Investing in France - PwC · companies present in France or looking to expand into Europe. PwC has also drawn upon its own wide experience of assisting foreign companies investing

Investing in France Opportunities and insights for Indian companies

Summer 2012

Embassy of IndiaParis

ForwardAs the Indian economy continues its rapid development of recent years, Indian companies have increasingly widened their international footprint, in search of new technology, new customers and new markets. This geographic expansion has been largely focused on those developed countries with whom India has close historical ties, typically English speaking countries such as the UK and USA, but also developing countries, especially those in Asia and Africa. Indian investment in Continental Europe has remained at relatively low levels.

This situation, however, is beginning to change. Today India is extending its trade and investment links beyond its traditional partners and more and more Indian companies are looking to develop ties with Continental Europe. As part of this development, Indian companies are also showing increased interest in France, Europe�’s second largest economy after Germany.

This development has been encouraged by the close and long standing political ties between India and France. Indo-French cooperation in fields such as the defence sector has existed for many years, but this cooperation has been deepened and extended in recent years, with new agreements in areas such as defence equipment and nuclear power. This Indo-French partnership has also been extended to cultural areas where both countries have been enriched by the sharing and appreciation of each other�’s cultural diversity. We see all these developments as very positive in the promotion of Indo-French relations.

The Indian Government wishes to promote investment and trade between India and France even further and recognises that Indian companies have much to gain through increased ties with their French counterparts. There is significant room to increase such interaction from their current levels and the Indian Government is ready to play its part in promoting this development.

Against this background we have mandated PricewaterhouseCoopers (PwC) to undertake a study to identify opportunities for Indian investment in France and to outline ways of encouraging that investment. PwC has carried out significant analysis of Indo-French trade and investment and interviewed a large number of Indian companies present in France or looking to expand into Europe. PwC has also drawn upon its own wide experience of assisting foreign companies investing in France.

The result is a very insightful study which identifies a number of sectors which should be of interest to Indian companies seeking to expand internationally. The study also suggests ways of making a success of such investments. We consider that the report provides a very useful guide to any Indian company seeking to develop trade and investment in France.

HE Mr Rakesh Sood Indian Ambassador to France

Embassy of India Paris

PrefaceWe are honoured to have been asked by the Indian Embassy in France to carry out this study to provide insights for Indian companies wishing to develop trade and investments in France.

We believe that this report is unique in that it aims to look at France from an Indian perspective. The findings are largely based on interviews of Indian companies, both those with operations in France and those with international operations, but none in France.

Our approach has been twofold. Firstly, we wished to understand the experiences of Indian companies which have established or acquired operations in France. Secondly, we wished to understand why some Indian companies with extensive international operations had little or no presence in France. The results obtained, therefore, are a mixture of comments from Indian companies based on experiences of living and operating in France, but also perceptions of France, often made on the basis of little real experience of the country.

In the study, we set out and comment on:

�• An analysis of Indo-French economic relations, relating to both trade and investment;

�• Key challenges that Indian companies see when operating in France, both perceived and real;

�• Some tips and recommendations on how to deal with these issues, based on the experiences of Indian companies and inputs from PwC experts, and;

�• Those sectors in France where we see most opportunities for Indian companies, based on our understanding of the development opportunities in both countries.

We consider that many Indian companies could benefit greatly from closer links with their French counterparts. French companies are often world leaders in their industries. In addition, they are based in the world�’s largest trading zone, with close contacts with most of the world�’s leading companies, as suppliers, competitors or customers. Access to such technology and such markets is critical to the continued development of many Indian companies.

Any venture into a foreign market carries its risks and difficulties. Nevertheless, we hope that this study will provide some useful guidance on how to minimise such risks and overcome such difficulties and make the path to success that much easier to navigate.

