air Cruisers (USA)
Horizontal Stabiliser:Alenia Aeronautica (Italy)
Centre fuselage: Alenia Aeronautica (Italy)
Final assembly: BoeingCommercial Airplanes (USA)
Vertical Stabiliser: BoeingCommercial Airplanes (USA)
Landing gear: Messier-Dowti (France)Electric brakes: Messier-Bugatti (France)Tires: Bridgestone Tires (Japan)
Doors & windows:Zodiac Aerospace (USA)PPG Aerospace (USA)
Tools/Software: Dassault Systemes (France)Navigation: Honeywell (USA)Pilot control system: Rockwell Colins (USA)Wiring: Safran (France)
Centre wing box:Fuji Heavy Industries (Japan)
Engines: GE Engines (USA),Rolls Royce (UK)
Wing box: Mitsubishi Heavy Industries (Japan)Wing ice protection: GKN Aerospace (UK)
Engine nacelles: Goodrich (USA)Aux. power unit: HamiltonSundstrand (USA)
Flight deck seats:Ipeco (UK)
Lavatories:Jamco (Japan)
Cargo doors: Saab (Sweden)
Forward fuselage:Kawasaki Heavy Industries (Japan)Spirit Aerosystems (USA)
Raked wing tips: Korean AirlinesAerospace division (Korea)
Passenger doors:Latécoère Aéroservices (France)
Prepreg composites:Toray (Japan)
Rear fuselage:Boeing South Carolina (USA)
Source: Rivoli (2005), WTO (1998), Feenstra (1998), www.newairplane.com, Linden et al. (2009)
Industry’s share of total value added
4Source: OECD, Factbook, 2014
• Global value chains
• Fragmentation of production across borders
• Initiated by lead entity, the principal
• Principal exerts a certain amount of control over the process
• Tasks may be performed by an enterprise’s own affiliates or through independent contractors
Global production arrangements
5
Simple global value chain
6
FIGURE 1 Illustration of a simple supply chain
Source: U.S. International Trade Commission compilation
S
uppl
y ch
ain
man
agem
ent a
ctiv
ity
Global production (1)
Principal(domestic economy)
Processor (abroad)
Material inputs
Material outputs
= information= products
turnover productioncost
= money
Processing fee
Manufacturing services on physical inputs owned by others
Global production (2)
Principal(domestic economy)
Processor (abroad)
Material inputs Material outputs
= information= products
turnover productioncost
= money
Processing fee
Manufacturing services on physical inputs owned by others
Global production (3)
Principal(domestic economy)
Contractproducer
(abroad) Material inputs
Material outputs
Blueprints ofproduction
= information= products
turnover productioncost
productioncost
= money
Global production (3)
Principal(domestic economy)
Contractproducer
(abroad) Material inputs
Material outputs
Blueprints ofproduction
= information= products
turnover productioncost
productioncost
fee or purchase of products?
economic ownership of material inputs?
= moneyTrader or Manufacturer?
Industrial Classification
• Industrial classification not designed to capture the global manufacturing model very well
• Industrial Classification (ISIC rev. 4 and NACE rev 2) provides guidance on outsourcing
• Manufacturers can outsource part of or fully the physical transformation process
• However, if they outsource fully the physical transformation process they are classified to manufacturing if and only if they own the raw material inputs.
What’s included in Manufacturing Sector?
• Traditional view…
• Units engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products. Often described as plants, factories, or mills…
• When we eliminate ‘smokestacks’ and ‘production workers’ as classification characteristics units appear to have similar characteristics of Wholesale/Retail Trade.
• ISIC defines wholesalers and retailers as buying and selling goods without transformation of the goods
• But are FGPs really traders?
View From 30,000 feet: Factoryless goods producer
13
iPhone Study
14
Future work for classification
• UNECE Task Force on Global Production (TFGP) recommends that…– Factoryless Good Producers (FGPs) be classified as
manufacturers
– Reviewed by Advisory Expert Group on National Accounts (agreed that FGPs should not be classified as traders; should be identified as a separate subset of manufacturers)
– However, not consistent with current ISIC guidelines
– Recommend at least Flagging FGPs within trade so that we can better track these activities
15
UK Jobs in “Manufacturing”? (millions)
16
A ‘vertical’ view of UK manufacturing?
