FRANCEBusiness Locations inFINANCIAL TIMES SPECIAL REPORT | Friday December 3 2010

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InsideLyon, a city withexcellenttransportlinks, isprovingto be abig drawPage 3

Alluring market, attractive resource

After an autumn of head-lines about protests inFrance, it would beeasy to guffaw at the

idea of building a businessthere. Yet a striker strikes for afew days, while working andconsuming for a lifetime.

For any company with ambi-tions of a global presence, 62.8mprosperous, skilled and evi-dently energetic people are bothan alluring market and anattractive resource. They willremain so because, while popu-lations in many European coun-tries are expected to decline,immigration and an upsurge inthe birth rate are expected tobless France with perhaps 10mmore citizens by 2040.

David Appia, chairman andchief executive of the govern-ment agency Invest in France,says corporate investment deci-sions are based on a detailedassessment of long-term pros-pects. Most such decisions fol-low at least 18 months of studyand evaluation of alternatives.

Locating a business in Franceis not about making a fast buck,but about earning euros for dec-ades.

For more than two years now,uncertainty has clouded out-looks and perceptions. Corpo-rate cash shortages and reces-sion caused both foreign andFrench companies to rein backinvestment in continentalEurope’s second-largest econ-omy. Talk of emerging Asia,European deficits and ageing

European populations continuesto blind many both to theenduring stability and prosper-ity of France and the pace andscale of incremental improve-ments in French competitive-ness.

Anyone who changes planesat Lyon’s Saint-Exupéry Airporton a midweek evening, takes aweekend break in Lille, or rum-mages through the hangers atUniqlo’s Paris store will appreci-ate that the French economy isvery far from terminal decline.

Business leaders, whoseinvestments are driving thesechanges, are helping reshape aneconomy in which liberalisationdriven from Brussels, and morerecently the president’s Elyséepalace, has opened the doors toreal improvements in competi-tiveness.

High street banks, fined atotal of €385m in September forfixing the price of cheque hand-ling, can attest to that.

Clearly, much remains to bedone. But far from writing offFrance as a business location,

many companies now seem tobe giving it more serious consid-eration. Denis Terson, chiefexecutive of the agency chargedwith bringing inward invest-ments to Paris and the Ile deFrance, says: “We will have agood year despite the economiccrisis.”

Jacques de Chilly, head of the

corresponding agency for Lyon,reports solid interest, for thefirst time in years, from foreigninvestors minded to locate sub-stantial projects in the RhôneValley. “Manufacturing in east-ern Europe for customers inGermany and France is not agiven,” says Mr de Chilly.

Germany’s resurgent manu-

facturers have reminded bossesthat being close to customers,and suppliers and subcontrac-tors – the clustering effect – candeliver real benefits. “I think ifFrance returns to economicgrowth of 2 per cent, we willstart to see renewed investmentin manufacturing capacityhere,” Mr de Chilly says.

Blessed now with strongliquidity, many companies areapplying fresh thinking to theirlocation decisions. Luc Doublet,the boss of a family event serv-ices company who chairs theAgence pour la Promotion Inter-nationale de Lille Metropole(APIM), recounts that: “Oneexecutive told me his companyhad identified Lille as its pre-ferred location because itoffered the lowest carbon foot-print in Europe.”

Marc Lhermitte, chief of Ernst& Young’s International Loca-tion Advisory Services, sayssome European companies thathad previously considered Asianlocations now see near-shoringan hour’s flight from head officeas a more interesting option.

Many businesses acrossEurope in both services andmanufacturing are engaging ina deep review of ways to opti-mise their locations and opera-tions, says Mr Lhermitte. Infinancial services, IT and con-sultancy, many have scatteredback office operations, often innational centres, and see oppor-tunities to enhance efficiencyand reduce costs by consolidat-ing and perhaps outsourcingsome of these operations.

There seems little reason tobelieve that a drift of some foot-loose western European jobseastward is about to halt. Yetrecent reforms are being suc-cessful in drawing investments

Ross Tiemansuggests investorsshould not take toomuch notice ofthe occasionaloutbreak of strikes

Inside this issueLooking inwards Attractingcompanies from emergingeconomies is the order of theday, writes Ross TiemanPage 2

Followerof fashionA Japaneseclothes group isfocusing on Paris,says Pierre TranPage 2

Lure of ParisThe city attractstechnologycompanies, and

Aldebaran Robotics has sold 30of its Nao humanoid robots

(left) to Tokyo University,writes

Pierre TranPage 3

Buckingthe trend The

recession has beenless marked in the capital,

writes Ross TiemanPage 3

Soft sell Pierre Tran ona Silicon Valley for the

21st centuryPage 4

‘Manufacturing ineastern Europe forcustomers inGermany andFrance is not a given’

Continued on Page 2 In the bag: shoppers in Uniqlo’s flagship store near the Garnier opera house in Paris Getty Images

2 ★ FINANCIAL TIMES FRIDAY DECEMBER 3 2010

Business Locations in France

ContributorsRoss TiemanPierre TranFT Contributors

Martin BriceCommissioning Editor

Steven BirdDesigner

Andy MearsPicture Editor

For advertising contact:Prakash Megha+33 1 53 76 82 51prakash.megha@ft.comor your usual representative

Alluringmarket,attractiveresource

in research and developmentcentres to France.

State-sponsored competitive-ness clusters, and tax credits forresearch and development, areamong measures helping tomake France a hotspot forresearch and innovation. Micro-soft and Google have chosen toset up in Paris.

There is, after all, stronginfrastructure to underpin com-panies that make Paris the cen-tre of their European opera-tions. Thanks in part to the suc-cessful globalisation of formernational champions, the Frenchcapital hosts the headquartersof more Fortune 500 companiesthan any city except Tokyo,leaving London and New Yorkon the sidelines.

