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Still standing: Global crisis and European firms

One of the key problems in Europe is the lack of competitiveness. With this in mind, this column presents a report looking at how European firms responded to the global financial crisis of 2008 and 2009 and finds lessons for today’s troubles. Chief among them - there is no one-size-fits-all solution.

European economies are facing the greatest macroeconomic challenges since the oil price shock of the 1970s. The recovery following the collapse of economic activity and trade during the 2008/2009 global crisis has proven short lived, and European countries now face a crisis in the Eurozone. To ensure the sustainability of debt and to reach a long-lasting recovery in Europe, we need corporate competitiveness and growth. It is hence useful to understand the impact of the recent crisis on European firms. Understanding the relative importance of demand and financial factors in falling output, and which firms suffered most during the crisis may help in designing better policies.

The financial crisis, the Great Moderation and the huge drop in international trade have a wide range of explanations. The trade linkages contributed to a more rapid transmission of shocks and global trade collapsed during the crisis in a manner synchronised across countries (e.g., Behrens et al. 2010; Bricongne et al. 2011; and Gopinath and Neiman 2010). Baldwin et al. (2009) underline compositional effects, as products with the largest contractions in consumption represent a large share in trade but a small share in GDP. Inventories, intermediate goods and vertical linkages have all played a key role as well (Alessandria et al. 2010, Bems et al. 2010, Levchenko et al. 2010). Financial variables were also in the spotlight, for instance Mora and Powers (2009) argue that the decline in trade financing contributed directly to the decline in global trade, while Chor and Manova (2009) suggest that firms with larger pre-crisis tangible assets (i.e. property) suffered a great deal as property prices plummeted.

Most of these discussions, however, are based either on sectoral evidence disregarding firm heterogeneity or focused on a specific issue in a country. While these offer important insight, in a recent report (Békés et al. 2011), we consider the impact of the crisis on several issues and covered seven countries in Europe: Germany, France, Italy, Spain, Austria, Hungary, and the UK. This set includes countries small and large; in the core and on the periphery; in the Eurozone and with their own national currency. A survey was carried out asking over 14,000 manufacturing firms about a range of topics such as their clients, international trade, outsourcing, employment, investment, and innovation. This survey then asked exactly the same questions in several countries, thus creating a harmonised firm-level dataset (see also a recent Vox talk with László Halpern 2011).

Motivated by the collapse in output and trade at the turn of 2008/2009, we ask two questions with policy relevance: how uniform was the effect of the crisis on similar firms and what factors can explain the potential differences?

Identifying which firms suffered the most from the crisis is important for at least two reasons. First, we can identify which firms are the most vulnerable in another crisis with a similar nature. Second, we can evaluate the policy responses that were implemented in the midst of the crisis with limited information about the scope and nature of the events. Identifying firms that fared better may help design more effective and better-targeted policies. We focus on two key areas where firms may differ: their financial needs and access to financial markets, and their degree of internationalisation.

Firm responses differed

The survey shows that, despite a synchronised, substantial macroeconomic shock, the firm response was rather diverse and some firms did well in 2009 even in the hardest hit industries and regions. Table 1 displays the distribution of sales changes across firms. More than a quarter of firms did not experience a decline in sales, and close to half of them saw no decline or only a moderate decline. The impact is also quite heterogeneous even across very similar firms operating in the same country, industry, and size category. This suggests that policy responses cannot be designed effectively from aggregate results.

Table 1. The distribution of 2009 change in sales across firms

Change in sales Frequency (%)
Larger decline than 30% 18.1
Between 30-10% decline 34.4
Smaller decline than 10% 19.1
No change or growth 28.4
Financially constrained firms contracted more

Given the financial nature of the crisis, it is natural to ask how firms in different financial position fared during the crisis. The evidence regarding financing and credit has been limited and mixed. Mora and Powers (2009) argue that the decline in trade financing contributed directly to the decline in global trade in the second half of 2008 and early 2009. Banks and suppliers report that, after falling international demand, trade financing is the second most important cause of the global trade slowdown.

Based on the survey, we do find that firms relying on external finance and firms that had experienced financial constraints to growth before the crisis suffered a greater sales decline. This suggests that financially weaker firms were hit harder. This effect, however, was quite modest – firms relying on external financing suffered an extra 1 percentage point reduction in sales compared to firms relying more on internal financing. At the same time, the use of trade credits – another crisis culprit - by itself did not prove to be a significant factor. These results suggest that financing played some role in the performance of firms during the crisis, but it was relatively modest compared to the fall in demand.