John Hadley N.V SivakumarPartner, France Partner, IndiaIndia Business Group Transactions Leader

4 | Investing in France – Opportunities and insights for Indian companies | 2012

Table of contents

Indo-French economic relations 2

Experiences of Indian companies in France 5

Opportunities for Indian companies in France 12

Investing in France made easy 18

Conclusions 24

Appendix 1: Country profiles 27

Appendix 2: Regulatory restrictions from an Indian perspective 28


Indo-French economic relations

In this section, we set out an overview of trends in trade and foreign direct investment (FDI) between India and France. Trade and FDI between the two countries have grown in recent years, but both countries are still punching very much below their weight. In addition, Indian exports to France are much higher than those from France to India. Conversely French FDI into India is significantly higher than that from India to France. Much remains to be done to increase the level of trade and investment flows in both directions and to correct the current imbalances in these flows.

Trade between India and France has grown significantly in recent yearsTrade between India and France grew rapidly in the period up to 2007. Since that year, however, Indian exports to France have continued to increase rapidly, whilst French exports to India have seen a decline from their peak in 2007 and 2008 when exports were boosted by the exceptional level of sales of civil aircraft. Indian exports to France now exceed French exports to India by over 70%. Nevertheless, both countries are still underpunching their weight in each other�’s markets. According to data from the Indian government, the French market accounts for only 2% of Indian exports, whilst only 1% of Indian imports come from France.

Trade relations between France and India, !m

Exports India to France Exports France to India

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

1 472 1 4861 691

2 1262 517

2 818

3 472

2 924

4 165

4 712

1 000 1 0031 298

1 832

2 6162 900

2 4602 769

3 3503 357

Source: French customs authorities, 2012

Trade between India and France is strongly linked to each country�’s areas of expertise. India�’s exports to France are principally plastics and other synthetic materials derived from petroleum products, clothing and shoes, whilst France�’s exports to India are mainly aerospace and other manufactured products.

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FDI from India to France has also increased, but Indian investment in France remains lowThere is also a significant imbalance in FDI1 between France and India. France invests much more in India than India invests in France. Prior to 2005, FDI flows from France to India averaged approximately �€80m per annum, but increased rapidly in 2005 and 2006 to reach nearly �€500m per annum, and have averaged more then �€400m per annum since that date. The largest areas of investment have been in the services sector followed by the chemicals, cement, automobile and industrial machinery sectors.

FDI fl ows from India to France and from France to India, !m

FDI France to India FDI India to France

20012000 2002 2003 2004 2005 2006 2007 2008 2009 2010

55 66127

57 63

186

485

398471 479

350

13620- 2 - 4

3

145

- 41

37 15

Source: UNCTAD, 2012

Annual FDI flows from India to France were negligible prior to 2007, but increased that year when a number of Indian companies made acquisitions in France. After this peak, investment flows averaged only �€26m per annum in 2009 and 2010, approximately 6% of those from France to India. Total stock of Indian investment in France is estimated to total just �€362m, compared with French investment in India of �€2.9bn.

Indian outward FDI has averaged $16.3bn per annum over the past 5 years, but little of this has gone to France The very low level of Indian FDI in France can be contrasted with the high level of FDI outflows from India, especially in the period since 2006, reflecting the growth of India�’s international trade and reduced regulatory constraints.

Total FDI outfl ows from India, $m

Total FDI out!ows from India

20012000 2002 2003 2004 2005 2006 2007 2008 2009 2010

1 397 1 678 1 876 2 175 2 985

14 28517 234

19 39715 929 14 626

514

Source: UNCTAD, 2012

In this period, FDI outflows from India averaged nearly $16.3bn per annum. Based on the inward FDI data available for France, this would imply that France has received less than 0.3% of these outflows2.

1 FDI comprises both stocks and ! ows. The following de" nitions apply to UNCTAD " gures used in this section.FDI ! ows: The annual variation in the FDI stocks which comprise new investments, mergers and acquisitions, and capital increases. FDI stocks: a “photo” of total investments at a given moment in time. They comprise the equity of the resident company, including reinvested earnings in proportion to the non-resident investor’s stake, loans and deposits granted by non-residents to their resident af" liates, and real estate investments. It should be noted that there are several sources of FDI data, which are compiled in different ways and which can in! uence the FDI rankings set out in this section.