The emergence of Chinese andIndian companies with globalambitions has created vigorouscompetition from French devel-opment agencies to persuadethem to choose France for theirEuropean headquarters.

They are helped by the factthat France emerged from theeconomic crisis with anenhanced reputation for soundeconomic management andfinancial regulation. In thedepths of the crisis, the govern-ment of president NicolasSarkozy moved fast to stimulatethe economy and lend extracash to banks. The banksquickly repaid the money, andnone failed.

But stimulus pushed up statedebt: this year’s deficit isexpected to approach 8 per centof gross domestic product.Christine Lagarde, economyminister, aims to reduce that to6 per cent in 2011, and get backwithin EU guidelines of 3 percent in 2013.

A slow squeeze on govern-ment spending is preferred toshock treatment. This autumn’sstrikes over legislation thatraised the state retirement agefrom 60 to 62, and the age fordrawing a full state pensionfrom 65 to 67, were a forward-looking move to pare a slow-burn problem common to mostEuropean countries, not anemergency measure.

Its recession was shallowerthan its neighbours’, and MrsLagarde expects GDP growth ofat least 1.5 per cent this year,and 2 per cent next, rising to 2.5per cent in 2012.

Habitual savers, Frenchhouseholds have none of thedebt overhang of their Britishpeers. Consumer spending heldup well through the recession,and is showing signs of growth.Tourist spending adds to retaildemand. Paris is the world’smost-visited destination, andoutstanding transport infra-structure, bolstered by theemergence of British low-costcarrier EasyJet as France’s sec-ond airline, has made visitingthe country and travellingaround it, more affordable.

Chris Igwe, head of retail atCB Richard Ellis France, prop-erty agents, says he has neverseen such strong interest frominternational retailers in settingup in France. Globally, he says“there is a flight to safety”.

Barriers to acquiring Frenchretail sites have been reduced,as landlords have become moreflexible, and made financial con-cessions. In the regions, too,mayors are making city centrelocations more attractive, intro-ducing cycle lanes and investingin tramways.

No one would claim Francehas become an investment nir-vana. Change creates uncer-tainty. Some reforms legislatedin the past three years are stillbeing implemented. Others areyet to come, including a reviewof tax, promised for 2011. Andthere are sure to be more con-troversial suggestions about cut-ting government debt and over-hauling public administrationfrom a policy review committeechaired by Jacques Attali, theprovocative economist.

So, would-be investors woulddo well to keep two things inmind. The fundamental attrac-tion of investing in France isstrengthening, but the processof reform will continue to createbumps in the years ahead.

Continued from Page 1

Mixed message blurs country’s image overseas

“We haven’t forgotten NorthAmerican investors,” insists thehead of France’s inward invest-ment agency as he rattles offthe list of emerging economieshe visited this autumn.

But David Appia’s most imme-diate mission is to overcome thetendency of companies fromBrazil, Russia and above allChina and India to choose Brit-ain or Germany for their Euro-pean home.

This matters, because in 2009China emerged as Europe’sthird-largest source of inwardinvestment job creation,accounting for 7 per cent of the124,923 jobs created or safe-guarded on the continent by for-eign direct investment (FDI).

India, though in eighth place

with a 3 per cent job creationshare, now matches Japan as asource of inward investmentinto Europe, according to Ernst& Young’s 2010 EuropeanAttractiveness survey.

The study shows that the US,traditionally Europe’s largestforeign investor, still provided19 per cent of FDI in Europe,followed by Germany, with 17per cent. But as Bric companiesbuild a global presence, the pan-European contest for theirinvestment yuan and rupees hasbecome intense.

France, which has longranked as Europe’s second mostsuccessful inward investmentdestination after the UK, scoredsome successes with globalisingemerging market companies.

Chinese telecoms group ZTECorporation chose Paris for itsEuropean headquarters, whileHuawei, which counts FranceTelecom as a big customer, isdeveloping a substantialresearch and development cen-tre. Indian consulting and infor-mation technology companiesInfosys and Wipro are alsobuilding a presence.

But in a world where the bat-tle for FDI investment is becom-

ing ever more intense, MrAppia, and his rivals, are alsoprospecting energetically inTurkey and the Arabian Gulf.

In 2009, France achieved theremarkable feat of attracting 529inward investment projects,marginally up on 2008, even asnumbers were falling elsewhere.Overall, jobs created by FDI inFrance rose 2 per cent, to 13,298,according to E&Y data.

“France has remained attrac-tive for structural reasons,”says Mr Appia. “We have themarket and the location, wehave an excellent infrastructureand we have a highly-qualifiedworkforce that investors rate.”

In terms of brand image, hehas little doubt about France’sstrengths. “We asked Bric inves-tors to talk about their decisionto locate in France, and two-thirds talked about innovationand research, and about educa-tion and qualifications,” hesays.

But E&Y data, used by MrAppia and his team, shows thatwhile FDI in industry, logisticsand research and development(R&D) held up well, service sec-tor investment declined. It alsoshowed that while the number

of FDI projects into France hasstagnated since 2005, projectsestablished in Germany havemore than doubled, to reach 418in 2009.

Marc Lhermitte, the chief ofE&Y’s International Location

Advisory Services, says: “Ger-many is doing everything rightto capture the nice investmentsfrom China, but the French‘message’ is often clouded anddoesn’t get through.” Germany

has a clear image as an engi-neering, technology and exportchampion. But is France a life-style, cultural, luxury, aero-space, science or educationleader? A mixed economy makesfor a blurred image.

That problem may have beencompounded by headlinesworldwide this autumn aboutstrikes and protests as the gov-ernment pushed through aphased increase in the mini-mum retirement age from 60 to62, and raised the age of qualifi-cation for full retirement bene-fits from 65 to 67.

