DiGITIP

Ministère de l'Économie,
des Finances et de l'Industrie

Nº 195 - november 2004

Inter-business relations
Numerous and primarily within France

Three manufacturing firms out of

four cooperate with at least one
Business-to-business relations:
other firm. Such relations are primarily in production and procurement
more common in certain sectors, Proportion of firms with at least one relation
such as pharmaceuticals, electrical %
and electronic components and 80 75
clothing. Links are most frequently 70
formed around the manufacturing
60
activity, in procurement and
production, but not exclusively so. 50 48 47
Firms also cooperate with each
40
other in product marketing, 31
ancillary services, innovation and 30 26
R&D. Cooperative relations play 20 18
an important role in
manufacturing, since a fifth of 10
sales and half of purchases used in 0
the production process depend on All Procurement Production Marketing Ancillary R & D and
functions services innovation
them. Such relations are generally
evenly balanced and long-term and
are formed in a majority of cases Proportion of affiliates and independent firms with
with a firm located in France. at least one cooperative relationship
However, firms are also attracted as % of firms
to the European market, though 100
89
not to North America. Affiliates 81 83
80
are the firms that most often 70
63 64
establish cooperative relations.
60
When they do, 80% have at least
one link with a firm outside the
40
group.
20
Business-to-business cooperation
has increased considerably since the end
of the 1970s, even among independent 0
SME Firms with All
firms, taking many different forms. In (20 to 249 employees) 250 employees or more
conventional client-supplier relations Affiliates Independent firms
based on catalogue purchasing, the supplier
Scope: firms in manufacturing industry (excluding agri-food) with 20 employees or more
has total control over product design and
the transaction is purely a matter of price. Source: SESSI - Survey of inter-business relationships in 2003
However, such relations are often
insufficient to meet the changes that have catalogue purchases) and, in the particular R&D, innovation, ancillary services: see
taken place in standards of production and case of sub-contracting, may play an even Boxes 1 and 2) and take very different
competition. more active part by entirely controlling forms, such as the pooling of resources,
New market constraints require product design. exclusive agreements, management of a
increasingly close cooperation: the Such types of cooperation may be common structure, sub-contracting,
customer gives the functional found in all functions of the firm multiple partnerships, common research
specifications of the product (non- (procurement, production, marketing, agreements, etc.
V
 Three firms out of four
cooperate 1- The survey of inter-business relationships – ERIE survey
The survey, conducted in 2003, was coordinated at European level. In
Three-quarters of firms in France, it covers a very substantial share of the national economy (industry,
manufacturing industry (excluding agri- services, retailing, construction).
food) with twenty employees or more have The aim of the survey is to provide an overview of relations between firms
at least one cooperative relation with other involving a minimum level of cooperation. The analysis is based on the five major
firms. Once they start, they have no functions that structure a firm’s activity. The questionnaire is in two parts. The
hesitation in forging other links: almost first part is designed to assess the scale and intensity of business-to-business
twice as many firms maintain ongoing relations, the second to draw up a description of the three relations deemed most
relations with ten to a hundred partners as strategic for each function (nature of the partner, location, selection criteria,
have a link with only one (22% compared economic rationale for the relationship, etc.).
with 13%). The survey does not cover usual client-supplier relations (catalogue purchases
Some industries favour such or sales), strictly financial relations or agency staffing. In contrast, it does cover
relations more than others. Nine out of ten sub-contracting. By convention, contracting out is regarded as procurement,
firms in the pharmaceutical and electrical while contracting in is regarded as production.
and electronic components sectors have The Industrial Studies and Statistics Department (SESSI) carried out the
cooperative relations, followed by the survey using a sample of 5 200 industrial firms (excluding the agri-food sector)
electrical and electronic equipment, with 20 employees or more or annual turnover of 5 million euros or more. The
clothing and metallurgical industries. In response rate was over 80%.
contrast, the propensity is less in the wood
and paper industry (one firm in two),
mineral products and printing. 2 – The functions of the firm
The size of the firm is less of a
determining factor than the type of The ERIE survey distinguishes between five major functions of the firm that
business. Although large firms enter into may give rise to cooperative relations: production, procurement, marketing,
cooperative relations more frequently, they ancillary services, research and development.
are closely followed by SMEs even though The production function describes the firm’s core business.
The procurement function is situated upstream of production. It covers all
the two types of firm have significantly
purchases used in the production process, including purchases of sub-assemblies.
different resources.
The marketing function is situated downstream of production and covers the
stages of bringing a product to market.
Affiliates at the forefront
The R&D and innovation function concerns the establishment and funding
of research and development.
Affiliates embark on cooperative
The ancillary services function describes purchases of services, customised
relations more frequently than other firms
or not, designed to ensure that the firm operates smoothly (IT, maintenance,
(83%, compared with 64% for independent transport, corporate services, etc.).
firms), since their corporate culture, The importance of business-to-business relations is evaluated as a proportion
especially day-to-day exchanges with other of revenue for the production and marketing functions and as a proportion of
companies, encourages greater openness. purchases of materials (purchases of raw materials and other supplies + industrial
In contrast, it is relatively unimportant sub-contracting + purchases of goods + changes in inventories) for the procurement
whether the subsidiary is a large firm or an function.
SME; the mere fact of belonging to a
group makes them more likely to cooperate.
Half of all affiliates that cooperate production or procurement. Such relations Due to their specificity, almost all
with other firms combine relations inside are less frequent, though still relatively firms that act exclusively or almost
and outside the group, though 60% of common, in marketing and ancillary exclusively as prime contractors build
relations are outside the group. Relations services (a third and a quarter of firms cooperative relations in procurement,
within the group seem better suited to the respectively). Unsurprisingly, cooperation whereas only 10% embark on partnerships
core business (marketing, production and is less common in research, development in production. Their needs in the other
R&D), while relations outside the group and innovation: only two-fifths of firms functions are similar to those of SMEs
tend to concern functions such as regularly commit expenditure in these (and most of them in fact fall into that
purchasing of goods or services like areas. category).
transport and warehousing. The majority of firms do not limit
The other half of affiliates that their cooperation to a single function. Half of all purchases are non-
cooperate with other firms is evenly divided Relations in production and procurement catalogue
between those that cooperate only within are highly complementary, as can be seen
the group and those that cooperate only from the frequency of cascade sub- A fifth of manufacturing
outside the group. contracting (28% of industrial firms that firms’turnover is based on cooperative
act as sub-contractors also use sub- relations in production (sub-contracting,
In procurement and production contractors themselves). co-contracting, management of a common
above all SMEs do not commit themselves in production structure, etc.), but their impact
as many areas as large firms. A quarter of on turnover varies considerably from one
Cooperative relations in SMEs have agreements covering three firm to another. Zero or insignificant for
manufacturing industry may concern all functions and more, compared with half of almost 60% of companies, they account
functions of the firm, though they are large firms. This is a matter of resources, for over 75% of the turnover of a fifth of
primarily formed around the of course, though it also derives from firms.
manufacturing activity: almost one firm in corporate culture. The effects of cooperative relations
two has at least one preferential relation in on procurement are even more clear-cut,