17
Expert Group on Extended SU tables
• To create an integrated economic accounting framework for globalisation • More detailed SU tables:
– Imports• With all products at fob and separate column for residents expenditure abroad• Broken down by firm characteristics – and used to inform import flow tables
– Industries• More heterogeneity: Foreign/Domestic, Export/non-export, S/M/L
– Exports• Broken down by firm characteristic
– In the export column but also as an ‘of-which’ of output
• With non-residents expenditure and re-exports separately identified
– With transparent adjustments for some non-observed items (e.g. own account agricultural production)
– Jobs by industry row– Emissions by industry row– With new rows for property income flows: interest, distributed income of corporations,
reinvested earnings on FDI– And, for BEPS: current taxes on income, wealth etc
18
Use Table
19
ExporterNon-
ExporterExporter
Non-Exporter
ExporterNon-
ExporterExporter
Non-Exporter
ExporterNon-ExporterExporter Non-ExporterExporterNon-ExporterExporterNon-ExporterTaxes on ProductsSubididies on Products
Total Domestic intermediate Consumption
Total importsTotal intermediate ConsumptionValue-Addedof which
Mixed Income
Compensation of Employees
Gross Operating Surplus
Other Taxes on Production
Other Subsidies on Production
Total Outputof which
own-account production of software
own-account prodduction of R&D
other own-account production
of which - non-
residents expenditure
Industry 1 Industry 2Foreign Domestic Foreign Domestic HHFC GGFC GFCF
Changes in
Inventories
Vauables Exports of which re-exports
Industry 1
Industry 2
Foreign
Domestic
Foreign
Domestic
With exports broken down,
ideally, by destination (main
partner countries/regions
)
Import Use table
20
ExporterNon-
ExporterExporter
Non-Exporter
ExporterNon-
ExporterExporter
Non-Exporter
Industry 1Industry 2
Total importsTaxes/Subsidies on Imports
Industry 1 Industry 2Foreign Domestic Foreign Domestic HHFC GGFC GFCF
Changes in Inventories
Vauables Exports
of which: Residents
expenditure abroad
With separate tables made available broken down by main country or region of
origin ‘groupings’
Supply Table
21
ExporterNon-
ExporterExporter
Non-Exporter
ExporterNon-
ExporterExporter
Non-Exporter
ExporterNon-ExporterExporter Non-ExporterExporterNon-ExporterExporterNon-ExporterTotal of which
own-account production of software
own-account prodduction of R&D
other own-account production
Memorandum itemIndustry 1 Industry 2
Foreign Domestic Foreign DomesticTotal
Domestic Supply at Basic
Prices
Imports F.O.B
Taxes and Subsidies
on Products Total Supply
of which import taxes
/ subsidies
Industry 1
Industry 2
Foreign
Domestic
Foreign
Domestic
Extensions?
22
ExporterNon-
ExporterExporter
Non-Exporter
ExporterNon-
ExporterExporter
Non-Exporter
Property income payments - to abraod
of which
Interest
Distributed Income of Corporations
Reinvested Earnings on FDI
Investment Income Disbursements
Property Income payments - to abroad
of which
Interest
Distributed Income of Corporations
Reinvested Earnings on FDI
Investment Income Disbursements
Current taxes on income and wealth
Employment
Employees
Hours worked
Co2 emissions
Industry 1 Industry 2Foreign Domestic Foreign Domestic
Property income receipts – from abroad
Thank you for your attention!
23
Increasing globalisation
Significant value-added is generated by foreign affiliates, with a large share of value-added repatriated to parents as property income:
24
Increasing globalisation
25Source: OECD, Science, Technology and Industry Scoreboard, 2013
Jobs in the business sector (ISIC Rev.3, 10 – 74) sustained by foreign final demand As a % of total business sector employment