Yet, conversely, investors maysee the determination of thegovernment to maintain thepace of reform, emphasised inthis autumn’s cabinet reshuffle,as a positive. Mr Lhermitte saysboth France and Germany aredogged by historic investor per-ceptions, including that theirlabour laws are complex, andthat it is difficult to close opera-tions if they do not thrive.

But the reality, he says, isthat the French private sectorhas one of the lowest rates oftime lost to strikes in the world.

And like Mr Appia, he arguesthat the energetic economic

Inward investmentAttracting companiesfrom emergingeconomies such asChina and India iswhere priorities lie,writes Ross Tieman

‘We have the market,the location . . . anexcellent infrastructureand we have a highlyqualified workforcethat investors rate’

David Appia

Japanese storebegins to makeits mark in theCity of Light

For Nobuo Domae, chairmanand chief executive of UniqloFrance, the fashion retailer,being in Paris was a must. Theonly questions were where, andhow much it would cost.

Fast Retailing, the Japanesecompany that owns the sought-after Uniqlo brand, had set itscorporate sights on interna-tional growth to meet its targetof quadrupling annual sales toY5,000bn (€44bn, $59bn) by 2020.

As Uniqlo already had storesin London and New York, it wasboth natural and necessary toopen in Paris. “It was veryimportant to have a presence inthe centre of fashion,” MrDomae says.

The brief was to find a nicelocation, not far from the centreand not too expensive. The rentwas a critical factor, as it wouldweigh heavily on the salesneeded to make the businessviable.

The property search roamedequally over the Left and RightBanks, including the ChampsElysées, Rue de Rivoli, Rue deRennes and other streets with astrong retailing concentration.

The outcome was a flagship

store in a commercial propertyon Rue Scribe, near the Place del’Opéra, one of the smartestaddresses in the capital.

Proximity to Boulevard Hauss-mann, home of the flagshipdepartment stores Printempsand Galerie Lafayette, and aneye-catching site help attractshoppers.

Young Parisians, eager to beamong the first in this clothes-conscious capital to browse thehangers, queued on the pave-ments on the opening day a yearago.

For the first two weeks, man-agers had to limit numbersentering the store for safety rea-sons, says Mr Domae.

The French investment hasbeen a great success for the Jap-anese retailer.

Sales at the store beat expecta-tions and Uniqlo is now lookingto open five to 10 more shops inParis, as soon as possible, excit-ing property market profession-als. The search for premisesincludes space in shoppingcentres.

Mr Domae says that the rentat the Opéra store is “expen-sive”, but declines to providedetails. Rents in good locationsin London, Paris and New Yorkremain expensive, even after thefinancial crisis, he says.

But Lizzy Rimington, a mar-keting consultant, says Uniqlopays €3m a year in rent for thethree floors in the building. The

gross area of the Uniqlo store is2,700 square metres but theactual shop floor area is about1,500 sq m. “They really did geta good deal.”

Prime shop space is typically€3,500-€5,000 a square metre inthe Opéra area. The location is agood one, with arrivals such asApple, Nespresso and Uniqlomaking the area attractive forinvestors, Ms Rimington says.

In the fashion sector, RalphLauren recently opened a storeon the boulevard St Germain,while H&M took a shop on theChamps Elysées.

The H&M transaction tookabout three years to sign,reflecting the long bureaucraticdelays in agreeing propertydeals in the capital.

The Champs Elysées has seenits star status decline, with theavenue falling to sixth placeafter holding the top position asthe world’s most expensiveshopping district.

Rents on the Champs areabout €8,000-€9,000 a squaremetre, followed by the FaubourgSt Honoré at €6,000-€7,500 andavenue Montaigne at €6,000-€7,000, Ms Rimington says.

Opening a new store in a for-eign city takes about two years,and Paris was no exception,says Mr Domae, who also helpedUniqlo open in Manhattan fouryears ago.

“People in France are verykeen on product quality andprice,” says Mr Domae. “That isgood for us, because we focus onquality and very low price.”

Most business comes fromFrench shoppers rather thanJapanese tourists, he says.

The Uniqlo label is often posi-tioned alongside Gap as ayoung, affordable look. Its Japa-nese designers study the sea-son’s trends but focus heavilyon quality too, rather than sim-ply copying trends, he says.

And its marketing can beoriginal.

During Paris fashion week inOctober, Uniqlo staged a con-temporary dance show insteadof the more conventional cake-walk display of angular models.The dance numbers wereintended to show the clothes“supporting the characters ofthe dancers,” Mr Domae says.

As part of that effort to bedifferent, Uniqlo wants to beseen as a local company, ratherthan as a Japanese brand inFrance.

When managers interview jobapplicants for the Opéra store,they are looking for the nextgeneration of store managers inEurope, Mr Domae says. Thatdrive to be local is in line withthe need to be global if growthtargets are to be met.

Today, sales outside Japan are10-20 per cent of total revenuesand domestic business 80 percent, he says. The aim is toreverse that ratio by 2020.

Of projected global sales, halfare expected to come fromChina and Asia, a quarter fromthe US and a quarter fromEurope. In Europe, stores arescheduled to open in citiesincluding Barcelona, Madrid,Berlin, Hamburg, Düsseldorf,Rome and Milan.

For Uniqlo, success in Londonand Paris is a stepping stone toother European capitals.

UniqloThe fashion retailerplans to open five to10 more stores inthe capital, writesPierre Tran

‘It was veryimportant tohave a presencein the centre offashion’

Nobuo Domae

reform programme carriedthrough since 2007 by the gov-ernment of Nicolas Sarkozy hasdone a lot to improve France’sattractions for companies.

One of the biggest pulls, nowwidely recognised by inwardinvestors, is France’s 50 per centtax credit for R&D. In thisrespect, “opinions and percep-tions of deciders are that Franceis in the top three in Europe andis seriously attractive”, says MrLhermitte. The simplicity of theFrench R&D tax credit, whichcosts the Treasury €4bn a year,and benefits 11,000 companies, isa strong pull.