2 These " gures should be viewed with caution as it is dif" cult to determine the " nal destination of Indian outward FDI. According to Reserve Bank of India data, over 60% of Indian outbound FDI is made through Singapore, Mauritius and the Netherlands. Information on the " nal destination of these investments is not available.


Most FDI in France comes from developed countries, but FDI from China and other BRIC countries is increasing Despite the recent economic problems in Europe, the EU continues to be one of the world�’s leading investment destinations. The EU receives approximately 25% of all FDI flows in the world and in 2011 it received approximately 55% of those made in developed countries. i.e. the flows into the EU exceed those into all other developed countries.

Within the EU, the UK, Belgium and France are the leading investment destinations, ahead of Germany and Spain. In fact, France received approximately US$40bn of FDI in 2011 and as such remains one of the most important investment destinations in the world. FDI from India, however, represented less than 0.1% of these inflows.

Whilst most FDI in France in recent years has come from other developed economies, investments from developing countries have been increasing steadily. Based on the number of investment projects (as monitored by the French national investment agency, IFA3) there has been a steady growth of investment activity by the BRIC countries (Brazil, Russia, India and China) in France in recent years, increasing from 1% of all projects in 2003, to 6% in 2011.

Chinese companies have been at the forefront of this trend of investment, with over 92 investment projects over the past decade, compared with 51 projects from India over the same period. Over the past 4 years, inbound FDI to France from China has been 2-3 times greater than that from India; broadly in line with the ratio of total outbound FDI from China compared with that from India.

Foreign companies are welcome in France and play a major part in the French economyAccording to the IFA, some 20,000 foreign companies currently have more than 2 million employees in France (out of a total salaried workforce of approximately 24 million) and account for approximately one third of all exports.

Many actions have been taken by the French government in recent years to promote business in general and further foreign investment in particular in France. For example, the government has created research tax credits to promote R&D expenditure, eliminated local business tax to promote employment, and encouraged investment in infrastructure, in particular around Paris, to attract further investment to the region. One key initiative has been the promotion of �“clusters�” or centres of excellence where companies in related fields are encouraged to locate to promote synergies between them and with university and research establishments.

Why is Indian investment in France so low?The above analysis shows that France is a major recipient of foreign FDI from throughout the world, essentially from developed countries. It has also been noted that FDI from developing countries is increasing. Trade and investment flows between India and France have grown in recent years, but remain low, given the strengths of both economies. Indian FDI into France is particularly low.

�• Why is this?

�• Are Indian companies aware of the opportunities in France?

�• What obstacles have they encountered when trying to make investments and do business there?

�• Are the companies which have invested in France pleased with their investments?

�• Do they intend to develop their French activities further?

�• What opportunities exist for other Indian companies in France?

These are some of the questions that we have sought to answer during our interview programme with Indian companies, either those already present in France or those established elsewhere in Europe. The results of these interviews are set out in the following section of the study.

3 IFA: Invest in France Agency or AFII: Agence Française pour les Investissements Internationnaux.

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Experiences of Indian companies in France

In this section, we set out the feedback that we have received through our interviews of Indian companies, which have invested or are considering investing in France. We have also sought comments from other Indian companies with international operations, but with no operations in France, to understand their general perception of the country.

Some specific challenges have been identified. A recurring theme is the importance of understanding the local environment and having local management to navigate the issues encountered in France.

Some success stories have also been identified. The ingredients of this success are set out and commented on hereafter.

Methodology To gauge Indian experience of doing business in France, we interviewed Indian companies who have established operations there. There are today approximately 100 companies in France which are subsidiaries of Indian groups or which have Indian owners. We interviewed 16 of those companies.

In addition, we interviewed a further 5 Indian companies which have significant overseas operations, but which are currently not present in France, to understand whether they have considered, or are considering, investments in France. We also talked to various organisations that provide support to Indian companies looking to invest in France.