II
 Frequency of cooperative relations
Firms having at least one cooperative relation with another firm (as %)

In any In In In In In
area production procurement marketing ancillary R&D and
services innovation
by industry sector
EC - Consumer goods 75 42 47 28 23 12
Clothing, leather, miscellaneous industries 81 47 49 18 19 4
Publishing, printing, reproduction 65 36 32 25 22 11
Pharmaceuticals, perfumery, cleaning 90 50 65 42 32 30
Consumer durables 74 42 55 35 25 13
ED - Automobile industry 76 51 56 44 46 22
EE - Capital goods 76 48 51 34 23 21
Shipbuilding, aircraft and rail construction 75 58 45 23 25 15
Mechanical goods 75 48 51 30 21 19
Electrical and electronic goods 82 44 54 50 30 30
EF - Intermediate goods 75 48 47 30 27 19
Mineral products 67 27 38 34 35 19
Textiles 75 45 47 28 25 13
Wood and paper 52 22 32 29 20 12
Chemicals, rubber, plastics 79 50 49 38 32 25
Metallurgy and metalworking 80 61 49 22 25 15
Electrical and electronic components 89 51 63 47 29 32
by size
SME (20 to 249 employees) 73 47 44 29 24 16
Firms with 250 employees or more 89 52 65 46 40 38
Firms of non-significant size (1) 97 23 89 33 25 11
by technological level (2)
Low technology 74 47 44 23 24 12
Medium-to-low technology 73 45 48 32 26 18
Medium-to-high technology 83 44 56 48 29 28
High technology 86 58 61 39 34 34
Manufacturing industry 75 47 48 31 26 18
Scope: firms in manufacturing industry (excluding agri-food) with 20 employees or more

(1) Firms of non-significant size often act exclusively or almost exclusively as prime contractors
(2) The classification of sectors by technological level is based on an international definition (OECD, 1997) which takes into account the share of the sector’s
R&D in production