Good infrastructure and loca-tion has made it a logisticsleader, while reform of the TaxeProfessionelle, a local businesstax, has reduced fiscal burdenson manufacturing. But one ofthe strongest trends, says MrLhermitte, is a move by interna-tional companies to overhauland centralise back office opera-tions, often in shared servicecentres. No matter how skilledand productive French officestaff, France will be hardpressed to beat countries in cen-tral and eastern Europe toattract jobs such as these.

Relocation trend lifts thespirits in buoyant sector

After two years of reces-sion, office and distri-bution property mar-kets in France are

showing signs of recovery –driven by a renewed search forcost-savings among occupiers.

With improved liquidity avail-able, big companies are invest-ing in long-term cost-reductionprojects, increasing the volumeof outsourcing to distributionspecialists, or relocating staff tofewer, but more efficient offices.

The uptick is especiallynoticeable in logistics, wherevolumes and rents had declinedmarkedly in Paris. “After twovery difficult years, 2010 lookslikely to be a good vintage forthe Paris distribution market,”says Didier Malherbe, deputymanaging director of CB Rich-ard Ellis France.

“Big logistics companies areseeking economies of scaleon state-of-the art multi-clientparks, and are able to achievelower rents by doing so.”

A subdued recovery in officelettings is also under way in theIle de France region, includingParis. Analysis of trends over

the past 24 years by Jones LangLaSalle identifies three clearcycles in Ile de France officespace lettings, each lastingseven to nine years.

According to the company’sOctober review, demand foroffice space peaked at almost3m square metres in 2006, fellback to a trough of less than 2msq m in 2008, and should now bebeginning a cyclical upswing.

But because of the depth ofthe recent downturn, and thefact that many tenants haverenegotiated leases signed at thetop of the cycle, the recoverycould drag slowly as far out as2013-2014, the JLL cautions.

There seems to be plenty ofsupply. JLL estimates that3.6m sq m of offices were availa-ble in Ile de France at the end ofthe first half this year. Butmany of them are pretty old.The stock of quality modernspace available is still shrink-ing. CB Richard Ellis sees a sim-ilar uptick in lettings. The firmcalculates that 1.04m sq m ofoffices were let in the Parisregion in the first half of thisyear, a 16 per cent increase onthe same months of 2009.

One notable driving force, itsays, is consolidation of activi-ties by companies in fewer,better-equipped buildings. Facedwith rock-bottom interest rates,investor interest in buying prop-erty has also quickened. CBREnoted investments of €2.1bn inIle de France commercial prop-erty during the second quarter,

up from €1.5bn in the first quar-ter, making a 34 per cent riseover the first half of 2009.

Nationwide, offices took 62 percent of investment, largely inthe Paris region, but retailachieved a 31 per cent share, itshighest level ever.

Because many consumersshied away from borrowing dur-ing the past decade, maintain-ing their traditional savingshabits, retail sales merely stag-nated during the recession,rather than falling.

But intensified competitionfor the euros of cautious spend-

ers, including from online retail-ers, has encouraged chain storesto sharpen their search for thebest sites. Scattered across thecountry are 702 retail parkstotalling 14.5m sq m.

Yet their volume per 1,000inhabitants is only 260 sq m,ahead of Germany, but farbehind European leaders suchas Sweden, Ireland, the Nether-lands and the UK.

Many experts argue thatFrance remains a relativelyattractive retail market.

Demand for logistics space,

which also grew rapidly in theboom years, is driven by arelated, but different trend. Ascompetition between storesintensifies, many retailers havebeen restructuring their supplychains in search of efficiencygains that can alleviate pressureon retail margins.

Traditionally, Ile de France,with its 10m consumers,accounts for more than 40 percent of the market. During 2008and 2009, its share halved, asactivity stagnated and the dealsmoved to the provinces.

Not only has the focus nowshifted back to the Paris region,says Mr Malherbe, but take-upthis year is likely to gentlyexceed the 650,000 sq m recordedin 2009.

Some of the activity this yearhas been focused in the Rhônevalley around Lyon. Amazon.frsigned 36,000 sq m at Montéli-mar in one of the biggest newlettings and a handful of dealswere achieved in Lille.

Headline logistics rentals inIle de France during July werein the range €46-€52 sq m, CBREreckons. That compares with€43-€45 in the Rhône corridor,and €39.50-€45 in the greaternorth.

With national output stillbelow its 2007 peak and consum-ers cautious, there is ampleoffice, retail and logistics spaceavailable. But, as businesses con-solidate in the most modernpremises, the quality available tolatecomers is tending to decline.

Property marketBusinesses looking toreduce their costs bymoving headquartershave plenty of choice,says Ross Tieman

Open spaces: about 3.6m sq m of offices were available in Ile de France at the end of the first half this year Dreamstime

‘Faced with rock­bottom interest rates,investor interest inbuying property hasalso quickened’

FINANCIAL TIMES FRIDAY DECEMBER 3 2010 ★ 3

Thriving business region that is answer to Rhineland

In the early-evening rush-hour Lyon’s newlyexpanded Saint-Exupéryairport buzzes with tension.

Mid-market business trav-ellers are racing betweengates, as they switch fromone domestic or Europeanflight to another.

Thanks partly to Britishlow-cost carrier EasyJet,which has built a networkof 28 destinations from itsSaint-Exupéry operationalhub established two yearsago, Lyon is at last realis-ing its potential as a short-haul aviation staging-post.

It is an inward invest-ment whose benefits arealso transforming France’ssecond city at the weekend.

