Performance Dissimilarities in European Union Manufacturing: The Effect of Ownership and Technological Intensity

Abstract

Our paper addresses the relevance of a set of continuous and categorical variables that describe industry characteristics to differences in performance between foreign versus locally owned companies in industries with dissimilar levels of technological intensity. Including data on manufacturing sector performance from 20 European Union member countries and covering the 2009–2016 period, we used the random forests methodology to identify the best predictors of EU manufacturing industries’ a priori classification based on two main attributes: ownership (foreign versus local) and technological intensity. We found that EU foreign-owned businesses dominate locally owned ones in terms of size, which gives them an edge in obtaining higher profits, cash flow and investments and coping with higher personnel costs. Furthermore, ownership is a more important differentiator of performance at the industry level than the industry’s technological level. The performance of foreign-owned high-tech manufacturing industry units across the EU is the most heterogeneous compared to the other four categories, indicating particularities linked to technological level, ownership, and even location. Our findings suggest that multinational enterprises in high-tech industries transfer to eastern EU countries’ activities and processes with lower technological intensity and higher labour intensity, but also that locally owned businesses, even within high-tech industries, have lower technological levels.