Doing Business in France - Investment Challenges and Business Opportunities in the EU's Third-Largest Economy—France

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World Law Group

[co-authors: Catherine Nommick, Jean-Luc Soulier, Fabien POMART]*

1. What is the current business climate in your jurisdiction including major political, economic and/or legal activities on the horizon in your country that could have a big impact on businesses?

France is the third-largest economy in Europe. It has first-rate universities and business schools, a talented workforce, innovative business leaders, and world-class infrastructures. France has a large domestic market and is a significant springboard to the rest of the European single market.

Since his election in 2017, President Macron has been fully committed to improving the French business environment and rebranding France as a business-friendly country. The overall objective is “giving businesses the means to innovate, transform, grow and create jobs” (French Minister of Economy and Finance). In concrete terms, this means

(i) promoting investment and jobs via a new tax environment;

ii) transforming the French social model to gain greater flexibility and competitiveness;

(iii) simplifying the administrative environment for businesses, stimulating job creation, and encouraging innovation; and

(iv) speeding up the ecological transition.

As a result of the COVID-19 pandemic, France has just launched a national Recovery and Resilience Plan as part of NextGenerationEU, i.e., the European Union’s plan for emerging stronger from the COVID-19 crisis. France’s Recovery and Resilience Plan focuses on three key priorities – environment, competitiveness, and social and territorial cohesion – and includes large-scale investment projects in more environment-friendly production and consumption, such as the retrofitting of buildings and the development of green mobility and technology, as well as support for innovation in strategic sectors such as health and digital technology, including artificial intelligence.

Regarding foreign investments, the French government devotes significant resources to attracting foreign investors through policy incentives, overseas trade promotion offices, and investor support mechanisms. All of these efforts are paying off since France has just been recognized as the most attractive country in Europe for foreign investors for the second year in a row.

The next presidential election will take place in April 2022. The outcome of the election is likely to have a significant impact on the evolution of France’s business environment.

2. From what countries do you see the most inbound investment? What about outbound?

Based on the figures available for the past two years, foreign investments in France come from many different countries, primarily EU countries as a whole followed by North America and Asia.

The United States continues to be the leading source country for investment in France. In 2020, it was responsible for 17% of all job-creating foreign investments recorded in the country. Germany remains the second-largest investing country in France, with subsidiaries of German businesses responsible for 16.5% of all investment projects. Italy is the third-largest investor while, because of Brexit and the uncertainty it created, many British businesses have adopted a wait-and-see policy, which translated into a fall in investments in Europe in general and France in particular. Other noteworthy investing countries are the Netherlands, Spain, Denmark, and Ireland.

Regarding outbound investment, in the past two years, six countries captured half of all French investment projects abroad: The United States, Spain, Great Britain, Germany, Italy, and China. French companies invest more in the United States than in any other country, in particular, because of the size and maturity of the market, its entrepreneurial culture, and the ease of raising capital. However, a recent trend shows that French companies are starting to refocus on Europe. Spain and the United Kingdom take second and third place, while Germany and Italy take fourth and fifth place respectively. French businesses are also expanding into Belgium, the Netherlands, Switzerland, Poland, Austria, and Romania. Lastly, Asia is also a new continent for French investments. India, China, Taiwan, and Vietnam are the four markets where French companies increasingly invest and set up operations.

3. In what industries/sectors are you seeing the most opportunity for foreign investment?

France is an economically developed country with a large, diversified, and sophisticated consumer base. Even though manufacturing has steadily declined as a percentage of the Gross Domestic Product, many of France’s remaining industries, such as pharmaceuticals and aerospace, are still global leaders and are receptive to foreign partners and investors.

Investment opportunities can also be found in a wide range of other business sectors such as food products, microelectronics, logistics, biotechnology, e-commerce, information and communication technologies, and smart cities.

With strong state support for innovation and reindustrialization in priority sectors, new opportunities are being offered to foreign investors, particularly in education, healthcare, digital technology, and ecology (ecological transition being a top priority for the years to come).

In addition, France is expected to adopt medium-term privatization programs in the electricity, gas, rail transport, and postal services. The government has not recently announced plans to privatize any of the remaining state-owned enterprises, but it has significantly reduced its shareholdings in several companies. This could create investment opportunities for foreign businesses.

4. What advantages and pitfalls should others know about doing business in your country?

As a natural crossroads for European and International trade, France is indisputably an attractive destination for doing business, in particular for the following reasons:

A unique geographical position and a large market. France is located in the heart of Western Europe and also has direct links to the UK and some Maghreb countries. It has a large market (65 million consumers) and direct access to the single market of the European Union (over 450 million consumers).

Efficient infrastructures and quality public services. France has the largest road network and the 2nd largest high-speed rail network in Europe. In addition, it offers high-quality public services (health, education, etc.) to its citizens and residents.

A qualified and productive workforce. Contrary to common belief, the French workforce is highly productive, with many higher-education graduates, renowned universities and business schools, and dynamic demographics.

A friendly business environment. In the past few years, France has taken several measures to improve the business environment (tax credits, tax cuts, reform of the labor market, reduction of the administrative burden, simplification and modernization of French corporate law, etc.) and make it more competitive and more innovative than ever.

A hub for technology and innovation. Technology plays an important role in the French economy. The Government has implemented attractive R&D tax incentive programs to support innovation, through firm commitments such as the research tax credit, innovation tax credit, and a major investment plan from 2018 to2022. France is the world’s #2 research center and the first in Europe for hosting R&D investments.

Despite these significant advantages, doing business in France can present some challenges that foreign investors should be aware of.

Businesses must navigate national and European regulations and standards which are sometimes complex. France often interprets existing EU regulations more stringently than other EU Member States and sometimes regulates in areas where the European Union has not yet enacted legislation.

France has one of the highest corporate tax rates in the world (even if the situation is beginning to evolve).

Even though many reforms have – and are being – passed to make the labor market more pro-business, employers still have to deal with extensive and intricate labor laws which are very protective of employees’ rights. Employment costs run high due to the high number of payroll taxes.

Lastly, the (often) tense social climate and repeated strikes can be considered a nuisance for foreign investors and business leaders.

5. What is one cultural fact or custom about your country that others should know when doing business there?

Understanding French values and attitudes is a key factor to success for anyone doing business in France. It is essential to consider local norms and business etiquette as well as cultural differences.

While in most EU countries English is the preferred language for international business dealings, the French are very proud of their language (which can be considered as a symbol of France itself). Yet, in French business circles, most people master English.

French companies often follow a vertical line of command and decisions tend to be made ultimately by the CEO after consultation with the senior managers. As such, the decision-making process is less consensual and may take more time than in other countries.

In many industries, the business etiquette remains quite formal, and cultural orientation towards hierarchy means that individuals are expected to know the rank of their counterparts and act accordingly (for example addressing clients and colleagues in the proper manner is very important).

*Soulier Avocats

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