“Since EasyJet arrived,Lyon has really taken off asa city-break destination,”says Jacques de Chilly,chief executive of Aderlyinward investment agency.“Our hotels used to be fullmidweek, but empty at theweekends. Now they’realmost full all the time.”

A great location in theRhône valley, where it actsas a gateway betweenFrance and central andsouthern Europe, hasunderpinned Lyon’s pros-perity ever since theRomans marched in 2,000years ago.

But in recent centuries,technology took over therelay, with hydroelectricpower contributing to a

regional heritage of chemi-cals, pharmaceuticals andmanufacturing.

The city preserved itscharms, however. Nowclassified as a Unesco worldheritage site, it sustains avibrant culture that extendsfrom a renowned operacompany to contemporarymusic and the kitchen ofchef Paul Bocuse.

Lyon’s high-speed trainconnections to Paris andMarseille, and location onFrance’s main north-southmotorway make it anattractive location for bothbusiness and pleasure-seekers.

Back-office operationsfor financial services andlogistics are importantcontributors to France’ssecond-largest regionaleconomy.

Yet to think of Lyon as a

city is to miss the point.With a population of 1.7m itis the heart of a businessregion that is France’sanswer to the Rhineland,and which, with 10,000researchers, spends asmuch on innovation as Fin-land or Denmark.

So, some of the mostinteresting economic devel-opments today are takingplace around the confluenceof the city’s long-standingindustries, its educationalinstitutions and their150,000 students, and itsmedical and clean-technol-ogy sectors.

In recent years Lyon’seconomic developmentplanners have focused onattracting inward investorsto reinforce the sectorswhere it has world-classclusters: in life sciences andclean technology.

Those efforts are begin-ning to yield interestingresults.

In 2008, when uncertaintyundermined investor confi-dence worldwide, Lyonattracted 69 foreign directinvestment projects, averag-ing 24 jobs each.

Last year, as investorsremained wary, the citydrew 56 projects althoughthe number of jobs perproject halved to an aver-age of 12.

Nonetheless, 10 of theincoming companies werein the life-sciences sector,

drawn not just by generousnational tax credits forresearch and development,but by the opportunity tojoin innovation networksbuild around the city’s uni-versity hospitals and com-panies such as Sanofi-Pasteur, Genzyme andJohnson & Johnson.

CTI-Lyon, a stem-cellresearch activity relocatedfrom the UK, was oneincomer; Prediction Sci-ence, a Canadian invest-ment, was another.

But another 17 of theinward investments werein the environmental andclean-tech sectors. Theseincluded a French head-quarters for Yingli Solar,China’s second-largestsolar energy company, anda research operation forPhoenix Solar of Germany.

Mr de Chilly of the

inward investment agencysays further projects areunder way in these sectorsin 2010.

Lyon, already home tomany companies focused ongreen construction, such asLafarge, a building materi-als company, and Photo-watt, a photovoltaic special-ist Technologies, is aimingto burnish its green creden-tials – and market – bymaking the city’s 150haConfluence redevelopmentproject a showcase for low-energy construction tech-nologies.

Equally exciting for Mrde Chilly is recognitionamong some manufacturingcompanies that offshoringto central and easternEurope, where wages haveoften risen rapidly, is notnecessarily the panacea itseemed a few years ago.

In modern automatedfactories, he notes, labourcosts may be only a tinyproportion of operatingcosts, and environmentallyaware managers are becom-ing keener to reduce CO2emissions – and transportcosts – by locating plantscloser to customers in west-ern Europe.

So since March this yearhe has seen a resurgence ofFDI proposals from manu-facturers keen to profitfrom Lyon’s pool of skilledindustrial workers andassociated industrial infra-structure.

“We are currently talkingto prospective investorsabout four or five suchprojects involving up to 150employees each,” he says.“We haven’t had this kindof interest for at least fiveyears.”

Growth picksup but trailsGermany ’s

The contrast betweenexport-led Germany andlaggard France has rarelyseemed starker.

During the second quar-ter of this year, Germany’seconomy expanded by 2.3per cent, its best perform-ance in two decades, anannualised 8 per cent.

French second quartergrowth, at 0.7 per cent,picked up too, but contin-ued to trail its neighbour.The cause of Parisiancheers appeared to be notexport growth, but a recov-ery in investment after twoyears of declines, and a big-ger-than-expected rise inhousehold consumption.

The pace slackened onboth sides of the Rhine dur-ing the second half, withthird-quarter growth of 0.7per cent in Germany and 0.4per cent in France.

But the relative underper-formance of France reflectsa trend, not a one-off.Throughout the first threequarters of 2010 GermanGDP growth was more thandouble that of France.

While Germany nowexpects GDP growth of 3.7per cent this year, ChristineLagarde, France’s much-admired economy minister,has maintained official pre-dictions of 1.5 per cent GDPgrowth for France for 2010.She expects 2 per centgrowth next year, rising to2.5 per cent in 2012.

If she is right, the Frencheconomy will return to itshistoric growth track, yetfail to achieve the kind ofsurge needed to mop upmany jobless youngsters ata time when German bossesare talking about the needfor more immigration tocounter labour shortages.

Many would argue that isbecause France has an over-centralised, government-dominated economy inwhich private businesstakes second place. Thatthesis is simplistic.

In truth, the French econ-omy is notable for its diver-sity. Its strength is in indus-tries ranging from aero-space and engineering toautomotive, food products,and luxury goods.

But what France lacks isGermany’s Mittelstand ofmidsized companies tightlydrawn into a local supplychain with global markets.

Historically, some Frenchcompanies grew big bybeing state-owned and/ormonopolistic, or by buyingeach other.

Alternatively, manystayed small to avoid com-plexity introduced byemployment regulationsthat suddenly became muchmore demanding when theyhired more than 49 people.

The creation of the Euro-pean single market, thoughincomplete, has increasedcompetitive pressures with-in the French economy.

