Statistical Insights: Who’s Who in International Trade: A Spotlight on OECD Trade by Enterprise Characteristics data
Analysing the role of different firms in international trade
Conventional international trade statistics offer a picture of trade flows between countries, broken down by types of goods and services. While this is an important input for trade analyses, these data do not offer insights into the actors, or the types of firms, that are actually engaged in cross-border trade. The OECD Trade by Enterprise Characteristics (TEC) data do provide such information, giving important insights on the role of firms in Global Value Chains. They highlight that large firms continue to dominate international trade, and that, often, those firms that are among the most important exporters, are also responsible for the majority of imports. The TEC data also provide information on the role of SMEs in international trade, across industries and across countries, showing, for example, that although SMEs generally export to neighbouring markets, they import from a much wider geographical base.
Trade is concentrated among a few, large firms
TEC data essentially provide a ‘Who’s Who’ of international trade. For example, they show that only a small percentage of firms is actually engaged directly in international trade, typically below 10% in OECD countries, with only a few exceptions – notably in small economies such as Slovenia and Estonia.
Moreover, as shown in Figure 1, the bulk of international transactions (in value) is concentrated among firms with more than 250 employees. In the United States for example, firms with more than 250 employees account for 72% of exports, and in a further ten countries – ranging from smaller economies such as Finland and Sweden to other large economies such as Canada, France, Germany and the United Kingdom – more than two-thirds of exports are accounted for by large firms.
The importance of large firms is further highlighted when examining the concentration of trade among the very largest firms (based on employee numbers) in each country. On average, the top 100 enterprises in OECD countries account for 40% of exports and imports. And in smaller economies, such as Finland, Hungary and Luxembourg, these shares can be significantly higher (up to 90%).
Firms engaged in exports also account for the majority of imports
Across OECD member countries, 75% of manufacturing exporters also represent over half of importers. These two-way traders account for virtually all (98%) of manufacturing trade value. In Canada, which provides estimates for the total economy, (i.e. manufacturing and services) two-way traders account for around two-thirds of exporting firms, and one-quarter of importing firms; in terms of trade value, they account for three-quarters of exports and imports. The significant contribution of the two-way traders amongst manufacturers provides an indication of the importance of imports for exports (i.e. imports used in producing exports), and so the potential counter-productive nature of import tariffs.
Investment in knowledge-based capital can help drive SME export performance
Large firms tend to account for virtually all exports in (tangible) capital intensive industries such as motor vehicles and other transport equipment, as shown in Figure 4. In contrast, smaller firms make a larger contribution to exports of industries such as furniture, textiles and clothing, where specialized manufacturing, niche products, and investment in knowledge based assets, such as brand, design, and organisational capital (e.g. flexible production processes) provide opportunities to create comparative advantages.
The importance of large firms in manufacturing exports does however vary across countries. In the US and Mexico, for example, large firms dominate across nearly all sectors. This is likely to reflect a combination of the large size of the domestic US market as well as maquiladora (processing firms) relationships between Mexico and the US. On the other hand in France and Germany, SMEs are the key exporters in a number of sectors, such as apparel and textiles.
Small firms typically export to neighbouring markets – but source imports more widely
Compared to large firms, small firms are more likely to export to markets relatively close to their home country – evidence of the fixed costs related to breaking into new markets that tend to be relatively higher for smaller firms. Figure 3 shows this by illustrating the aggregated trade destinations for the ten European countries that report such data (Austria, Belgium, Czech Republic, Germany, Hungary, the Netherlands, Poland, Portugal, Slovak Republic and Spain). It shows for example that small firms (less than 50 employees) account for nearly 20% of trade with nearby destinations such as Germany, Italy and the Netherlands, but only for slightly more than 5% of exports to China, Japan or the United States. In many instances, this reflects the role of SMEs as upstream suppliers within, typically regional, value chains.
On the other hand, barriers to importing appear less onerous than those for exporting. For example SMEs accounted for over half of all imports from China and India into European countries, and over 40% of imports from the United States and Japan, possibly also reflecting affiliate relationships with parent MNEs from these countries.
The measure explained
TEC Statistics break down international merchandise trade statistics by the characteristics of the trading enterprise. The data are generally produced by national statistical authorities through the linking of microdata from the census of customs transactions (used for compiling national merchandise trade statistics) to a centralised business register containing both characteristics and reporting structure of all firms operating within that national boundary. This microdata linkage for TEC is facilitated by the possibility of using (or developing) common identifiers between the trade register and the business register, which also means that TEC statistics can be compiled without imposing additional burden on respondents.
There is growing appreciation within the international statistics community that microdata linking provides significant scope to better understand production in an increasingly globalised economy. New characteristics, notably whether the firm is foreign or domestically owned, have recently been added to TEC dataset, and efforts are ongoing to develop similar data for services trade. Increasingly, efforts are now also being made to integrate aspects of TEC within the heart of the statistical information system, such as structural business statistics, the national accounts and supply-use tables, not least to provide a holistic perspective on the nature of trade, production and investment. The OECD for example, as a response to the G20, recently developed estimates of the upstream contribution to exports made by SMEs.
One caveat in the interpretation of the role of SMEs in international trade is that throughout the international statistical system, firm size is currently defined at the enterprise level, and that these enterprises may still be part of a larger enterprise group. Pilot studies are being developed to identify such dependent SMEs from independent SMEs.
Where to find underlying data
The Trade by enterprise characteristics database is organised in ten different datasets, all available on OECD.Stat. The ones used in this blog post are:
Trade by firm size: (OECD 2016), “TEC by sector and size class”, OECD Trade by enterprise characteristics (database)
Shares of top enterprises: (OECD 2016), “TEC by Top enterprises”, OECD Trade by enterprise characteristics (database)
Two-way traders: (OECD 2016),”TEC by type of trader”, OECD Trade by enterprise characteristics (database)
Partner country and size: (OECD 2016), “TEC by partner countries and size-class”, OECD Trade by enterprise characteristics (database)
Inclusive Global Value Chains: report by OECD and World Bank
United Nations Friends of the Chair Group on International Trade and Economic Globalization: Report to the 2016 UN Statistical Commission
Entrepreneurship at a Glance 2015, OECD (2015), OECD Publishing, Paris
For further information please contact the OECD Statistics Directorate at [email protected].