Executive Summary – Wholesale trade in the Netherlands

The Internationalisation Monitor describes trends in internationalisation and the consequences thereof for the Dutch economy and society. It is published quarterly as part of the Globalisation programme at Statistics Netherlands (CBS), which is commissioned by the Dutch Ministry of Foreign Affairs. In this edition of the Internationalisation Monitor, we focus on the wholesale trade sector in the Netherlands.

When we think of companies, we often think of the local bakery, that picturesque restaurant by the water, the tall office building near the train station or that noisy factory near the docks. These are the companies that are most visible in our everyday life. Wholesalers are a lot less noticeable in the daily lives of most consumers. For that matter, relatively little attention is paid to wholesalers in scientific literature. Dachs et al. (2016) conclude in their report for the European Commission that there has been little analysis of the wholesale trade sector.

This is surprising, given the fact that the wholesale trade sector forms an essential component of the national economy. First of all, the wholesale industry is a major employer: the approximately 90 thousand companies that are active in the Dutch wholesale sector offered 464 thousand full-time jobs in 2018, accounting for 6.1 percent of total employment in the Netherlands. In terms of size, this is comparable to employment in the construction sector and public administration sector in the Netherlands.

In addition, wholesale trade forms a very important link in the value chain between manufacturers and their buyers, both nationally and internationally. Wholesalers make sure that companies are supplied with the raw materials and intermediary products which are necessary for various production processes. They also act as intermediaries for companies selling their products on foreign markets. In this capacity, they are mainly focused on small and medium-sized companies, who cannot easily find international customers on their own and are less willing to take on the financial risks associated with exporting.

Despite the obvious added value of wholesalers in the Dutch economy, their important position can no longer be taken for granted. In 2016, researchers from the ING Economics Department concluded that Dutch wholesalers are no longer ‘indispensable’ and that various developments are affecting the wholesaler’s existence. They point, among other things, to the growing digitisation. More and more large webshops are taking over the role of wholesalers. Furthermore, the rise of e-commerce means that Dutch consumers and retailers are increasingly finding their way to foreign markets on their own.

It is therefore time to take a closer look at the Dutch wholesale sector. In this edition of the Internationalisation Monitor, detailed attention is paid to the position occupied by wholesalers in the Dutch economy and in global value chains.

Listed below are some of the main findings presented in this edition:

Chapter 1 – Outline of the Dutch wholesale sector

• The number of wholesalers in the Netherlands is fairly stable with just under 90 thousand companies. However, the share of wholesalers in the population fell from more than 9 percent in 2010 to just under 7 percent in 2018.
• More than one-quarter of wholesale businesses trade in consumer products, making this trade the largest activity among wholesalers in the Netherlands.
• A considerably higher share (5 percent) of companies in the wholesale sector do not classify as independent SMEs, compared to the overall business population (1 percent).
• Wholesalers accounted for almost one-third of the turnover generated by the Dutch business economy over the period 2010 –2017.
• Wholesalers are providing more and more services along with their conventional wholesale activities. Examples of these services include design, development and consulting; repair and maintenance and computer and ICT-services.

Chapter 2 – ‘Unboxing’ Dutch wholesaling

• Using data from 2016, a classification of wholesalers has been made which is based on their trading activities. We have combined information on imports and exports of goods and services, re-exports of goods, merchanting, entrepôt trade, transit trade and foreign direct investments of wholesalers.
• We distinguish five groups:
  1. Domestic wholesalers (51 percent) are only active on the domestic market.
  2. Traditional wholesalers (36 percent) engage in imports and/or (re-)exports of goods. These traders may import services but they do not export services.
     This group can further be divided into three subgroups:
     1. Only imports of goods and possibly services (39 percent).
     2. Only exports of goods (11 percent).
     3. Two-way trading of goods and possibly imports of services (50 percent).
  3. Full-service wholesalers (5 percent) engage in imports and/or (re-)exports of goods and exports of services. They may also import services.
     Again, we observe three subgroups:
     1. Imports of goods and possibly services, and exports of services (19 percent).
     2. Exports of goods and services (9 percent).
     3. Two-way trading of goods and services (71 percent).
  4. Transit traders (5 percent) can be active in merchanting, entrepôt trade and/or transit trade.
  5. Unclassified wholesalers (3 percent) do not fit into any of the above four groups.
• Traditional wholesalers are mainly active as traders of household goods, whereas full-service wholesalers are the main traders of machinery, equipment and supplies. Wholesale on a fee or contract basis is largely dominated by domestic wholesalers.
• Looking at the size and forms of business ownership in the wholesale sector, we find that full-service wholesalers and transit trade businesses are relatively large. Domestic wholesalers are mostly microenterprises (with fewer than 10 employees). Nearly 60 percent of domestic wholesalers are sole proprietorships.
• The major types of imports are different for each (sub)group of wholesalers. Companies with imports but no exports primarily trade in non-durable consumer goods. Both two-way traders and transit businesses import relatively more capital and intermediate goods.
• The major types of exports are also different for each (sub)group of wholesalers. Companies with exports but no imports predominantly trade in intermediate goods and non-durable consumer goods. Transit businesses export relatively few capital goods and durable consumer goods, focusing more on intermediate goods. Two-way traders export relatively more capital goods and durable consumer goods.
• Service exports are a substantial source of revenue for the wholesale sector. Only 7 percent of all wholesalers export services. These are mostly information and telecommunication services and operational and technical services.
• On the import side, 40 percent of services imports concern royalties and licensing fees for the use of intellectual property.