Source: SESSI - Survey of inter-business relationships in 2003

since almost half of all purchases are non- where it is the very essence of industrial France first, then Europe
catalogue. The automobile industry inflates metalworking, a business which consists
demand in this area as a result of an ongoing in meeting specific demand. The same is In 72% of cases, the most
policy over the last twenty years of focusing true in shipbuilding, and aircraft and rail strategically important relations are formed
on the core business (design, assembly, construction, where cascade sub- within France, and this figure is even higher
sales and after-sales). Stripping out the contracting has expanded considerably in in a sector like publishing/printing (84%)
automobile sector, one third of purchases recent years for a variety of reasons, where knowledge of the language is
are non-catalogue. Cooperative relations including restructuring, outsourcing and essential. However, there is no preference
are less important in SMEs’procurement increasing specialisation. Sub-contracting for local relations except for certain
than in that of large firms, a feature that is is common in the garment industry, where ancillary services like maintenance and
found in most sectors. more and more firms concentrate their corporate services, where proximity is a
Business-to-business relations are efforts on the two ends of the production decisive criterion of choice. It is actually
equally important downstream of the chain (design and marketing), forsaking more common for a firm to work with a
production process, in marketing phases. manufacturing because it creates less value. partner outside the region, a trend which is
A quarter of manufacturing industry sales Sub-contracting is also widely used in the particularly evident in the publishing/
occur within a cooperative framework electrical and electronic components printing, pharmaceuticals and electrical
(marketplace, preferential relations with a sector. and electronic components industries.
distributor, common response to a call for After sub-contracting, but lagging The fact that one relation in five is
tenders, etc.). well behind, the pooling of resources (12%) with a partner located in another European
and exclusive agreements (9%) are the Union country confirms that the European
Relations that take many next most common forms of cooperation. market does indeed exist. The proportion
different forms Resource pooling is more frequent in the even exceeds one in three in the automobile
mineral products and wood and paper industry, a thoroughly European activity
Sub-contracting, in whichever industries (where business-to-business with regard not only to centres of
direction, accounts for half of all relations relations are less extensive than elsewhere), production but also to marketing.
deemed by firms to be most strategic (see while exclusive agreements are more In contrast, links with North America
Box 1). Sub-contracting is particularly common in the electrical and electronic (United States and Canada) seem tenuous
prevalent in the metallurgical industry, equipment industry. given the size and vitality of that market.

III
Almost half of existing links have been
established by firms making mechanical Location of the partner in the relation:
or electrical and electronic equipment. one in five in the European Union
Cooperative relations with firms in as % of the three main strategic relations (see Box 1)
emerging countries (Asia excluding Japan, 35 32,1
Latin America, Africa, Central and Eastern
30
European Countries ) are few in number,
though they have become more frequent 25 22,8
in the garment industry (14% of preferential 19,6
20 17,5
relations) since the early 1980s and,
increasingly, in the consumer durables 15
sector (9%).
10
4,0 3,8
Relations often close 5
to partnership 0,3
0
France France France European North Emerging Japan
In 2003, almost all cooperative local same other Union America countries
region region
relations had a foreseeable lifetime of more
than one year. Two out of three exceed Scope: firms in manufacturing industry (excluding agri-food) with 20 employees or more
five years, whatever the size of the firm. Source: SESSI - Survey of inter-business relationships in 2003
Long-term relations are particularly
frequent in the automobile industry, since
firms supplying carmakers (parts 3 - Partnership: only if there is a perceived need
manufacturers or second-tier sub-
contractors) need to be sure that they will In 2003, a quarter of industrial firms were content with conventional client-
be able to make a return on the investment supplier relations (catalogue purchases), primarily because they felt no need to go
required to carry out the contract. The any further (60% of the firms concerned). This reason was particularly frequent
same applies to the capital-intensive in the industries least attracted by the siren-song of partnership (wood and paper
mineral products sector, especially and mineral products).
extractive industries. The second reason for not entering into partnerships was that firms thought
Most relations (60%) are evenly they were too small (25% of firms). However, this is a rather paradoxical
balanced according to the co-contractors: assessment, since it was also made by several large firms.
neither party dominates. However, SMEs Less often mentioned were excessive constraints (11%) or the lack of return
seem to find it slightly more difficult to on investment (9%).
preserve this balance, since 23% of them While some firms justified their attitude by the failure of a previous attempt
(6%), the same proportion was intending to embark on the adventure in 2003
(compared to 19% of large firms) consider
(5%).
that conditions relating to issues such as
prices and deadlines tend to be the partner’s.
These unequal relations are more frequent
when sub-contracting is the preferred mode and not in isolation. 22% of firms have at perfumes are most likely to be organised
for organising production. least five partners covering at least three in networks (approximately a third of
The predominance of evenly functions. This level of intensity in firms). In contrast, this type of arrangement
balanced, long-term commitments establishing relations may be considered is less likely in the leather, clothing,
suggests that partnerships (understood as as operating as a network. Twice as many publishing and printing industries.
incentive-based structures founded on large firms are organised in this way as In more than eight cases out of ten,
give-and-take) are taking shape and now SMEs (40% as against 20%). Membership the network created by the firm includes at
account for a substantial proportion of of a group with at least 500 employees, least one relation in the production sphere,
business-to-business relations. especially if it is foreign, also favours a the core of the firm’s business.
network organisation: 15% of independent
More than one firm in five firms operate in a network, compared with Olivier HAAG,
in a network 27% of large French groups’affiliates and Emmanuel RAULIN,
32% of of foreign groups’affiliates. Catherine SOUQUET
Increasingly, firms need to be Producers of electrical and electronic
considered together with all their partners equipment, pharmaceutical products and

Managing Editor
Yves Robin
Editor-in-chief:
Alain Chauvet - Marie-Jeanne Dupont
Editorial Assistant: Alain Bentolila
CAD Layout: Brigitte Baroin
Subscription: €38
(at least 12 issues)
by fax on +33 1 41 63 58 59
Sessi, a department of the General
Directorate for Industry, Information
Technologies and the Post Office (DiGITIP)

http://www.industrie.gouv.fr/sessi
ISSN n° 1241-1515
IV