In total, interviews were held with the following 21 companies and 3 organisations:

Companies interviewed

Ashok Minda Group

Bank of India

Batliboi

Cades Digitech

Gitanjali Group

Havells India Ltd

HCL Technologies

InFact Group

Infosys Technologies

Jindal Polyfilms

Keval Wines & Spirits

Sintex Industries

Span Diagnostics

State Bank of India

Superhouse Group

System Controls France

Tata Consultancy Services

Tata Motors

Tata Power

Vectra

Wipro Technologies

Organisations interviewed

CII in India and France

FICCI in India and France

Invest in France Agency in India


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For many Indian companies France is a somewhat unknown commodityMany Indian companies have long standing and close links with the UK and the USA and know the strengths and weaknesses of those countries well �– open economies, significant financial sectors, key IT markets (both for software development and outsourcing), etc. Similarly when Indian companies think of Germany, they immediately think of its strong manufacturing sector, particularly its automotive and industrial tool sectors.

For many interviewees, however, France is much less well known and no single key economic sector or feature readily comes to mind. This is partly due to a lack of familiarity with France (interviewees better acquainted with the country were able to identify more readily those sectors where France is particularly successful), but also due to the fact that France benefits from a diversified economy with a range of sectors where it is one of the global leaders.

Similarly, a lack of a proper understanding of France can give rise to some negative perceptions - strikes and difficult labour relations, unwillingness to work long hours, difficulties with the French language, etc. Those companies, however, which have operations in France and which know France well usually consider these negative perceptions to be unjustified and have a high regard for France.

There are challenges to doing business in France, but these can be overcome The most important single conclusion from our interviews of Indian companies in France is that, in general, they are pleased with the performance of their investments, although for many the path to success has been longer and more difficult than they had anticipated, especially because of the impact of the economic downturn in 2008/9. Their investments in France, however, are invariably part of a long term development strategy; most Indian companies are considering investing further in France to reinforce their positions and are looking beyond any short term issues.

The most common challenges that Indian companies have faced in France include the following:

�• limited practical support was available from official bodies when setting up in France;

�• administrative procedures, such as obtaining relevant visas and approvals, proved to be difficult and time consuming;

�• these problems were compounded by difficulties with the French language �– nearly all official documents are still only available in French;

�• labour relations and labour laws are complex;

�• taxes and social charges are high and many are unique to France;

�• certain business circles appear quite closed and dominated by French society and conventions.

It should be noted that in many cases the difficulties that Indian companies have encountered in France are typical of those encountered by foreign investors anywhere in the world. They often reflect a lack of familiarity with the rules and business practices in the country (French investors in India encounter different, but often greater difficulties in India).

In addition, French investors in France have to deal with the same legal, social and regulatory environment as foreign investors. No distinction is made in France between French and foreign owned companies; Indian investors are not treated differently in any way from their French counterparts.

Nevertheless, there are a number of recurring issues raised by Indian investors for which we advance some solutions later in this report.

There are many examples of successful Indian investments in FranceAs noted above, we found many examples of successful Indian investors in France who, in addition, expressed their wish to expand their French operations. We set out some of these success stories hereafter. In each case we comment on:

�• the reasons for investing in France;

�• the outcome of the investments which have been made;

�• the key takeaways from the case study.


Examples of success stories

Sintex Industries: through its acquisition in France, gained access to technology that it can use globallyBackground: Sintex, an Indian company active in the plastics for the construction and other sectors, acquired Nief, a French player in the same industry, in 2007.

Reasons for investment: Acquisition of a company with specific technology/know-how in the plastics industry that could be used in other parts of the acquirer�’s group.

Outcome: Nief subsequently undertook two further acquisitions in France, reinforcing its position in the French market. Sintex has developed Nief�’s position in France, whilst benefitting from Nief�’s expertise in product design and development to enter new markets outside of France.

PwC takeaway: This is a great example of an Indian company both investing in its French acquisition to develop its position in France and also leveraging the technology acquired to the benefit of the Indian Group�’s operations outside of France.

Cades Digitech: invested in France to access major customers in the aerospace sectorBackground: Cades Digitech is an Indian company in the aerospace and defence sector that opened a branch office in France in 2007 and is now seeking to expand these operations further.

