23rd Meeting of the Wiesbaden Group on Business Registers
-International Roundtable on Business Survey Frames

Washington, D.C. 17 – 20 September 2012

Dominique Francoz, Claude Macchi,
Eurostat
Session No. 3

Business Register Profiling of Multinational Enterprises

The EGR and the profiling: a complete vision of the multinational enterprise groups, global actors of the economy

  1. Introduction

The EuroGroups Register (EGR) is the statistical register of multinational groups created by the cooperation between Eurostat (the statistical agency of the European Union) and the statistical authorities of the European Union (EU) Member States and the EFTA countries. It actually contains information on the legal and economic structure of about 10,000 multinational enterprise groups that are acting in Europe (EU+EFTA).

The EGR system, which became productive in 2009 (reference year of the data: 2008) to support the development of statistics on globalisation, is now performing its fourth cycle on reference year 2011 based on the input of business register staff of the National Statistical Institutes (NSIs) of the EU and EFTA countries as well as on information coming from private data providers. It is foreseen to become a platform that supports the production of micro-based statistics on globalisation in Europe.

In parallel to the EGR developments Eurostat has been supporting the development of a methodology to define in the frame of the global enterprise groups economic entities relevant for statistics both at the global and national level. This methodology is called "profiling" and results in the definition of new statistical units: the global and truncated enterprise.

The two projects are closely related; synergies have been explored and will find concrete conclusions in the share of information produced in both projects.

This paper is aimed to present the role of the EGR in the European statistics on globalisation, its principles, new features and tools as well as the profiling process, the interactions between the actors and the features and the consequences on the quality of statistics on globalisation.

2.EGR and profiling contribution to the quality of the statistics on globalisation

The EGR is foreseen to be a common platform for all the statisticians in the domain of globalisation. It will help to enhance the quality of statistics on globalisation acting on coherence between statistical areas (e.g. for the Foreign Affiliates Statistics – FATS and the Foreign direct Investments - FDI) and between countries, proposing as well common concepts and definitions.

The EGR is the first European tool that is built in common with the Member States. Every NSI brings their contribution on the information they have on one given part of a global enterprise group to Eurostat which consolidates the information coming from the different sources according predefined principles.

The EGR disseminates single and consistent information on one group, so that the users base their statistics on units that are defined on the same way. The EGR is also a platform where the users can discuss contentious cases (for example, the country of the Ultimate Controlling Institutional Unit - UCI).

The EGR will propose to the users frames that will be updated all along the year, according to the updating schedules, which can be different from one country to the others. So, in order to propose an up-to-date register, it is intended to not wait until the last country has sent its data to disseminate the EGR content, but to propose several versions that will gradually integrate the updates of the different participating NSIs. On that aspect, the users have a role to play in providing the most up-to-date information.

The implementation of profiling in the EU is also a way to increase the quality of business statistics. The enterprises defined through the profiling of a group are coherent throughout the EU, so that the use of these enterprises as the basis of business statistics will make the national statistics more consistent at the European level. Indeed, these enterprises, at global or national level, are initially delineated by only one NSI (of the country of the UCI) and confirmed through a feedback discussion with the NSIs of the countries where the profiled group is active.

The profiling also initiates a way for NSIs of working together and to increase cooperation. In the future, it should enable a more integrated way of producing business statistics at the European level and increase the global efficiency of the production of European business statistics.

3.The EGR version 2 and its principles

The first version of EGR is actually performing its fourth yearly cycle. The present EGR process is based on information from commercial data providers and from NSIs. The integrated and consolidated information is then submitted to the NSIs of the EU and EFTA countries to verify the delivered legal units, relationships and group structures. Several exchanges of information between the NSIs and Eurostat take place along a yearly-process. This process is very work-intensive for the NSIs, especially for them which already have a database on multinational enterprise groups (MNEs).

The EGR Version 2 is intended to improve the quality of the EGR, not only regarding the output, but also regarding the process. It should reduce the burden for the participating NSIs.

3.1Authentic source and authentic store concept: a way to increase coherence of information in the EGR

EGR V2 will follow the concept of authenticity in storing and identifying data. In EGR V2 the data will be stored in an authentic store and one specific source of the data will be marked as authentic source.