As elsewhere, many one-time national championshave been sold, part-priva-tised, or lost their monopo-lies.

Even quasi-bureaucraciessuch as the Banque Postaleand France Telecom, whichstill employ many staff on

public-sector contracts, dis-play increasing commercialacumen, though they strug-gle with customer relation-ships.

Yet, according to DoingBusiness 2010, an annualassessment of 183 econo-mies compiled by the WorldBank and the InternationalFinance Corporation, oper-ating a company in Francecan still be pretty challeng-ing.

Overall, France remainedin 31st place in the ranking,which identified Singaporeas the most competitivebusiness location, with theUS in fourth place and theUK in fifth.

Doing Business saysFrance now outperforms itsoverall ranking in startinga business, dealing withconstruction permits, trad-ing across borders, and par-ticularly enforcing con-tracts, where it ranks sixthworldwide. But for employ-ing workers it gets a rank-ing of 155 and for register-ing property it ranks 159th.Does this matter?

The Doing Businessassessment measures diffi-culty of hiring, rigidity ofhours, difficulty of redun-dancy and redundancycosts. Essentially, it showsthat French workers onopen-ended contracts arewell-protected and expen-sive or complicated to shed.

But the same study ranksGermany at 158th place. Inreality, employers in bothcountries use short-termcontracts to achieve work-force flexibility.

Though legislation

remains complex, the teethof the 35-hour week werelargely drawn in 2008, witha law that freed companiesand employees to negotiatebroadly on contractualterms. Reforms introducedduring the past three yearshave centred on enhancingeconomic competitivenessand scaling back the role ofa state that still spends53 per cent of GDP.

In sum, the Doing Busi-ness report suggests reformin France has matched thepace elsewhere, but failedto exceed it. That judgmentmay be premature, how-ever. The country’s innova-tion clusters are only nowgetting into their stride.Educational institutions arestill merging, still collectingthe cheques won in compet-itive bids for funding newbuildings.

Companies freed to com-pete more energeticallyhave been battling twoyears of economic head-winds. But the downturnhas been markedly lesssevere in France than else-where. Collectively, Frenchconsumers carry a lot ofspare cash, not debt.

Germany’s economicrecovery may depend heav-ily on emerging-market cus-tomers. The proof ofwhether French reform hasenhanced economic compet-itiveness will be seen in thepace of recovery once fear-ful consumers regain theconfidence to spend.

‘Employers in[France andGermany] both useshort­termcontracts toachieve flexibility’

Capital forges a bond with new horizons

Paris Europlace, the finan-cial services association,has sent proposals toIslamic scholars setting outplans for issuance ofIslamic bonds, as part ofefforts to enhance theattractiveness of Paris as aninvestment centre.

The proposals, a seniorfinancial executive says, fol-low recommendations madein 2008 by the regulator,Autorité des Marchés Fin-anciers (AMF), on the list-ing of Islamic bonds undera sukuk structure and inconformity with Frenchlaw, as part of plans to offerinstruments compliant withsharia law.

“The adaptation of ourregulation for sukuk issu-ance has been finalised andwe are in the process of

providing the market with areadily available Frenchsukuk structure,” saysArnaud de Bresson, chiefexecutive of Paris Euro-place.

“We think it will be readybefore the end of the year,”he says.

The members of ParisEuroplace include banks,brokers, corporate issuers,insurers, pension funds andasset managers.

Two years of carefulpreparation have gone intobringing the product pro-posals to this stage ofscrutiny by Islamic schol-

ars.If approved and adopted,

the new bonds will join theIslamic mutual funds thathave already been clearedby the AMF for distribu-tion.

These investment vehi-cles are part of efforts bymembers of Europlace tobring new financial instru-ments to the market andenhance its attractivenessas a world financial centrein the post-crisis era.

To surf the wave in sus-tainable development and

help raise money for“green” business, the Euro-place community is settingup funds for sociallyresponsible investment,microcredit and environ-mental finance.

Paris-based Bluenext isalready a leading carbontrading platform.

“These are new promisingdevelopments,” Mr de Bres-son says. In response towhat he calls the diversifi-cation of market appetite,work has gone into buildingup the corporate bondmarket.

One of the effects ofthe financial crisis hasbeen for greater manage-ment of risk, which has ledto more market diversifica-tion.

This has prompted apick-up of interest in cor-porate bond issues, whichhave offset the “slightdecrease in financingthrough bank loans”, Mr deBresson says.

Paris holds a 35 per centshare of the Europeancorporate bond primarymarket, helped by a strongdevelopment of corporate

issues since the beginningof the crisis.

The regulator has simpli-fied the listing require-ments, helping speed up theprocess for companies issu-ing bonds.

A market users’ commit-tee, called Cassiopée, hassuggested a new businessmodel for the secondarymarket, which calls forgreater transparency and

efficiency among brokers,issuers and investors, Mr deBresson says.

“New trading platformswill be implemented beforethe end of March 2011,” hesays.

As a result, 40 per cent ofthe corporate bond issuancehas returned to Paris, hereckons. Project finance isanother area in which

the Paris community hasbrought its resources tobear.

The financial crisis inevi-tably led to a decline inbank lending, forcing com-panies to find new sourcesof funding to compete inexport markets.

Under public-private part-nerships (PPPs), industrialcompanies are forming con-sortia with government,international agencies andbanks to allow them to bidfor large infrastructure con-tracts on a self-financedbasis.

Thus French groups aredrawing on PPP instru-ments to compete for bigtransport projects in theGulf, railway constructionin China, and roads, energyand water projects inemerging economies.

These initiatives stemfrom a package of recom-mendations drafted by 12high-level working groupsformed in the wake of theturmoil that affected globalmarkets in 2008.

