France: Productivity with flairDecember 20, 2010
High-quality infrastructure and proximity to customers are frequently cited as the driving factors behind companies’ decisions to relocate headquarters operations. France boasts both advantages, along with a world-class infrastructure and one of the most productive labor forces in the world.
Overall, its business environment, and the ease of doing business, score high marks from both The Economist Intelligence Unit (EIU) (20) and the World Bank (26). According to statistics on foreign direct investment (FDI) flows for 2009 from the EIU, France ranks third worldwide, after the US and China.
Factors weighing against France’s attractiveness are a tax system often considered cumbersome and a history of state interventionism to create and preserve national champions.
A central location, along with a solid transportation network, builds the foundation for France as an export hub. According to EIU statistics, France is the fifth largest exporter of goods and the fourth largest exporter of services in the world. The country facilitates international business through its simple procedures. According to the recent World Bank Doing Business 2011 report, France scored high marks on making international trade easy, requiring only two documents and averaging 10 days in handling any export/import.
Ranking 15 out of 139 countries surveyed by the World Economic Forum (WEF) Global Competitiveness Index for 2010-11, France offers many benefits as an investment location. Chief among these are a highly educated and productive labor force, superior research and development capabilities, plus generous research tax credits. These credits can amount to 30% of annual research expenditure up to a maximum of €100 million.
Measured by the EIU as the fifth largest economy in the world, France offers ample market opportunities, along with a demographic profile that is considerably more favorable than its neighboring countries. Approximately 18.6% of the population is under the age of 15, spurring growth and demand for consumer goods and services.
Despite its reputation for trying to protect “national champions” and intervene against foreign takeovers, France still continues to capture a large percentage of worldwide FDI, with important industry clusters in health care, biotechnology, software, electrical engineering as well as consumer and financial services.
The sophistication and leadership of its local business culture, which has a reputation for early and aggressive adoption of new technologies to enhance productivity, adds to its growth potential and appeal among foreign companies.
According to the WEF analysis, France possesses one of the best infrastructures in the world — ranking fourth out of the 139 countries surveyed — with outstanding transport links, energy facilities and communications. Its airport at Roissy, outside Paris, is a major international hub. France’s high-speed train links represent a key asset and continue to be expanded, with plans for a new Rhine-Rhone link in 2011 and a Perpignan–Figueres link between France and Spain possibly by 2012.
Despite these advantages, France’s tax regime remains a deterrent to its overall attraction for business. Although corporate taxes were reduced in early 2010, with the elimination of the local business tax, taxe professionnelle, they are still higher than many of its EU counterparts. The 2011 Doing Business report by the World Bank estimates an overall corporate tax burden of 65.8% of profit.
Greater flexibility in hiring and firing would also aid attractiveness. France boasts one of the most productive workforces in the work — with a low level of unionization in the private sector — yet current labor regulations and high social security taxes hinder employment growth. The Government is eager to create employment opportunities, particularly for the young.
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