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Scottish Economic Statistics 2005

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Ownership of firms in Scotland 2002

Fiona Roberts, Scottish Executive

Summary

This article analyses figures on the ownership of firms in Scotland, which are available for the first time for 2002.

These enable comparisons of performance and profile to be made according to ownership.

Main points

  • Foreign owned firms in Scotland are generally larger than other firms. Thus foreign owned companies in Scotland account for only 3% of business sites in Scotland, but 13% of employees, and around 25% of gross value added ( GVA). (Figures exclude agriculture, the financial sector and part of the public sector).
  • Productivity (gross value added per employee) in foreign owned manufacturing firms is over 60% higher than in Scottish owned firms. Productivity in foreign owned service sector firms is more than 20% higher than in Scottish owned firms.
  • Labour costs per employee are 27% higher in foreign owned manufacturing firms compared to Scottish owned firms (23% higher in service sector firms). So jobs in foreign owned manufacturing plants do not appear to be mainly assembly jobs (or if they are, they are well paid).
  • USA owned firms account for 12% of gross value added.
  • The proportion of manufacturing jobs in foreign-owned firms has remained stable or increased slightly over recent years, despite the fall in absolute numbers of foreign owned manufacturing jobs, and in manufacturing jobs overall.
Background and methodology

Information is available on the country of ownership of companies on the Inter-Departmental Business Register ( IDBR). However, previous concerns about the reliability of the ownership information meant that it was not generally used or published. Therefore in 2003, the Office for National Statistics carried out a review and update of this information in conjunction with Dunn and Bradstreet, and it has now been deemed of sufficient quality to use.

The Scottish Executive has also carried out some further analysis of ownership data. Ownership information from Companies House has been added for a small number of companies where this provided a better source than the IDBR. In addition, for companies which the IDBR identifies as UK owned, a subset has been identified which are assumed to be Scottish owned. Companies are assumed to be Scottish owned where their main address is in Scotland.

Data on the number, employment and turnover of registered enterprises in Scotland by country of ownership (Scotland, UK excluding Scotland, and abroad) were published based on the IDBR for the first time in 2004. These figures showed that in the economy as a whole, in 2003 there were 1,665 foreign owned registered enterprises (1.1% of the total), employing 215,000 people (12.4% of the total).

This article builds on these figures by analysing data from the Scottish Annual Business Statistics by country of ownership. Scottish Annual Business Statistics do not cover the whole economy - they exclude parts of agriculture, the financial sector, and some of the public sector. However, they provide details of additional variables such as gross value added, labour costs and net capital expenditure which are not available from other sources, and which enable us to begin to look at productivity and related issues. This article looks at figures for 2002 which were the latest available at the time of writing. Figures for 2003 have recently become available - a summary table of ownership in 2003 is included in Chapter 3.

Most of this article concentrates on the manufacturing, construction, and services sectors (although as explained above, please note that references to the service sector in this paper exclude financial services. Some information on the extent of foreign owner-ship in the financial sector is given below).

Ownership by broad sector

In manufacturing, foreign owned firms account for 27% of employees, but 40% of turnover and 36% of gross value added. However, in 2002 they only accounted for a relatively modest 24% of net capital expenditure in the sector, partially as a consequence of the problems in the electronics industry around this time.

Around 25% of activity in the services sector is generated by firms owned in the UK excluding Scotland - a higher proportion than in either the manufacturing or construction sectors.

Over 70% of activity in the construction sector is generated by Scottish owned firms. Again this is a higher proportion than in the other two sectors.