The recommendationsaimed to restore marketliquidity, improve financing

for small and medium-sizedcompanies, design deriva-tive instruments that drawon the lessons of the crisis,and boost bond marketsand project finance.

For Europlace, Paris isobviously bolstered by thepresence of large interna-tional banks, but also fundmanagers such as Invesco,Robeco and State Street, aswell as sovereign wealthfunds from Qatar and AbuDhabi, whose offices hereare seen as signs of invest-ment interest.

Paris has, however, suf-fered recent hits.

In September, the compe-tition authorities, applyingEuropean law, fined 11 highstreet banks an unprece-dented €385m in total forfixing fees charged forhandling cheques for retailcustomers among them-selves.

French finance clearlyfaces rigorous competitionin the post-crisis era. Buthaving avoided the worstexcesses seen in the US, UKand Germany, its enhancedreputation is a good basisfor the years ahead.

Global investingPierre Tran onmoves to boost theimage of Paris as apost­crisis financecentre of excellence

Technologygives Parisan appetitefor renewal

As 2010 draws toward itsclose, the trend in inwardinvestment suggestssomething of a recovery

for Paris and the neighbouringarea, says the head of the regionaldevelopment agency.

“We will have a good yeardespite the economic crisis,” saysDenis Terson, chief executive ofthe Agence Regional de Develop-pement (ARD) for Paris and theIle de France.

The lure of Paris will probablyget a lift from the government’splan to develop the region aroundthe capital under the Grand Parisprogramme.

New transport infrastructure isone of the main elements in the€20bn-€30bn project.

There is also a €5bn-€6bn planto bring universities and researchcentres closer together, eithermoving them to the same site orhooking up the campuses with ahigh-speed computer network.

The note of quiet optimism isreinforced by moves from Googleand Microsoft to set up researchcentres in Paris.

Apart from these titans of theIT world, companies from China,India, Japan and the US are alsoquietly registering plans to openoffices or expand facilities in theParis region. Indeed, about halfthe projects for inward invest-ment booked with the ARD in thepast couple of years have comefrom companies from farawaycountries, Mr Terson says.

Last year saw a slight retreat,with 191 inward investment

projects, compared with 208 in theprevious year. Jobs created, how-ever, remained stable, with 8,290positions in 2009, compared with8,300 in 2008.

The dip in 2009 reflected the rip-ple effects of the financial crisisas they spread to the global econ-omy, muting enthusiasm amongbusinesses for making foreigndirect investments.

But in the high-technologydomain, Paris is enjoying some-thing of a winning streak.

Mr Terson points to a “renewal”in the sector, including innovativedesign, imagery and specialeffects. The Systematic and CapDigital clusters, the former spe-cialising in information and com-munications technology, the lat-ter in digital content, have helpedstir interest abroad.

Mr Terson says that during avisit to Tokyo in September hefound Japanese company execu-tives “very interested” in thehigh-tech business clusters, whereFrench engineers have carved outa name for themselves for visualimagination and technical skills.

Indeed, as a Gallic equivalent ofsending coals to Newcastle, Alde-baran Robotics, a French com-pany, has sold 30 of its Naohumanoid robots to Tokyo Uni-versity.

The highlights for this yearsurely lie with the announce-ments by Microsoft and Google ofnew facilities in Paris.

In October, Steve Ballmer, chiefexecutive of Microsoft, said thatParis, alongside London andMunich, will be one of three cen-tres of excellence in the com-pany’s European Search Technol-ogy Centre.

Eric Schmidt, Google chief exec-utive, said in September that hiscompany would open a Frenchresearch and development centre,employing up to 50 engineers. MrSchmidt also announced plans to

set up a European cultural insti-tute in the capital, with an invest-ment estimated at “millions ofdollars”.

Such inflows, allied to a recov-ery in investment by French com-panies, support indications thatproperty deals and pricing arefirming up in the Paris region.

In the third quarter of the year,

1.64 sq m of business space wasrented out, a 37 per cent increaseover 1.21m sq m in the year ear-lier period, says Ludovic Delaisse,partner and head of office agencyand development at Cushman &Wakefield, Paris.

The average rent paid in thethird quarter was €760 sq m, up 10per cent over the €700 a year ear-lier. An increase in big transac-

tions has helped pump up theproperty market. So far this year,70 large deals of more than 4,000sq m have completed, comparedwith 46 in 2009.

Developers, meanwhile, areoffering incentives to attract ten-ants. For example, a propertycompany might offer an annual1.5 months rent free in the lease.So the discount between the head-line rent and the net effective rentis about 15 per cent.

But banks are still wary of lend-ing to developers. Given the twoto three years needed to constructbuildings, there will be a dearthof prime new office space for thenext couple of years, Mr Delaissesays.

Developers are also testing thewillingness of Parisians to carryon spending. Two large shoppingcentres are coming to the market,says Lizzy Rimington, a market-ing consultant.

Developers Icade and Ségécé areopening in a joint venture the56,000 sq m Le Millénaire centrein April 2011, just north of Paris.Altarea-Cogedim, a property com-pany, is working on an 86,000 sq

m development due to open in2013 at Villeneuve la Garonne,north-west Paris.

The two projects will attractclose attention among retailersand property professionals keento see both the willingness of con-sumers to spend, and whether thedevelopers have pitched the com-mercial terms at appropriate lev-els. Rent on the two projects willbe about €1,000 sq m compared tothe average €2,000 sq m at theParly 2 shopping centre, west ofParis.

The financial crisis and reces-sion that followed have clearlyleft their mark on the French cap-ital. But the recession in Pariswas less marked than in manyother European cities, and thesigns suggest a gradual and broadrecovery in activity is being sus-tained.