Authentic store means the place where the original and latest version of a data element or a set of data elements is stored. Authentic source means the source of which data are used as the 'truth' without additional investigation. A source is appointed as authentic source if it meets certain quality requirements, e.g. comprehensiveness, accuracy, reliability, timeliness, punctuality and comparability. Data defined/validated by an authentic source cannot be overwritten by another source. Even if values are missing no other sources will be used to provide these.

In the EGR network the authentic store for national units is managed by the NSI, which implicitly means that the NSI is the authentic source for national units of EGR. A NSI may decide within their national network to define subsystems of authentic stores and sources, e.g. with National Banks (NCBs) it could be agreed that the authentic store for financial institutions is the RIAD register (Register of Institutions and Assets Database).

In the EGR V2, for national legal units and national enterprise units the authentic store will be the NSI, for non-EU units the authentic store will be the EGR. For cross-border relationships the authentic store will be EGR, the authentic source can be NSI of the parent company or NSI of the subsidiary or NSI of the UCI. Availability of relationship data differs from country to country; the final solution applied in EGR should be defined in the future.

Authentic stores legal units and relationships

The aim of the concept is that for all authentic entities provided by NSIs the final EGR population frame of a reference period should be an exact copy of the picture in the national statistical business registers of the NSIs. The EGR considers these data as validated data by definition.

Regarding national data for which the NSI is not the authentic source the EGR will process and consolidate data from different sources which (as in the present situation) will be sent to the NSIs for updating and validation. With this process the NSI can receive data (e.g. cross-border relationships) from commercial data providers for the creation of their national enterprise group register. Regarding data for which the EGR is authentic store and a NSI or NCB makes the choice to store these data also in the national environment the recommended situation is that the NSIs and NCBs keep an exact copy and put a maintenance procedure in place to update this copy regularly.

With the concept of authenticity the roles of central EGR and national registers will be precisely defined; the enterprise group information stored in national business registers and in EGR will be identical at the time of the statistical outputs. The new concept could retrieve the authentic national information from national registers to EGR and could reduce the burden for the participating NSIs.

3.2Identification service

In the implementation of the concept of authenticity the identification service for legal units is a critical factor. This service enables statisticians and register staff in NSIs and NCBs to identify foreign legal units in the EU as well as outside the EU.

In the present EGR system the identification of foreign units is one of the major challenges. NSIs usually do not have complete information on foreign legal units, e.g. on foreign parents, foreign subsidiaries; they usually identify them with name and country code. Cases where NSIs deliver foreign legal units to EGR without proper identification can lead to creation of duplications in the system. The EGR system is able to link units based only on name, but the linking only on names is not secure; the automatic linking process cannot create in all cases a link between the existing EGR unit and the same unit provided by a NSI. The failed linking process results duplications; the same legal unit is registered twice in the EGR system and the groups will be split and double as well.

The new identification service will ensure that NSIs can uniquely identify the partly known and not precisely identified foreign legal units and can get their unique identifiers and characteristics from the authentic source. The identification service will provide a 'Legal Entity Identifier' for legal units in and outside Europe. This code will be used as the primary identification number in the workflows in the EGR network. This ID is going to be unique.

To establish an efficient identification service the preferred situation is that this service keeps identifying information on all incorporated legal units included in the national statistical business registers of the NSIs. In case the identification service does not comprise the complete set of incorporated legal units, the identification service will carry out a first search in the database of a commercial data provider (if agreed with the provider). This request can consist of an individual search as well as of a list of legal units. After a successful identification the NSI of the country of the residency of the legal unit will be requested to confirm the identifying information. For non-EU units the identification service should be developed with co-operation of one commercial data provider.

With unique identification of legal units the EGR could avoid duplications and this will allow a large improvement in quality. Foreign legal units will be uniquely identified; duplication of legal units and groups should be avoided.

3.3EGR Platform for the users

The EGR is going to play the role that is usually devoted to a business register of supporting the building of statistics. It will especially serve as a survey frame for the collection of information. However, this frame is particular as it will not be limited to national units, but will describe global units.

The EGR will on this way help the countries to define their survey frames involving the new defined enterprises or estimating the data produced at another level and establishing a bridge between data collected at the legal unit level (administrative data, for example) and statistics produced at the enterprise level.

In order to fulfil these requirements, the EGR information should be provided to the user in a platform enabling statisticians and register staff of NSIs and NCBs to consult, to retrieve and to update EGR data.

