Source: Amcham.nl

Statistics Netherlands presented its Internationalization Monitor 2009 to the Minister of Foreign Trade Frans Heemskerk last November 11. The Internationalization Monitor 2009 presents in six in-depth articles and more than 45 clearly annotated tables trends and impacts of economic globalization in the Netherlands. The report (in English) can be downloaded at http://www.cbs.nl/nl-L/menu/themas/dossiers/globalisering/publicaties/publicaties/archief/2009/default.htm

Globalization implies that foreign controlled enterprises play an increasingly important role in the Dutch economy. They generate up to 30 percent of the turnover, and produce 24 percent of the value added in the Netherlands. In addition, foreign controlled enterprises are more often engaged in R&D and innovation activities.

However, this is not just because of their ‘foreignness’, but also because of their large size and international orientation. Dutch multinational enterprises that meet the latter characteristics are equally likely to engage in R&D activities in the Netherlands. Foreign controlled enterprises also have important consequences for the Dutch labor market. They employ a substantial share of the Dutch workforce (15%), the average number of employees at foreign controlled enterprises is higher than in comparable Dutch firms, and also grows more strongly over time. Foreign enterprises also pay significantly higher wages - employees of foreign owned enterprises earn on average 15 percent more than their counterparts at domestically controlled enterprises (though this difference varies across industries).

Although the number of foreign controlled enterprises is small (around 1 percent of all firms in the Netherlands), they count for 15 percent of the number of employees, generate up to 30 percent of the turnover, 24 percent of the added value and 21 percent of the total enterprise investments.

In addition, foreign affiliates are more often engaged in R&D activities, are more innovative, collaborate more with others (firms, research institutes), more frequently subcontract R&D to others (abroad and in the Netherlands), and also receive external funding from others (abroad and within the Netherlands), than Dutch-controlled enterprises. The report shows that it is not only the mere ‘foreignness’ of firms that affects the propensity to engage in R&D or innovation. Instead, it is the different composition of the sample of foreign firms with respect to other factors that affect R&D - such as size, selling to international markets, and being part of an enterprise group - that determines that foreign firms are more frequently involved in R&D and innovative activities compared to domestic firms. In particular, it seems that being part of an enterprise group (whether Dutch or foreign) is a stronger predictor of whether or not enterprises engage in R&D and innovation.

Given the size of the required investments and the often long time lines between the initial basic research and the marketable product, private sector expenditure on R&D is highly concentrated among a relatively low number of large, often multinational enterprises. For example, more than 50 percent of the intra mural R&D in the private sector in the Netherlands is accounted for by 10 enterprises.

The higher wages at foreign enterprises are in part a reflection of their relatively higher productivity levels. In addition, foreign enterprises may pay higher wages to prevent labor migration (and subsequent unintended knowledge spillovers) to domestic enterprises. Indeed, employee turnover (employees leaving an enterprise each year as a share of total employees at that enterprise) is lower at foreign controlled enterprises. Higher wages are also partly explained by the higher levels of education of employees at foreign enterprises. Finally, the higher wages at foreign affiliates may be a means of compensating for their more demanding labor conditions: working weeks are longer and overtime is more prominent. Interestingly though, the overall employee satisfaction with labor conditions does not differ between employees at foreign and domestically controlled enterprises.