Business developmentThe arrival of Googleand Microsoft has seta tone of optimism,writes Pierre Tran

Stepping forward: Alderbaran Robotics has sold 30 of its Nao humanoid robots to Tokyo University Getty Images

‘French engineershave carved out aname for themselvesfor visual imaginationand technical skills’

EconomyAll is not gloom, asreforms show signsof working, writesRoss Tieman

LyonGood transport andskills are a draw,says Ross Tieman

‘Project finance isanother area inwhich Paris hasbrought itsresources to bear’

‘Lyon hastaken off asa destination’

Jacques deChilly

Business Locations in France

MORE ON FT.COMRoss Tieman explains why peace,and a penchant for culture, aredelivering dividends for Lillewww.ft.com/france­2010

4 ★ FINANCIAL TIMES FRIDAY DECEMBER 3 2010

Business Locations in France

Sinequa paves way for new Silicon Valley

For Sinequa, a high-growthsoftware company specialisingin business search engines, alocation in Paris gives access

to the vigour of the business and sci-ence clusters that are growing up inand around the city of engineers.

Belonging to those “ecosystems”strengthens Sinequa not just in itsbusiness, but also in the credibility ofits brand, says Jean Ferré, chief exec-utive. “It’s important to be recog-nised,” says Mr Ferré. “It’s like a redwine. If you say you are in the Médocregion, that gives you recognition.”

So in digital technology circles.France’s state-backed Systematic busi-ness cluster, centred on Saclay, isgaining international recognition forits strength in software and telecom-munications.

The French government, regionalauthorities and economic develop-ment agencies support Systematic,which provides a collaborative net-work of small- and medium-sized com-panies, large corporates, researchestablishments and higher educationinstitutes.

Another Paris technology/competi-tiveness cluster, Cap Digital, providesan innovation network for digital con-tent and services across the Ile deFrance region.

Launched in 2004, France’s Pôles deCompetitivité form the backbone of anew kind of industrial policy, inwhich the state seeks to facilitateinnovative collaboration in key sec-tors from aerospace to biotech, butleaves the market to pick the winners.

A recognition that such clusters areproducing successful companies suchas Sinequa has prompted the govern-ment to start preparing the ground fora “French Silicon Valley” in the Parissuburbs.

President Nicolas Sarkozy in Sep-tember threw his political weightbehind a science park to be created atSaclay in the south-western outskirtsas part of the Grand Paris project tocreate a 21st-century eco-city.

Mr Sarkozy stressed the need forvital transport lines to link the green-field campus to the capital 25kmaway.

Being part of a cluster also gives

access not only to potential partners,says Mr Ferré, but to a pool of talentand training. Yes, France prides itselfon a centralised national educationsystem that includes the grandesécoles, the elite universities, whichturn out brilliant engineers amongtheir highly qualified graduates.

But many of those proudly clutch-ing engineering degrees used to headstraight to the financial sector, oftenvia Eurostar to London. French banks

also recruit the mathematical talentneeded to devise complex derivativeproducts and work out trading strate-gies.

But, post-2008, financial institutionshave shed some of their recruitmentlustre and engineers are looking forother career openings.

Meanwhile, executives of all stripesare faced with the apparent paradoxof an overload of information and yetsimultaneously need access to accu-

rate, relevant details that can helpthem plan and decide, prepare com-mercial offers and get a sharper pic-ture of the business environment.

This has given rise to demand forbusiness search engines, powerfulsoftware tools designed to reach intothe bowels of internal databases andexternal sources to find the preciousinformation needed for that informeddecision or proposal.

It is in this highly competitive field

populated by heavyweights such asOracle and SAP that Sinequa hascarved itself a niche. The algorithmsembedded in Sinequa’s software uselinguistic and semantic techniques totake into account the context of thetext and data files buried in a com-pany’s IT system.

Sinequa has its roots in a researchand development business namedCora. Renamed Sinequa in 2000 it hadto rebuild itself in 2002, after the high-tech bubble burst. Mr Ferré joined thecompany to lead a management buy-out in 2005, paying €1.5m for the busi-ness, a sum then equal to its annualsales.

A third of the funding came frombank debt provided by HSBC. Sinequarepaid the bank debt and two yearsafter the buy-out raised €4m in pri-vate equity to develop the business.La Poste and X Ange provided two-thirds, with Aurinvest the remainingthird. Sales doubled in the secondyear and the company is now headingfor annual sales of €10m, with under-lying earnings growth of between15-20 per cent.

“Things are going very well,” MrFerré says. “The next step for thecompany will be to reach $100m inrevenues”. To do so, Sinequa willhave to hire lots more of those engi-neers. Mr Ferré says its Paris staff hasreached 35 this year, up from 15 in2005, and he expects 25 per centgrowth in staff next year and in eachof the following two years.

This is the phase when building abusiness can become a different kindof challenge. Sinequa sells its soft-ware under licence and includesamong its customers blue chips suchas Crédit Agricole, EADS, Siemens,Saint-Gobain and the French Ministryof Defence.

And, like its clients, its market isinternational. Sinequa has an office inLondon and representatives in Ger-many, Italy and Spain. In the US, ituses both a marketing agency, FullCircle, in Philadelphia and resellingor partnership agreements withAdobe, EMC, IBM, Logica and AtosOrigin.

French bosses still eye longingly therelative ease of obtaining develop-ment capital in the US. In France, MrFerré says, there are sources of fund-ing to grow a company say from €5mto €10m of annual sales, but it isharder to obtain the capital needed todrive sales to €100m.

However, France’s industrial com-petitiveness policy delivers. Generoustax credits for research are a valuableaid and incentive, Mr Ferré says.

Digital futurePierre Tran charts thegrowth of a softwarecompany at the heart ofa high­technology upturn

‘Things are going very well.The next step for thecompany will be to reach$100m in revenues’

Jean Ferré,Chief executive of Sinequa

Grand design: a computer­generated image of a science park to be created in Saclay, part of a project to create a 21st­century eco­city in Paris AFP