Chapter 3 – Employment in Dutch wholesale trade

• At the end of the third quarter of 2016, the Dutch business economy provided more than 1 million jobs. Nearly 1 in 10 of these jobs were on account of wholesale trade, equivalent to approximately 467 thousand jobs in that sector at the end of the third quarter of 2016.
• Wholesalers are on average larger employers than enterprises in the transport and storage services sector, but generally smaller employers than retailers.
• Approximately 37 percent of all jobs in the business economy are filled by women. This share is around 30 percent in wholesale trade. Compared to men, women are much more often employed in retail trade than in any other sector under investigation.
• Within the wholesale sector, women – more often than men – are employed in the wholesale trade of consumer items such as perfume, cosmetics, clothing, jewelry or pharmaceutical products. Men, on the other hand, are more often employed by wholesalers of machinery and equipment, IT equipment and other specialised wholesale.
• Employees in wholesale trade are generally somewhat older than the average employee in the business economy. At the end of 2016, almost half of all wholesale trade jobs were filled by people aged 40 to 59, compared to 40 percent in the entire business economy. Younger employees under 20 years old are less represented in this sector; this group is mainly active in the retail trade.
• Wholesalers who focus exclusively on the domestic market have a larger share of jobs filled by employees aged 60 years and over than other types of wholesalers. Within the group of internationally active wholesalers (traditional wholesalers, full-service companies and transit traders), the job distribution by age group is very similar to the overall picture of the entire sector.
• The median hourly wage rate in the business economy was 17.4 euros at the end of 2016. Of the sectors studied, the hourly wage rate is highest in wholesale trade (almost 20 euros) and lower in retail trade (less than 11 euros). Median hourly wages in the transport and storage or in other sectors approach the hourly wage in wholesale trade.
• Women in wholesale trade earned over 3 euros less per hour than men; the hourly wage of women is around 4.6 euros lower in the entire business community.
• Employees in exclusively domestic wholesale trade earned on average 18 euros per hour, compared to 20 euros for the employees of internationally active wholesalers.

Chapter 4 – R&D and innovation in the wholesale sector

• The results show that the Dutch wholesale sector is more than a ‘box mover’ with 18 percent of all wholesalers – with 10 or more employees – undertaking R&D activities in 2016; this corresponds to almost 1.3 thousand companies.
• On average, wholesalers in the Netherlands spent 375 thousand euros on research and development in 2016. This amounts to 6 percent of the total R&D expenditure by Dutch companies. Manufacturing enterprises account for the vast majority of the total R&D expenditure in the Dutch private sector, namely 59 percent.
• The results in this chapter support the observations from the scientific literature that wholesalers – with 10 or more employees – focus more on innovation than on R&D: 57 percent of wholesalers innovated in the period 2014–2016. In comparison, this share was 48 percent for the entire business economy.
• Wholesalers mainly implemented technological innovation in the form of product and process innovations. Over 1.3 billion euros was spent on this in the period 2014–2016.
• Almost 10 percent of the wholesaler’s business revenue was achieved thanks to the introduction of new or greatly improved products. Compared to wholesalers, the Dutch retail and transport sectors are less active in R&D and innovation.

