The.Economist.2007-02-10 (966424), страница 32
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Most other countries can only envy thatglittering range. America has got Tiffany and not much else;Switzerland has Rolex and other expensive watches; Germany hasPorsche. Only Italy offers much competition, with labels such asArmani, Bulgari, Gucci and Prada. But France's dominance goes farbeyond perfumes, champagne and crystal chandeliers; just think ofDassault Falcon private jets, Catana yachts and the deluxe hotels ofthe Côte d'Azur. France has a leading contender in every segment ofthe luxury market.Now, however, the prestigious French labels face new competition.Except for Longchamp, a fancy leather-goods company that started in1948 and took off in the 1980s, most of France's luxury firms have been around for a long time. Still,they are doing well in new markets.
Louis Vuitton, for instance, which is famous for its monogrammedluggage, has opened a dozen shops in ten Chinese cities since 1992.In recent years, though, Italy has sprouted new luxury-goods firms to challenge France, such as Tod'sand Dolce & Gabbana. In the category of affordable luxury, newcomers such as Paul Smith, a Britishmenswear company, and Hugo Boss in Germany have come to the fore.
Hugo Boss claims that one suitin six in the €700 range has its name sewn into the jacket. It has widened its product range and isparticularly strong in the male-perfume business. It does not trade on being “made in Germany”,whereas for luxury goods from France their Frenchness is part of the essence of the brand.Trumped by foreignersIn some sectors France has lost ground. Its luxury-shoe sector is declining, not because of the cheapAsian footwear that is wiping out many European mass-market producers but because of a loss of designflair. And even French winemakers can no longer take their pre-eminence for granted. In a recent blindtasting by famous wine experts from America, Britain and France Californian wines did better than Frenchones, even in the higher price ranges.France's noisy anti-Americanism suggests that France is a reluctant participant in the global economy.But half the companies in France's top 20—such as Total, AXA, Bouygues, Carrefour, Saint Gobain,Renault, PSA Peugeot Citroën and Sanofi-Aventis—are world leaders in their sectors.
Most do the bulk oftheir business outside France. But this does not prove that France is doing as well as it might in globalbusiness. A new McKinsey study shows that the country's share of world trade in manufactured goods fellfrom 6.1% in 1995 to 5.1% in 2004. Germany is doing a lot better: its companies have 6.1% of theAmerican market, against France's 2.6%, and 8.6% of the Chinese market, compared with France's2.2%.Things started to go wrong for France in the mid-1990s. According to McKinsey, average annualproductivity growth in 1995-2003 was only 2.1%, half the rate in 1990-95. Over the same periodemployment in industry fell by 5%, margins slipped by 12% and investment was down 27%.
Oneexplanation may be that France is not doing much offshoring. In 2003 imports from low-wage countriesmade up only 11% of France's total, compared with 39% for Japan, 35% for America, 24% for Germanyand 15% for the EU 15.But France itself, says Philippe Favre, the new boss of the official Invest in France agency, is growingmore international. One French worker in seven works for one of the 20,000 foreign firms that have setup in the country; ten years ago it was one in 14. In 2005 alone 421 French companies were bought byforeigners for a total of €37 billion; most of them were medium-sized businesses rather than famousFrench names.
Nearly half the investment in the leading share index, the CAC 40, is by foreign funds.One-third of France's exports are generated by foreign companies. A new generation of French managersis internationally respected; a Frenchman, Carlos Ghosn, is the most admired figure in the world carindustry. GSK, an Anglo-American pharmaceuticals giant, is run by an expatriate Frenchman, Jean-PierreGarnier. And a recent list of Europe's top ten business schools featured seven French establishments.Soft underbellyYet beneath the upper crust of French international companies French business is inward-looking andtimid. One man who worries about this is Hugues-Arnaud Mayer, chief executive of a small Frenchcompany making health-care products and head of the regional-development committee of Medef, theFrench employers' organisation.
He thinks small business is the Achilles heel of the French economy.There are only 1m small firms, less than half the number in Germany; and some 500,000 of these arereally just self-employed people. Moreover, they export far less than Germany's famously outwardlooking Mittelstand firms. “I think this explains a great deal of our trade deficit,” says Mr Mayer.
