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SCOPE AND COVERAGE

1 The aim of SOFAT was to measure the economic activity of foreign affiliates of Australian resident enterprises. For the purpose of foreign affiliates trade statistics, foreign affiliates refers to enterprises that are majority owned by the Australian resident enterprise group (more than 50% of the ordinary shares or voting stock). This includes offshore subsidiaries, branches and majority-owned foreign joint ventures.

2 The scope of the survey was foreign affiliates that traded in goods and/or services. The reporting unit was the Australian parent enterprise in the Australian enterprise group on behalf of all their foreign affiliates that traded in goods and/or services.

3 The SOFAT survey frame was obtained by combining the survey frames from two related ABS surveys: the Survey of International Investment and the Survey of International Trade in Services, supplemented by additional units that were considered to be in scope.

REFERENCE PERIOD

4 Reporting units were asked to report for their most recent financial year for which financial accounts were available. The nominal reference period was the 2002-03 financial year, as the reference period for most respondents was 1 July 2002 to 30 June 2003. No adjustment was made for estimates to account for differing financial year reference periods; however, a pro-rata adjustment was made for non-twelve month periods where applicable.

CLASSIFICATIONS

INDUSTRY

5 This publication presents industry statistics classified according to the Australian and New Zealand Standard Industrial Classification (ANZSIC), 1993, (cat. no. 1292.0). Each business unit was classified to an industry division based on the primary activity of the business unit, irrespective of any secondary activity. Industry data should be considered as indicative only and should be treated with caution. The industry of the Australian enterprise group was sourced from the ABS Business Register (ABSBR). On the ABSBR, the industry allocated to the enterprise group is the industry in which the enterprise group has most employees. On the other hand, the industry of the foreign affiliate was classified according to the activity from which the foreign affiliate derived its main income. This classification anomaly should be considered when interpreting these data.

GEOGRAPHIC REGION

6 Geographic regions have been aligned with the following Standard Australian Classification of Countries (SACC), (cat. no. 1269.0) groupings:

GEOGRAPHIC REGION
SOFAT region						SACC Grouping
Europe			2			North - West Europe
			3			Southern and Eastern Europe
			4			North Africa and Middle East
			9			Sub Saharan Africa
Asia-Pacific			1			Oceania and Antarctica
			5			South - East Asia
			6			North - East Asia
			7			Southern and Central Asia
Americas			8			Americas

8 In some instances where company annual reports and financial statements have been used for data modelling, information on countries included in regions for geographic segment reporting could not be identified. The impact on estimates resulting from this missing information is considered marginal.

GOODS

9 Commodities were classified according to the United Nations' Standard International Trade Classification (SITC Rev3). This classification is used in international trade statistics and is the underlying scheme used in balance of payments publications. Each commodity was classified to a SITC division (2-digit level).

SERVICES

10 The services classification used in SOFAT was that used in Australia's balance of payments and follows the Balance of Payments Manual (Fifth Edition, IMF, Washington D.C. 1993) and the more extensive OECD-Eurostat Classification. Further information on services classifications is available in Balance of Payments and International Investment Position, Australia: Concepts, Sources and Methods, 1998 (cat. no. 5331.0).

MODE OF SUPPLY

11 Mode of supply describes how services may be traded internationally and considers the location of both the supplier and consumer of the traded service. Under the General Agreement on Trade in Services (GATS), the four modes of supply form the basis on which World Trade Organisation (WTO) member countries' agreements for trade in services are negotiated.