Table A4.1 : Company ownership by sector, 2002

Total Employees

Total Labour Costs

Scotland

UK2

Abroad

Scotland

UK2

Abroad

000's

£m

Manufacturing

156

37

70

3,199

1,045

1,846

Construction

100

16

5

1,959

428

97

Service sector 1

719

313

121

10,615

4,372

2,199

%

%

Manufacturing

59

14

27

53

17

30

Construction

83

13

4

79

17

4

Service sector 1

62

27

10

62

25

13

Total Turnover

Gross Value Added at Basic Prices

Net Capital Expenditure

Scotland

UK2

Abroad

Scotland

UK2

Abroad

Scotland

UK2

Abroad

£m

£m

£m

Manufacturing

14,477

6,687

13,837

5,533

1,986

4,162

560

248

251

Construction

7,786

2,058

443

3,177

740

147

159

52

16

Service sector 1

47,418

23,532

13,276

17,959

7,595

3,676

3,121

1,277

485

%

%

Manufacturing

41

19

40

47

17

36

53

23

24

Construction

76

20

4

78

18

4

70

23

7

Service sector 1

56

28

16

61

26

13

64

26

10

Source: Office for National Statistics, Annual Business Inquiry (compiled by Scottish Executive)
Totals may not sum due to rounding.
1 Service Sector coverage excludes the financial sector and some of the public sector.
2 UK excluding Scotland.

Chart A4.1: Shares of gross value added by sector and ownership, 2002

Chart A4.1: Shares of gross value added by sector and ownership, 2002

Source: Office for National Statistics, Annual Business Inquiry (compiled by Scottish Executive)

Productivity ( GVA per employee) and other indicators by ownership and sector

Within manufacturing, productivity and labour costs per employee are lowest in Scottish owned businesses. In the service sector, productivity and labour costs per employee are highest in foreign-owned firms. This is not the case in the construction sector, where there are relatively few foreign-owned firms. In construction, productivity and labour costs per employee are highest for firms owned in the UK (excluding Scotland).

Net capital expenditure per employee in manufacturing was highest in firms owned in the UK excluding Scotland in 2002. Given this, it is slightly unexpected that the figure for labour productivity for these firms is not higher. Normally firms with a higher capital stock would be expected to have higher labour productivity, as the marginal productivity of labour is improved. However, the figures here are for capital expenditure in a single year rather than total capital stock, so may not be telling the whole story. In the mid 1990s, when this data was last available, both net capital expenditure per employee and labour productivity was highest in foreign owned firms. Until data are available for future years it is not possible to tell if the 2002 figures are atypical or indicate a sustained change in behaviour. In the service sector, there is relatively little difference in net capital expenditure per employee between the different ownership groups.

Table A4.2: Productivity and other per employee measures, by sector and ownership, 2002

Gross Value Added at Basic Prices (£ per employee)

Total Labour Costs
(£ per employee)

Net Capital Expenditure
(£ per employee)

Scotland

UK2

Abroad

Scotland

UK2

Abroad

Scotland

UK2

Abroad

Manufacturing

35,600

53,900

59,000

20,600

28,400

26,200

3,600

6,700

3,600

Construction

31,700

46,000

30,200

19,500

26,600

19,900

1,600

3,300

3,300

Services 1

25,000

24,300

30,500

14,800

14,000

18,200

4,300

4,100

4,000

Source: Office for National Statistics, Annual Business Inquiry (compiled by Scottish Executive)
Totals may not sum due to rounding.
1 Service Sector coverage excludes the financial sector and some of the public sector.
2 UK excluding Scotland.

Variations in industry sectors

When the data are analysed at a two digit SIC level, it is clear that some sectors are relatively more dependent than others on particular categories of ownership. The level of dependency has been assessed in terms of the percentage of GVA, turnover and net capital expenditure that each category of ownership contributes to the sector as a whole.

Sectors with high levels of foreign ownership

  • SIC 11 Oil and gas extraction
  • SIC 30 Manufacture of office machinery and computers
  • SIC 32 Manufacture of radio, television and communications equipment

Sectors with high levels of UK excluding Scottish ownership

  • SIC 23 Manufacture of coke, refined petroleum products, nuclear fuel
  • SIC 35 Manufacture of transport equipment (other than motor vehicles)
  • SIC 62 Air Transport
  • SIC 64 Post and communications

Sectors with high levels of Scottish ownership

  • SIC 41 Water
  • SIC 70 Real estate activities
  • SIC 80 Education (excluding local and central government)
  • SIC 90 Sewage and refuse disposal
  • SIC 93 Other service activities

The financial sector

As noted above, these figures exclude the financial sector, which is not covered by the Scottish Annual Business Statistics. Other work by the Scottish Executive suggests that there are around 80 foreign-owned enterprises in this sector (accounting for 6% of enterprises in financial services, and 5% of all foreign owned enterprises in Scotland). These enterprises have around 16,700 employees (15% of total employees in financial services, and 8% of employees in all foreign owned enterprises in Scotland). The financial sector has a higher than average proportion of employees in foreign owned firms. However, the proportion is not as high as in some other sectors, particularly manufacturing and mining and quarrying.