Hethinks small businesses rely too heavily on local customers and are afraid to venture into the Englishspeaking world of exports.According to the McKinsey study, French companies with fewer than 2,000 employees account for 99% ofall companies, 70% of all jobs, 60% of industrial value added but only 50% of exports. Their operatingmargins average 7.8%, compared with 9.2% for big firms, which suggests that the corporate giants arebetter at coping with the pressures of global competition.France needs more entrepreneurs like Stephane Ledoux, a fast-talking salesman in his early 30s whostarted work straight after leaving school at 18.
Today he owns a specialist photo-processing company,Cité de l'Image, which employs 67 people at its labs on the south-western fringes of Paris. Mr Ledouxborrowed money and bought the business from a larger group for which he had been working. Heconsidered moving the labs to low-wage Poland or Romania but quickly realised that would be counterproductive.Cité de l'Image is a photo-processing and pre-press production house for an international clientele thatruns from Guerlain and Yves Rocher to Xerox, Henkel and Air France. The work requires expensive,sophisticated equipment and highly skilled staff.
Some simple work has been passed to Poland andRomania for overnight processing, but the core of the business has stayed in Paris. To cut costs, MrLedoux has outsourced functions such as IT and payroll processing. Last month a French private-equitygroup, Green Recovery, recruited him to run a much bigger business: the collection of photo agenciesand image-processing firms (including famous names such as Gamma, Keystone and Jacana) that it hadbought from the Hachette Filipacchi publishing group.Medef's Mr Mayer has ideas about how to foster such entrepreneurialism.
He himself used to be a middlemanager at Abeil, a small health-care firm that was part of the big Suez conglomerate, until he borrowedmoney and bought the company. He wants the government and the financial sector to encourage morepeople to do likewise. For example, executives in big firms could get tax breaks to put aside capital forlaunching their own firm in the future. He thinks too many French managers are deterred from startingtheir own business by the red tape involved. He envies an online service set up by Portugal, not usuallyknown for being the most entrepreneurial of places, that allows anyone to set up a company in 60minutes.Mr Mayer worries, too, about the future of the small and medium-sized companies that grew up in thepost-war boom in France known as les trente glorieuses—the three decades of growth that ended in1975.
Many of these firms will simply fold as their founders retire. More generally, he is concerned aboutthe law limiting working time in France to 35 hours a week. Although it has become more flexible, it isstill a big handicap for French companies.The Medef, chaired by Laurence Parisot since 2005, has transformed itself into a lobby group, particularlyfor small and medium-sized businesses. Ms Perisot is campaigning to improve industrial relations, whichtook a turn for the worse with the introduction of the 35-hour week. She wants further relaxation in thelaw to make it more flexible for small companies. Tax changes have already made France more attractiveto venture capitalists and private-equity firms: it has just shot up from tenth to second place, behindIreland, in the list of good companies to invest in compiled by the European Venture Capital Association.That is a good start.Copyright © 2007 The Economist Newspaper and The Economist Group.
All rights reserved.About sponsorshipNot what it wasFeb 8th 2007From The Economist print editionHoward ReadEuropean business has improved out of recognitionWHAT with accounting scandals at Ahold and Parmalat, bribery allegations against Siemens, corruption atMercedes, Brazilian prostitutes laid on for a Volkswagen board member and a legal challenge to a pay-offbonus at Mannesmann, European business has been having a torrid time lately. Now a criminalinvestigation has been launched into alleged insider share dealing at a sensitive time at EADS last spring.Meanwhile protectionism has blocked cross-border takeovers, and labour-market reforms in France andGermany have stalled.But at the same time European business and finance has seen huge changes for the better.
Europe'sstrength in financial services is evident not just in the City of London, which since the Big Bangliberalisation of British finance 20 years ago has expanded into the old docklands area of Canary Wharf toaccommodate the flood of foreign banks that have poured into London. Strong contenders are beginningto emerge in continental Europe too. Retail banking is still too fragmented along national lines, butrationalisation in insurance has created global outfits such as France's AXA, Germany's Allianz and Italy'sGenerali.Compared with America, Europe is doing very well in many service industries.
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