Reasons for investment: Cades Digitech entered both the French and German markets in 2007 as it wished to be closer to major European customers in the aerospace and defence industry. It recognised that to be successful in the sector, it has to be present in France, at the heart of the European aerospace industry. It also recognised that increased cooperation between India and France in the defence sector would open up further opportunities in the sector for Indian companies.

Outcome: The company is pleased with its development in France and considers itself well placed to take advantage of future opportunities with major French manufacturers.

PwC takeaway: This is an example of an Indian company that recognised the need to be close to major French customers to succeed in the aerospace and defence sector internationally.

�“Our experience of investing in France has been very positive for the entire Sintex Group.�”

Sintex Industries

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Span Diagnostics: decided to establish its global R&D facility in FranceBackground: Span Diagnostics is an Indian company specialised in the development and manufacture of diagnostic tests. It was looking for a location for its global R&D centre for diagnostic testing and required state of the art scientific and technical expertise. It decided to establish its R&D centre in France.

Reasons for investment: Span chose France following encouragement from the Invest in France Agency because of France�’s expertise and know-how in this field, the reputation of French universities and research institutions such as the Pasteur Institute and the Technology University of Compiègne, together with historical relationships with an established French company in the industry. The company was also able to benefit from support from OSEO and tax credits for this activity in France. The company chose France in preference to other locations such as the UK.

Outcome: The investment has been very successful for the company. One of the key achievements has been the rapid development of diagnostic molecules.

PwC takeaway: This Indian company came to France because of France�’s leading position in medical and diagnostics research. It was able to take advantage of specific incentives in France for the sector, including R&D tax credits, as well as incentives provided by the French government agency, OSEO.

Tata Consulting Service (TCS): one of the world�’s largest IT services companies is seeking to develop a major presence in FranceBackground: TCS initially appointed an agent to develop its operations in France and then in 1992 opened a branch office. In 2007, it began to invest in the market directly with a view to establishing a significant presence in France, and now has many leading French companies as customers.

Reasons for investment: The company was principally attracted to France by the size of the market (France is the 3rd largest IT market in Europe) and by the opportunity to work for major French groups, both in France and elsewhere (including India). Prior to coming to France, TCS had realised that it would need to adapt its approach to meet the specific needs of the French market and, in particular, establish a significant local presence to serve French customers.

Outcome: The company has made a good start to establishing its presence in France and is actively seeking ways of accelerating this development.

PwC takeaway: Growth for this company has taken longer in France than in other markets because of the need to adapt its operating model to the French environment. TCS now has a clear vision of what it takes to succeed in France and is keen to become a major actor in the French IT sector.

Similar feedback has been received from other Indian IT companies about their experiences in France.

�“We cannot ignore the 5th largest economy in the world. Also several of our large global clients have significant operations in France and by not being present in France, we could open the door to competition and miss out on opportunities for new business. In addition, in the future we will be looking at Africa, where we will require a French speaking talent pool. We also see France as a gateway to French speaking Africa.�”

Infosys on reasons for investing in France


Insights from Indian companies present in FranceBased on the interviews with Indian companies present in France, we have identified a number of key takeaways which are summarised and developed below.

Customers: adapt your approach to meet the needs of the local marketSeveral companies explained that they have had to adapt their sales approach and tailor their responses to customers�’ needs to be successful in France. Replicating practices applied in other countries has often not been successful. Breaking into French business networks can be daunting and takes time, but this is similar for French companies seeking to establish operations in India.

�“Building and gaining trust of clients in France is not easy, but once that trust is built, the French are committed to making the relationship succeed. They do not take that trust away rapidly.�”

TCS

�“In France the way you sell is different. You need to develop a specific solution for each customer.�”

Infosys

�“Indian companies looking at Europe need to develop a different business model and should not look at replicating existing models that have worked in USA and the UK�”

InFact group

�“We are clear that any decision that is key for the business will be taken directly by Nief in France. They know what is best for the business there. We did not send people from India to manage the company. We were very careful during the acquisition process to talk to only 1 or 2 key people to avoid creating panic amongst employees. We made everyone at Nief feel comfortable and did not try to dictate terms. We left it to them to take initiatives to leverage their technology and customer relationships back here in India. As a result of this, the employees developed faith in us and their fears or anxiety, if any, were laid to rest.�”

Sintex Industries

Management: have the right organisation in place to establish trustOne key element for success in France is the development of a strong relationship with local French management. In the case of acquisitions, it is particularly important to be sensitive to the perceptions of management and employees in the target company and to work to build strong relationships.