12 The four modes of supply of services are:

• Cross border supply (mode 1) occurs when a service is delivered from a supplier abroad to a consumer in their country of residence without either supplier or consumer moving into the country of the other. When viewed from the country of operation of the foreign affiliate, cross border provision of services refers to those services provided to another country without either supplier or consumer moving into the country of the other (e.g. provision of computing or architectural services by the foreign affiliate to another country by phone or internet).
• Consumption abroad (mode 2) occurs when a consumer resident in a country moves to another country to obtain a service. When viewed from the country of operation of the foreign affiliate, consumption abroad occurs when a consumer from another country visits the country of operation of the foreign affiliate to obtain a service from the foreign affiliate (e.g. training or educational courses) or equipment operated by the consumer is repaired in the country of operation of the foreign affiliate (e.g. repairs to aircraft or ships).
• Commercial presence (mode 3) occurs when a commercial presence abroad is established (i.e. subsidiary, branch or joint venture) to supply services to the consumer in their country of residence. This includes cases such as an unincorporated site office carrying out a short-term construction project (construction services). When viewed from the country of operation of the foreign affiliate, domestic provision of services refers to those services provided by the foreign affiliate to residents within that country.
• Presence of natural persons (mode 4) occurs when an individual moves to the country of the consumer in order to provide a service without becoming a resident of that country. When viewed from the country of operation of the foreign affiliate, a representative of an enterprise from another country is sent temporarily to the country of operation of the foreign affiliate to provide a service to the foreign affiliate (e.g. an intra-company temporary transfer from another country); or a self-employed individual travels to the country of operation of the foreign affiliate to provide a service to the foreign affiliate (e.g. private consultant); or an expatriate provides a service to the foreign affiliate.

14 Mode of supply has been developed to be applied to trade in services only. For the purposes of SOFAT however, mode of supply was also used to classify trade in goods. Sales and purchases of goods by foreign affiliates in their host economy were classified as commercial presence (mode 3), while the export and import of goods by foreign affiliates were classified as cross border supply (mode 1). Modes 2 and 4 are not applicable to goods transactions.

TREATMENT FOR NON-RESPONSE OR PARTIAL RESPONSE

IMPUTATION

15 To account for non-response, a sample of 100 reporting units was randomly selected from the non-responding portion of the population and intensively followed up to determine an in-scope rate. An implicit imputation strategy was used, such that, based on the responses of in-scope reporting units in this sample, the initial responding portion of the population was weighted up to reflect the contribution of the non-responding population. Reporting units that required a partial imputation for a particular variable received an overall trimmed mean for that variable, obtained by using the lower 90 percent (in value terms) of responses for that variable from the responding population.

16 There were a small number of non-responding or partially responding in-scope reporting units that were excluded from this imputation process because they were deemed to be significant in terms of their overall contribution to the estimates. The primary reason for non-response or partial response for these key reporting units was that their established internal statutory and management reporting did not include some of the detail requested in the SOFAT survey form. To complete the form they would have needed to obtain the detail from their foreign affiliates directly and the reporting units indicated that at best this would be very onerous (the logistics of requesting and consolidating the data from foreign affiliates where, for example, they may have hundreds of foreign affiliates) and at worst highly improbable (although the reporting unit is the parent enterprise, many foreign affiliates operate autonomously and only report very high level key data to the Australian parent).

17 Consequently, these reporting units were researched on a case by case basis and subsequent modelled estimates were based on information contained in their annual reports, financial statements or their own or related websites. These reporting units were sent a copy of the modelled estimates and asked to comment on the validity and reasonableness of the modelled estimates and to provide corrections to the estimates where they did not reflect their activity.

NUMBER OF FOREIGN AFFILIATES ESTIMATES

18 For non-responding reporting units, information on the country of operation, principal activity and number of foreign affiliates was sourced from information contained in their annual reports, financial statements or their own or related websites. Foreign affiliates that were explicitly dormant or did not have trade activity were excluded, while those foreign affiliates whose trade activity status was indeterminate were included in the estimates. Consequently, the number of foreign affiliates may be over-estimated.

EMPLOYMENT ESTIMATES

19 Employment data for both the Australian enterprise group and foreign affiliates at industry level are indicative and should be treated with some caution. Employment for the Australian enterprise group was sourced from the ABSBR. Details on many businesses on the register are sourced from Australian Taxation Office (ATO) administrative data. These businesses are listed individually on the register, therefore enterprise groups, i.e. the Australian parent company and its Australian subsidiaries and branches, are not consolidated. Consequently, enterprise group employment may be understated.