Out of the top 100 firms in Scotland, around 15 are in the financial sector, and of these around one third are foreign owned.

Variations in ownership within Scotland

In terms of the percentage of overall GVA, turnover, and net capital expenditure that they contribute, some local authority areas within Scotland are relatively more dependent on firms within one category of ownership than others. This in turn is influenced by the mix of industries within each local authority area.

Local authority areas with high levels of foreign ownership

  • Aberdeen (influenced by oil and gas sector)
  • Orkney Islands (influenced by oil and gas sector)
  • Renfrewshire (influenced by computer sector)
  • Inverclyde (influenced by computer sector)

Local authority areas with high levels of UK excluding Scottish ownership

  • Dumfries and Galloway
  • Edinburgh
  • Falkirk

Local authority areas with high levels of Scottish ownership

  • East Lothian
  • Moray
  • Perth and Kinross
  • Scottish Borders
Country of ownership

Of the overall GVA produced by companies covered by the Scottish Annual Business Statistics, the largest contribution by non- UK owned firms is made by USA-owned firms (12%). This is about 3 times the contribution of the next largest contributor (the Netherlands), and about 6 times the contribution of each of the third and fourth largest contributors (France and Canada).

Historic comparisons

Some historic figures on ownership are available. In most cases, these cover the manufacturing sector only, and the longest time series available relate to employment. Some of these figures are given below.

Chart A4.2: Scottish employment in foreign-owned companies, by country 1996

Chart A4.2: Scottish employment in foreign-owned companies, by country 1996

Source: Scottish Register of Employment

Chart A4.3: Scottish employment in foreign-owned companies, by country 2002

Chart A4.3: Scottish employment in foreign-owned companies, by country 2002

Source: Office for National Statistics, Annual Business Inquiry (compiled by the Scottish Executive)

Employment in foreign-owned manufacturing firms: 1996 and 2002

The charts below show the share of foreign owned employment accounted for by individual countries and groups of countries in 1996 and 2002. These relate to manufacturing firms only, with 11 or more employees (the basis on which the figures for 1996 are available). The EU proportions shown relate to the countries in the EU at these dates, i.e. before enlargement in 2004.

Overall manufacturing employment fell between 1996 and 2002, with employment in foreign owned firms falling from 81,750 to 69,630. Within the smaller total, the USA remains by far the most important country in terms of employment, but its share has fallen between 1996 and 2002, as have the shares of Canada and Japan. EU-owned companies now account for a quarter of employment, up from 15% in 1996.

Employment in foreign-owned manufacturing firms: 1952 to 2002

The chart below shows the trend in employment in manufacturing units with 11 or more employees from 1952 to 2002. Overall employment has fallen markedly over this period, particularly since the early 1970s. Employment in foreign-owned manufacturing firms peaked in 1974 before falling back. The resurgence in the late 1980s and early 1990s was due to the growth in the electronics sector, with employment falling again from the late 1990s.

The decline in manufacturing employment has been much less severe in foreign owned firms than in the sector as a whole. The proportion of manufacturing employment in foreign owned firms has risen relatively steadily from around 5% in the early 1950s to around 30% in 2002. This may suggest that more productive foreign owned firms can survive difficult market conditions better than less productive UK owned firms.

Chart A4.4: Employment in Scottish manufacturing industry, 1952-2002

Chart A4.4: Employment in Scottish manufacturing industry, 1952-2002

Sources: Scottish Register of Employment (for 1952-1997) & Office for National Statistics, Annual Business Inquiry (for 2002) (compiled by Scottish Executive)
Note: only includes units with more than 10 employees.