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Employees: understand the work culture and adapt your labour relationsIndian companies take time to understand the French work culture and labour relations because these are very different from the situation in India. The culture emphasises efficiency at work because French employees wish to make maximum use of their weekends and holidays. Similarly employee relations are heavily codified by a large body of legislation and regulations. This area can be a minefield and should not be approached without a French HR expert close by.

�“Following efforts on both sides to facilitate understanding and appropriate employee training, we have established a good work culture in France.�”

Span Diagnostics

�“In terms of their overall attitude to work, we would rate the French highly.�”

Sintex Industries

�“It seems that visa challenges are more complex in France... The challenge is more profound when we need to mobilise transition teams at the start of projects who need to be at the client site at short notice.... We are currently creating a common resources pool in Europe with people who need to speak English and be mobile, so that we can mobilise resources quickly throughout Europe.�”

HCL

Administration: learn the rules and adapt your approach accordinglyIndian companies often have difficulties in administrative areas when they first arrive in France, especially if they try to move forward without proper professional advice. Once they have been in France for some time, they encounter much less difficulty in this area.

Nevertheless obtaining visas takes time and may impact operations, especially if it is necessary to mobilise resources from India in France quickly.


Opportunities for Indian companies in France

In this section, we develop further the factors which motivate Indian companies to invest in France. These comprise principally the acquisition of technology, the opportunity to work with leading experts, access to clients and, through them, to French and international markets.

We also identify the assistance available to Indian companies when entering the French market. These include R&D tax credits, support and advice for certain industry clusters, assistance for small and medium sized companies, and certain programmes to promote key sectors of the French economy.

Lastly, we highlight a number of sectors in France where we see significant opportunities for Indian companies.

Attractiveness of France for Indian investorsThere are many reasons why Indian companies invest in France. Several of the companies interviewed immediately referred to the size of the French and European markets. France is geographically at the centre of Europe and with an excellent transport network provides easy and rapid access to a market of over 500 million consumers. France is also part of the Euro currency area and a member of the Schengen zone for the free movement of people. Lastly, France can also act as a gateway into Francophone Africa.

In addition to France�’s position at the heart of Europe, Indian companies also quoted the following recurring themes to explain their decision to invest in France:

Technology: France enjoys state of the art technology in many sectors that Indian companies would find difficult to develop on their own. By acquiring this expertise, Indian companies can more easily and quickly apply the technology in India.

R&D expertise: France is at the forefront of R&D in many leading sectors; for example, its pharmaceutical industry is the largest in Europe and the third largest in the world, and its chemicals industry is the second largest in Europe. France has traditionally placed an emphasis on encouraging R&D to maintain its leading position in many scientific and industrial spheres and its policy of giving generous R&D tax credits is a prime example of this.

Access to major French corporate customers: Many of the world�’s largest groups are French. For example, 35 of the world�’s leading 500 companies are French, whilst 34 are German and 30 are British. Many Indian companies have realised that to do business with such large French groups on a global basis, they need to be present in France and to develop contacts with their French head offices.

In general it is very difficult for foreign-owned companies to penetrate the French and European markets without a significant local team, both a commercial presence and a R&D function, to understand and adapt products to meet the needs of the local market. This has been true in a wide range of industries, including, for example, Asian automotive manufacturers and American drugs companies.

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Various forms of assistance are available in France to attract foreign investmentSeveral types of financial and other assistance are available to companies, both French and foreign owned, seeking to develop their activities in France. Some of the Indian companies that we interviewed were aware of these, many were not.