Chapter 5 – The wholesale trader as gateway to the global market

• Globalisation in the 21^st century has been instrumental in giving rise to an extensive global trade network. In this setting, wholesale traders are important actors in facilitating substantial flows of goods through various stages in global value chains (GVCs).
• The wholesale industry is typically associated with the concept of indirect exports, i.e. exports through intermediaries. Put differently, wholesalers mainly engage in GVCs by taking up the role of export intermediaries, thus providing other firms a means to export their products indirectly through them.
• Our results suggest that rather than merely stimulating firms to export by themselves in the context of export promotion, it is equally relevant from a policy point of view to consider the indirect export mode. This study demonstrates the substantial wholesale export value generated by the Netherlands. In 2015, exports through wholesalers amounted to 47 billion euros, equivalent to 22.9 percent of total Dutch exports. Especially the sectors agriculture and manufacturing (notably the food, machinery and chemical industries) rely on this indirect mode of exporting.
• In addition to wholesale traders, the study shows a modest upward trend in exports which go via the transport and storage sector. In 2010, these intermediary exports contributed 3.8 percent of total exports, rising to around 4.6 percent in 2015.
• Intermediary exports also deliver value added to the local economy. According to this study, 30 billion euros were embodied in Dutch wholesale exports in 2015, which in turn translated to 26.8 percent of the total value added embodied in Dutch goods exports. The results also suggest that wholesale exports are more beneficial to the Dutch economy compared to the two other export modes. More specifically, most of the value added in wholesale exports – for example 30 billion euros in 2015 – ends up in other supplying industries that are part of the value chains. This can be linked to either the types of goods exported through wholesalers (for example agricultural products or machinery and corresponding parts, which typically rank among the most profitable Dutch export products), or wholesale trading associated with SMEs.
• Finally, we explored the destinations of the different export modes. The figures in this chapter demonstrate that there are still firms which need the assistance of intermediaries, particularly wholesalers, to reach major Dutch export destinations. Furthermore, wholesale traders are crucial in offering other firms a possibility to reach less readily accessible foreign markets. These vary from familiar destinations in Europe, such as Switzerland, to rather ‘new’ markets in the continents of Africa, Asia and even Europe.

Chapter 6 – The importance of the wholesale sector in the Dutch economy

• In recent decades, the Dutch wholesale trade sector has grown at a faster pace than the Dutch economy as a whole. The increased share of wholesale trade in the Dutch economy can be explained by its strongly export-oriented nature: over 71 percent of the value added in this sector is generated by export activities, compared to only 37 percent for the Dutch economy as a whole.
• In 2017, employment in the wholesale sector amounted to 450 thousand full-time equivalents (FTEs), of which 307 thousand FTEs or 69 percent were generated by exports.
• The wholesale sector has become increasingly integrated in international value chains. In 2016, the wholesale sector earned 6.8 eurocents out of every euro generated by exports, up from 6.1 eurocents in 1995. Imports as well as wholesale trade and other service sector activities all occupy growing shares in the export portfolio, a strong indicator of the rising importance of GVCs.
• The value added generated by the wholesale sector as a result of domestic exports (for example exports of domestically produced goods) amounted to more than 17 billion euros in 2017. This is 15 percent of the total value added due to domestic exports. The value added generated by wholesale trade due to re-exports amounted to almost 18 billion euros, for example more than 57 percent of the total value added generated by Dutch companies in re-exporting activities. At 5 billion euros or 5 percent, the share of wholesale trade in the total value added generated by Dutch service exports is more modest in comparison.
• The majority of the value added in wholesale exports is generated indirectly, because the wholesale sector acts as a supplier to other exporting sectors. These indirect exports amounted to 25 billion euros in 2017. The remaining 15 billion euros were earned from direct exports. Direct exporting of goods by the wholesale sector occurs when a company with wholesale trade as its main activity exports goods that have been produced by another business unit within the same company. Direct exporting of services by the wholesale sector results from its role as distributor and intermediary. These services include transportation, warehousing, trade intermediation and leasing.
• Wholesale trade plays an important role in exports by the manufacturing industry. This contribution amounted to almost 6.5 billion euros in 2017, mainly resulting from domestic exports by the manufacturing industry. The highest contribution in terms of nominal value comes from the food processing industry. In other non-manufacturing sectors, the contribution of wholesale trade is mainly manifested in exports of services.
• The most important export destinations for wholesale trade (in value added terms) are in line with the top destinations of overall Dutch exports of value added. The wholesale sector’s value added exports grow in pace with overall Dutch export growth, due to the former sector’s integration in global value chains. The top-3 export destinations are Germany, Belgium and the United Kingdom. With re-exports of goods and exports of services, the contribution of the wholesale sector is concentrated in neighbouring markets, while geographically more distant markets are dominated by domestic exports.

Chapter 7 – Merchanting by the Dutch wholesale sector

• Merchanting is not a widely used concept amongst policy makers and academics. This is partly because it is not a phenomenon that is easy to measure. The size of merchanting, however, is not negligible. In 2017, wholesalers in the Netherlands exported merchanting goods with an estimated value of 91 billion euros.
• In 2017, ‘other specialised wholesalers’ and wholesalers of consumer products exported three-quarters of the total export value of merchanting goods of wholesalers in the Netherlands. By estimation, this amounted to 41 and 25 billion euros, respectively. Wholesalers in mineral oils, chemical products and sporting goods were most active in merchanting.
• In 2017, exports of merchanting goods accounted for almost one-third of the turnover of the ‘other specialised wholesale’ and about one-quarter of the wholesale trade in consumer products.