Published 20 December 2016

Decomposing value chains within Swedish multinationals

In the 2000s, the employment in Swedish multinational enterprises grew rapidly in their affiliates abroad, in particular in low-income countries. What are the consequences for the demand for skills and different tasks – routine or offshorable − in their parents in Sweden?

Multinational enterprises (MNE) have been highly instrumental in the processes that have led to increased fragmentation of production within global value chains. In the 2000s, employment in Swedish MNEs grew rapidly in their affiliates abroad, whilst employment in the parents in Sweden remained more or less unchanged. Moreover, in contrast to the 1990s, when the greatest employment growth was in affiliates in high-income countries, employment in the 2000s mainly expanded in affiliates in low-income countries, for example, China and the Central and Eastern European countries.

At the same time as we note a substantial increase in the employment share in affiliates of Swedish MNEs abroad, the proportion of skilled labour, defined as the share of employees with a post-secondary education more than three years, has risen more rapidly in Swedish MNEs than in non-MNEs in Sweden. This observation is consistent with Swedish MNEs maintaining and expanding skilled activities in their parents in Sweden (onshore), while moving less-skilled activities to their affiliates abroad (offshore). Such an outcome is reasonable given that, in the 2000s, it was the offshore share in low-income countries, where the wages of less-skilled labour were significantly lower than in Sweden, which were growing.

Routine tasks are activities that can be accomplished by following a set of specific, well defined rules, whereas non-routine tasks are more complicated activities such as creative problem solving and decision making. Accordingly, non-routine tasks may be too complex to be fully communicated to production teams in another country. Routine tasks are thus more easily fragmented geographically than non-routine tasks because they can be simply translated into instructions for the offshore producers. Hence, we expect the proportion of non-routine tasks to increase in the parents at home while MNEs are expanding their activities abroad. Non-routineness is one factor that determines the offshorability of a task. Another factor is the extent to which a task needs face-to-face contact with people other than fellow workers with no loss of quality. We find that non-routine tasks are performed to a greater extent by skilled individuals, whereas offshorable tasks appear to be performed by both skilled and less-skilled workers.

In the report we examine the relationship between relative demands for skills, non-routine or non-offshorable tasks in Swedish MNE parents and the proportion of employees in affiliates abroad in 2001 to 2013. We find that within Swedish MNEs non-routine tasks and activities carried out by skilled workers have been retained in the MNE parents in Sweden. When we distinguish between different destinations for foreign direct investment, we observe that offshoring to low-income countries appears to be more strongly related to skill upgrading and higher non-routine intensity in the parents in Sweden (onshore) than offshoring to high-income countries. However, we do not find any relationship between offshore employment shares and the non-offshorability intensity onshore. The latter implies that, while many MNE jobs are offshorable, it does not mean that they are always offshored. Characteristics, such as the routineness of jobs or whether the jobs are performed by less-skilled workers, seem to be more important factors for why they are offshored than whether they are offshorable.

From the estimations of absolute demand for skilled and less-skilled labour, we note that increased employment in low-income countries appears to lower the demand for less-skilled labour in MNE manufacturing parents in Sweden (substitute). In contrast, increased employment in affiliates in high-income countries seems to increase the employment of skilled labour in MNE services parents (complement).

In sum, the main conclusion is that within global value chains, Swedish MNEs tend to have increased their specialisation in Sweden on non-routine tasks and activities conducted by skilled workers and from an assessment of the economic relevance we find that this development has not been negligible.

Title
Decomposing value chains within Swedish multinationals

Serial number
PM 2016:19

Reference number
2015/020

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