International supply chains transmitted the shock

Given the large and synchronised drop in the volume of international trade in 2009 (Baldwin et al. 2009), we ask whether trade contributed to the transmission or the magnification of the crisis. We find that exporting firms contracted more than non-exporters. The average exporter suffered a 3.2 percentage points greater decline in sales than the average non-exporter within the same country. As Figure 1 indicates, the difference in the sales decline between exporters and non-exporters was the greatest in Austria, Germany, and France.

Importantly, buying from abroad had the opposite effect; importers and firms that outsourced some of their production were somewhat insulated from the shock of the crisis. Taken together, it becomes clear that international trade is important in the transmission of the crisis, but some trade linkages may enable the firm to respond more flexibly to demand shocks. This finding raises the possibility of additional gains from trade and globalisation in core European countries. Well-established and deep linkages with other countries may help spread the risk associated with a sudden drop in demand such as the one seen in 2008-2009. (As discussed in Bergin et al. 2009)

Figure 1. Average sales decline of exporters and non-exporters


Besides the presence of international trade, its organisation – whether it is conducted within the boundaries of the firm – also seems to be important. Firms that outsource and firms that control other companies fared better during the crisis. Outsourcers witnessed a 1.8 percentage points smaller reduction in sales. The place of the firm in international networks also mattered. Firms that are controlled by other companies have declined by up to an extra 4.2 percentage points. We also confirm this finding in terms of the place of the industry within the value chain: industries that sell mostly to other industries have contracted more.

Finally, firms controlling other companies at home or abroad were able to preserve more jobs, even for the same-sized demand shock. Figure 2 displays the average change in firm employment for different levels of changes in sales. In all groups, controlling firms fired fewer workers than controlled firms, and the difference is most pronounced for firms that suffered a decline of more than 30% in their sales.

Figure 2. Firm control and labour change for different sales drops

By putting these observations together, an important theme emerges: dominant firms, centrally placed in the technology, trade, and ownership network, fared better. Firms producing final and non-client-specific goods maintained larger sales. Similarly, relying on a network of suppliers (be it through importing or outsourcing) mitigated the effect of the crisis on the firm.

What role for policy?

To sum up, we find that there was a marked heterogeneity in response to crisis. This heterogeneity also suggests that ‘one-size-fits-all’ policies might be ineffective. Understanding the patterns emerging from this heterogeneity may enable governments to better target spending and regulations.

Regarding the role of exports, our evidence is in line with earlier findings; exports fell more than sales in most countries. Reducing imports and relying on outsourcing offered flexibility that may have helped mitigate the crisis and helped maintain sales and employment. National policies should not fear a sudden disappearance of trade contacts; the key adjustment is taking place within the firm. Also, larger firms will be able to adjust by imports and outsourcing, hence, trade protection is not a helpful solution.

Dominant firms centrally placed in the technology, trade and ownership network, fared better. This suggests that in such crises, policy should focus on helping stabilise firms that are in weaker positions, owned by foreign firms and producing less skill-intensive and/or specific products for large customers.


Altomonte, C and GIP Ottaviano (2009), “Resilient to the crisis? Global supply chains and trade flows”, in R Baldwin (ed.), The Great Trade Collapse: Causes, Consequences and Prospects, a VoxEU.org publication, 27 November.

Baldwin, R (ed.) (2009), "The Great Trade Collapse: Causes, Consequences and Prospects", a VoxEU.org publication, 27 November.

Békés, G, L Halpern, M Koren, and B Muraközy (2011), "Still standing: How European firms weathered the crisis - The third EFIGE policy report", Bruegel, 22 December.

Bergin, PR, RC Feenstra and GH Hanson (2009), “Offshoring and Volatility: Evidence from Mexico's Maquiladora Industry”, American Economic Review, 99(4):1664–1671.

Bricongne, JC, L Fontagne, G Gaulier, D Taglioni and V Vicard (2012), “Firms and the Global Crisis: French Exports in the Turmoil”, Journal of International Economics, 87(1):134-146.

Chor, D and K Manova (2012), “Off the Cliff and Back? Credit Conditions and International Trade During the Global Financial Crisis”, Journal of International Economics, 87(1):117-133.

Di Giovanni, J and AA Levchenko (2010), “Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement”, American Economic Journal: Macroeconomics, 2(2):95-124.

Halpern, L (2011), “The impact of the crisis on European firms”, Vox Talk, interview by Viv Davies, VoxEU.org, 1 July.

Levchenko, AA, LT Lewis, and LL Tesar (2010), "The Collapse of International Trade During the 2008-2009 Crisis: In Search of the Smoking Gun”, IMF Economic Review, 58(2):214-253.

Mora, J and W Powers (2009), “Decline and gradual recovery of global trade financing: US and global perspectives”, VoxEU.org, 27 November.

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