The mainfeatures of the EGR platform are:

  • to consult 'live' EGR data
  • to update EGR data as far as allowed by the authenticity rules, and
  • to validate EGR data

The following table lists the information that will be available in the EGR platform:

GROUP / Employment
Global Turnover
Assets
NACE
UCI (country of the UCI)
Demographic events
Reporting Unit
GLOBAL ENTERPRISE / Employment
Turnover
NACE
ENTERPRISE
(truncated) / Employment
Turnover
NACE
Link with the global enterprise
LEGAL UNIT / Group's structure
Demographic events
Minority shares 10%
Identification of SPEs

Statisticians as well as business register staff from NSIs and NCBs will be authorised to consult the 'live' EGR by an online interface and to add changes on data for which the EGR is authentic store. The provision of update rights to statisticians is considered as a critical success factor for the use of the EGR.

Moreover, not all NSI will update the EGR at the same time and will not have availabilities for validating at the same time. So, the process should be flexible enough to allow NSIs to work at their pace. Several actors will play a role in the EGR maintenance process. The following four main actors can be defined:

  • The NSI business register staff: they have to ensure that all the elements that should be checked and changed have been treated before to give their stamp.
  • Eurostat central EGR: will assess the quality of the information via validation procedure and send information to the NSA for additional check and improvements. Moreover, some information could be centrally validated.
  • The profiling teams in the NSI: they will be responsible for the validation of the pre- selected large MNEs in the target of profiling.
  • The statisticians: some users will have the possibility to transmit information (about UCI, about cross-border relationships, for example).

The EGR V2 will provide the access to confidential micro data via remote access through an online interface. The development of the environment providing access to confidential data stored by Eurostat is a major challenge for the project.

With the new platform users are going to be able to consult and propose updates of EGR data. The proposed updates - according to the authentic source principle - should be validated by EGR or NSI staff depending on the appointed authentic source. The platform will make the updating procedures transparent; it offers the opportunity to share and to communicate on new information, the status of proposed changes can be tracked.

3.4The phases of the EGR process

The EGR process is intended to be an all-along-year process. It means that new information will be registered at any moment, with a date of event. However, the users need pictures of the database at some points of the year. The quality of the information that is released in these pictures needs to be assessed. It is in that context that the evaluation/validation process takes place.

The following picture gives an idea of the EGR process and its different steps.

The evaluation/validation should take place after the updating of information. The picture above implies that the succession of phases between updating and validation is not well delimited in the time. Indeed, the different items don't require the same treatment before to be validated.

3.5User's intervention during the updating process

Users are often the first to know about a change in the legal structure of a MNE. During their surveys, they might have information about new relationships between two legal units, the inclusion in a MNE of a new subsidiary or, on the other hand, the removal of a subsidiary. The MNE might report them global information which should be considered as the best information on a given MNE.

The users will be able to report every change or signal wrong information through the web platform. However, all this information need to be checked and agreed by the EGR staff in the NSI before to be integrated in the EGR (according to the authentic source principle). The following picture represents the way the updating process will take place in the case the EGR is the authentic store.

4.The profiling: a methodology to delineate enterprises in the frame of global enterprise groups

In the frame of the MEETS program (Modernisation of European Enterprise and Trade Statistics), Eurostat acknowledged the need to develop statistics on globalisation and launched in November 2009 a project on "profiling of multinational enterprise groups". The ESSnet (a network of European countries) on profiling was entrusted by Eurostat to develop, test and implement a common methodology for the profiling of large and complex multinational enterprise groups[1].

Profiling is a method which analyses the legal – operational and – accounting structure of an enterprise group in order to establish enterprise units within that group (and their links to legal units) and explores the most efficient structures for the collection of statistical data.

The ESSnet on profiling proposed in 2010 a new definition of the enterprise which takes into account the global dimension of the economic activity in the MNEs. The proposed definition results from a top down approach which starts at the highest level of the group and defines 2 levels of enterprises: the global and truncated enterprises. The new enterprises are defined regardless of the geographical dimension and cross the geographical boundaries. The global level of enterprise is generally the one which holds the criteria of autonomy. Then, the truncated enterprises are defined as the national part of the global enterprise and could be used in national business statistics. Both global and truncated enterprises are expressed in terms of legal units in order to make easier the collection of statistical information mainly for national purposes.