20 A number of reporting units were able to supply employment data for foreign affiliates at an aggregate level only. In these cases, employment estimates at industry and country levels were modelled. This modelling, in most cases, was a simple pro-ration based on the number of foreign affiliates with the same principal activity operating in a particular country.

WAGES AND SALARIES ESTIMATES

21 Where an aggregate value for wages and salaries could not be sourced from information contained in their annual reports, financial statements or their own or related websites, an annual estimate per employee was used. This estimate varied according to the country of operation of the foreign affiliate, with separate estimates for Western European countries and North America, developing European countries, Asia and Central and Latin America.

SALES ESTIMATES

22 Sales data were sourced from segment reporting notes contained in the accompanying notes to the financial statements. Statutory reporting requires corporations to provide information about business and geographical segments to be reported in their financial statements (AASB 1005). This standard allows geographical segments to be based on either: (a) the location of an entity's production or service facilities and other assets; or (b) the location of its markets and customers. For some reporting units it was difficult to distinguish between (a) and (b). In these cases, sales revenue was attributed to sales by foreign affiliates domiciled in these geographic segments. Consequently, estimates for revenue from sales of goods and services by foreign affiliates may differ from the true value.

23 Sales were deemed to be in the host country of the foreign affiliate (i.e. domestic sales) if there was no supporting information to say otherwise. Inter-company sales, on the other hand, were usually treated as exports with a corresponding offset recorded against the purchasing country (import). If the export was to Australia, then no offset was recorded.

PURCHASES ESTIMATES

24 Purchases estimates were generally based on expenses data included in financial statements and their accompanying notes. For those reporting units where purchases could not adequately be estimated from expenses data, an aggregate purchases value was derived from aggregate sales and profit (loss) data. This aggregate purchases value was then pro-rated to exclude Australia and then subsequently pro-rated to each industry at country level for foreign affiliates.

ABS CONFIDENTIALITY RESTRICTIONS

25 The ABS is not permitted to publish any data which allows the identification of any reporting unit. For this reason, it was necessary to collapse certain industry divisions into a residual industry category (other) in the published tables.

26 Data presented in this publication should be considered final. The extent of data presented was impacted by confidentiality restrictions. Consequently, any further cross-classifications or disaggregation of data will not be possible.

FUTURE STUDIES

27 An evaluation of all aspects of the survey design and survey results will commence later this year. Lessons learned from this initial survey will feed into future iterations of SOFAT. It is anticipated the survey will be conducted every 4 years.

OTHER RELATED PUBLICATIONS

28 Users may also wish to refer to the following publications which are available from ABS Bookshops and on the ABS website:

• Globalisation and Foreign Investment special article in Australian Mining Industry, 1998-99 (cat. no. 8414.0)
• Economic Activity of Foreign-Owned Businesses in Australia, 2000-01 (cat. no. 5494.0)
• Ownership Characteristics of Businesses Undertaking Capital Expenditure in Australia, 1998-99, published in Australian Economic Indicators, July 2001 (cat. no. 1350.0)
• Foreign Ownership Characteristics of Information Technology Businesses, published in Australian Economic Indicators, March 2002 and March 2003 (cat. no. 1350.0)
• Foreign Ownership Characteristics of Businesses Undertaking Research and Development Activity in Australia, published in Australian Economic Indicators, August 2002 (cat. no. 1350.0)
• Foreign Ownership Characteristics of Importers and Exporters, Australia, 2002-03 (cat. no. 5496.0.55.001)
• Australian Outward Foreign Affiliates Trade, 2002-03, Experimental Results, published in International Trade in Goods and Services, Australia, May 2004 (cat. no. 5368.0)
• Balance of Payments and International Investment Position, Australia (cat. no. 5302.0) - issued quarterly
• International Trade in Goods and Services, Australia, (cat. no. 5368.0) - issued monthly
• Manual on Economic Globalisation Indicators, OECD, Paris, draft in progress, scheduled for publication in 2004
• Manual on Statistics of International Trade in Services, UN/OECD/IMF/UNCTAD/WTO, 2002