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Country Profile - France
France is undergoing a series of reforms to make the country more friendly to business, innovation and inward investment. They are driven by a government that sees innovation as vital to the country’s prosperity.
One of the most important things the country is doing is challenging international perceptions of France as an expensive place to do business. The Invest in France Agency website offers two useful presentations for those who want to get a better perspective on the real France: Ten Myths about France and Ten Reasons to invest in France.
Both make a strong case, using independent sources to support their arguments. The Myths presentation describes the reality behind the stereotypes: France is the world’s sixth largest economic power; at the heart of a consumer market of almost 500 million people; it is the third largest destination for inward investment after the US and the UK; and the world’s fifth largest exporter of goods and services.
Attacking more myths, it says that France loses fewer workdays to strikes than Spain, Italy or the US, and has lower employment costs than the UK or Germany. French productivity ranks third in the world behind the US and Norway, and, overall, France attracts more graduates than it loses. France is also strongly embedded in the global market – foreign investors hold just over 46% of the companies listed on its leading stock index – the CAC40.
France has the most productive workers in Europe
The Reasons to Invest presentation turns to the positive, pointing out that France ranks second in the world (after Korea) and first in Europe in terms of the proportion of employees that hold a scientific degree. France has the most productive workers in Europe, in terms of GDP per hour worked, and employment is becoming more flexible. The cost of employment is also being reduced, through cuts in social charges on overtime work and greater flexibility about when and for how long people can work.
France also has a firm commitment to R&D. The French presidency of the Council of the European Union began in July 2008 with a public commitment to an innovative and competitive Europe, based on education, training and innovation. The presidency’s opening statement outlined France’s desire to strengthen the role of education and training within the Lisbon strategy, promote the mobility of students and trainees, and accelerate the formation of the European Research Area. It said France would use its presidency to support efforts to improve vocational training, develop Europe’s position in space, foster small and medium-sized enterprises (SMEs), and begin the transition to a low-carbon economy. It also discussed the importance of European clusters of global importance.
So France has a highly productive, technocratic workforce, a large local market and strong links to international markets. The French economy is also changing, from relying on extensive government ownership and intervention to placing greater reliance on market mechanisms. The government has partially or fully privatised many large companies, banks, and insurers, and has reduced or sold its stake in companies such as Air France, France Telecom, Renault, and Thales. It maintains a strong presence in strategic sectors such as power, public transport, and defence.
Source of innovation
France dedicates almost 2.2% of its GDP to R&D. It is one of the leading countries in the OECD in terms of public spending on R&D. But the proportion of total R&D investment in France that comes from the private sector is below the EU average.
France has strong tradition of public research institutes (such as CNRS, INSERM, INRA, CEA, IFP, INRIA and more) that have global reputations for excellence. France has a network of universities, engineering and business schools (or the so-called grandes écoles) with strong links to business and research. And it has a strong tradition of professional training schools. These organisations are also havign to adapt: CNRS, France’s most important basic research lab, is currently undergoing reforms.
[Didier Roux, vice president of research at Saint Gobain, discusses his experiences as research director at CNRS here]
Clusters enable businesses, research laboratories, universities and educational institutes to work together
France has also taken the notion of clustering to heart, creating 71 competitiveness clusters, 17 of which are international, as collaborations between industry and regional development agencies. The clusters serve high-technology sectors such as nanotechnology and biotechnology, as well as more traditional industries. They enable businesses, research laboratories, universities and educational institutes to work together as a network. The international clusters let foreign investors get direct access to these networks of specialist expertise.
The government has implemented a wide range of policies to address this issue, as well as stimulating R&D within the SME sector. Some of these policies come from the central government, while others spring from regional initiatives.
SMEs
Innovation policy has been rapidly restructured over the past few years to create a greater focus on SMEs.
A super-agency called OSEO was created in 2005, by merging the National Agency for Innovation (ANVAR), the Bank for the Development of SMEs (BDPME) and the Agency for SMEs. The idea was to provide more coherent help for SMEs throughout their development.
The agency has three major roles: it provides innovation support for technology transfer and innovative technology-based projects with real marketing prospects; it funds investments alongside the banks; and it guarantees funding granted by banks and equity capital investors.
There are a host of other policy initiatives to support innovation in France, including using the Carnot Institutes to help transfer public research into the private sector; the Young Innovative Enterprise scheme; the SME Pact, to link small and large companies; and the Gazelles programme for fast-growing SMEs.
Inward investment
The details of France’s support for inward investment are here. They include financial help to build production facilities in economically deprived regions, and for in-house R&D. There’s also support for staff training, and subsidies for hiring people such as the young unemployed. Assistance is also available for investment and job creation within SMEs; and to help meet the costs of conforming to certain environmental standards.
Some of this support can be quite valuable. In certain regions, for example, large companies can get grants of up to 15% of their total investment, while mid-sized companies can get grants of up to 25%. Regional development grants can provide up to €15,000 for each new job, as well with funds for corporate training.
There may also be subsidies to finance the construction or leasing of business premises or the acquisition of land, and reductions in local taxes for up to five years.
Tax incentives
R&D activities benefit from a system of tax credits that can total €16 million per company per year, or up to eight years of exemption from social-security payments for a start-up.
Research tax credits can cover between 10% and 50% of a company’s total R&D expenses, depending on when the business was created. The amount can be deducted from corporate tax or reimbursed in cash after three years. Some small companies get the money back immediately.
Expenses covered by the research tax credit include salaries for research scientists, depreciation, operating costs, patent costs or costs related to research missions.
Young innovative companies can further benefit from social security exemptions for research scientists’ salaries, corporate tax exemptions for five years, and business tax and/or property tax exemptions for seven years (subject to local authority approval).
Many regions in France also offer development grants for companies that set up R&D projects of up to €25,000 per job created.
Companies that set up in one of the 71 clusters may also be able to benefit from the government’s €1.5bn support budget for clustering, as well as other tax benefits.