Doing Business in France – Investment challenges and business opportunities in the EU’s third largest economy: France | Global Law Group


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

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

France is the third largest economy in Europe. It has top-notch universities and business schools, a talented workforce, innovative business leaders and world-class infrastructure. France has an important internal market and constitutes an important springboard towards the rest of the European single market.

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

(i) promote investment and employment through a new fiscal environment;

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

(iii) simplify the administrative environment for businesses, stimulate job creation and encourage innovation; and

(iv) accelerate the ecological transition.

Following the COVID-19 pandemic, France has just launched a National Recovery and Resilience Plan as part of NextGenerationEU, that is, the European Union’s plan to emerge stronger from the COVID-19 crisis. France’s Recovery and Resilience Plan is built around three key priorities – environment, competitiveness and social and territorial cohesion – and includes large-scale investment projects in more environmentally friendly production and consumption. , such as the renovation of buildings and the development of green mobility and technology, as well as support for innovation in strategic sectors such as health and digital, including artificial intelligence.

Regarding foreign investment, the French government devotes significant resources to attracting foreign investors through incentive policies, foreign trade promotion offices and investor support mechanisms. All these efforts are bearing fruit 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 should have a significant impact on the development of the business environment in France.

2. In which countries do you see the most inward investment? What about outgoing?

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

The United States remains the first country of origin of investments in France. In 2020, it was responsible for 17% of all foreign job-creating investment recorded in the country. Germany remains the second largest investor country in France, with subsidiaries of German companies responsible for 16.5% of all investment projects. Italy is the third-largest investor as due to Brexit and the uncertainty it created, many UK companies have adopted a wait-and-see policy, which has resulted in lower investment in Europe in general and in France in particular. Other noteworthy investing countries are the Netherlands, Spain, Denmark and Ireland.

Regarding foreign investment, over the past two years, six countries have captured half of 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, especially 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 UK are in second and third place, while Germany and Italy are fourth and fifth respectively. French companies are also expanding in Belgium, the Netherlands, Switzerland, Poland, Austria and Romania. Finally, Asia is also a new continent for French investments. India, China, Taiwan and Vietnam are the four markets where French companies are investing and establishing themselves more and more.

3. In which sectors / industries do you see the most foreign investment opportunities?

France is an economically developed country with a large, diverse and sophisticated consumer base. Even though the manufacturing sector has steadily declined as a percentage of gross domestic product, many remaining French industries, such as pharmaceuticals and aerospace, are still world 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 reindustrialisation in priority sectors, new opportunities are opening up to foreign investors, particularly in education, health, digital technology and ecology (ecological transition being a priority for the years to come).

In addition, France should adopt medium-term privatization programs in the electricity, gas, rail transport and postal services sectors. The government has recently announced its intention to privatize any of the remaining state-owned enterprises, but has significantly reduced its stake in several companies. This could create investment opportunities for foreign companies.

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

A natural crossroads for European and international trade, France is undoubtedly an attractive destination for doing business, in particular for the following reasons:

A unique geographic position and a large market. France is located in the heart of Western Europe and also has direct links with 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 (more than 450 million consumers).

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

A skilled and productive workforce. Contrary to popular belief, the French workforce is very productive, with many graduates from higher education, renowned universities and business schools, and a dynamic demographics.

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

A hub for technology and innovation. Technology plays an important role in the French economy. The Government has set up attractive R&D tax incentive programs to support innovation, through firm commitments such as the research tax credit, the innovation tax credit, and a major investment plan from 2018 to 2022. France is the 2nd world research center and the first in Europe to welcome R&D investments.

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

Companies have to navigate sometimes complex national and European regulations and standards. France often interprets existing European regulations more strictly 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 (although the situation is starting to change).

Even though many reforms have been – and are underway – enacted to make the labor market more business-friendly, employers still face extensive and complex labor laws that protect employee rights very well. Labor costs are high due to the high number of social charges.

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

5. What is a cultural fact or custom about your country that others should be aware of when doing business there?

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

While in most EU countries English is the preferred language for international trade relations, the French take great pride in their language (which can be seen as a symbol of France itself). Yet, in French business circles, most people are fluent in English.

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

In many industries, business etiquette remains fairly formal and the cultural orientation towards hierarchy means that individuals are expected to know the rank of their counterparts and act accordingly (e.g. addressing clients and colleagues correctly. is very important).

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