The principal forms of assistance fall under the following headings:

�• R&D credits

�• Clusters

�• Assistance for small and medium sized companies from OSEO

�• Other aid sources linked to recent initiatives

R&D credits (�“Crédit d�’Impôt Recherche�” or �“CIR�”)This is a tax incentive provided by the French government in order to encourage research and development in the country.

The amount payable is based on total R&D expenditures and equal to 30% of those expenditures up to a limit of �€100m and 5% above this level. For companies entering the scheme for the first time, the applicable rate is 40% the first year and 35% the second year.

The CIR is usually deducted from a company�’s corporate income tax liability but, if no tax is payable, it may either be paid 3 years after the related R&D expenditure or paid immediately to young companies fulfilling certain conditions.

ClustersIn French these are called the �“pôles de compétitivité�”, or �“competitivity centres�”. The idea is to bring together companies, academic establishments and industry organisations into defined geographic locations to encourage their development and synergies between them. The objective is to create �“Silicon Valley�” type centres of expertise in a wide range of sectors including automotive, aerospace, agricultural and food products, energy and so on.

Locating a company close to an established cluster can facilitate help in areas such as R&D, access to the local business community and to international markets, and other financial and advisory support. The principal clusters are shown on the map below - more information is available on each cluster�’s website.

Source: French Government website http://competitivite.gouv.fr/

Carte des 71 pôles de compétitivité français (mise à jour juillet 2011)

Pour en savoir plus sur chaque pôle de compétitivité : www.competitivite.gouv.fr


Assistance for small and medium sized companies from OSEOOSEO is a French government related organisation created in 2005 whose main objective is to support innovation and growth for small and medium sized enterprises in France (defined as those having less than 250 employees). There are over 80,000 such enterprises in France.

OSEO provides loan guarantees and co-financing of new investment projects, innovation grants and subsidies, and short term financing of receivables.

Other aid sources linked to recent initiativesAdditional funding and assistance is available in relation to the promotion of �“green�” projects, the development of the �“greater Paris region�” and the development of the knowledge economy in France.

For example, in the context of the greater Paris project, �€32bn is to be invested in public transport and �€2bn is to be invested in the Saclay plateau south of Paris to build the largest science and technology campus in Europe.

To promote the development of the knowledge economy, a national investment programme has also earmarked �€35bn of funding for the five areas of education, research, the digital economy, sustainable development and finally SME�’s in the industrial sector.

France attracts investment across a wide range of sectorsEach year the Invest in France agency compiles data for all projects in France from international sources. This shows a wide range of sectors which benefit from international investment, reflecting the diversity of the French economy, as noted earlier. The software and IT services sector was the most important recipient of new investments in 2011 with 78 projects (16% of all projects), but in 2009 and 2010 the energy and recycling sector received the most investments (accounting for 21% of all projects in 2010).

As noted earlier, the number of Indian projects is very low - on average just 10 projects per annum, over the past 5 years. At the same time, with one third of these projects relating to the software and IT sector, investments by Indian companies are heavily focused on this one sector.

Opportunities in France for Indian investors: PwC viewpointIndian investors can take advantage of a wide variety of investment opportunities that exist in France. We have carried out an in-depth analysis of these opportunities with a view to identifying those which could be suitable for Indian companies and, in particular, those which would allow Indian companies to exploit synergies with their current activities, either in India or elsewhere.

In carrying out this analysis we have taken account of the following factors:

�• our analysis of the sectors in France which historically have attracted the most foreign investment;

�• those sectors in France with the most attractive growth prospects;

�• our experience of working with foreign investors in France and the sectors where they have been most successful;

�• the feedback that we have received during the interview programme from Indian companies which have been successful in France;

�• our understanding of the strengths and weaknesses of Indian companies, particularly in international markets;

�• our understanding of the opportunities that exist in India and elsewhere which would allow Indian companies to maximise the synergies arising from any investment in France.

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Highly attractive sectors for Indian companies

�• Aerospace & Defence

�• Healthcare & Pharmaceuticals

�• High value added manufacturing

�• IT services

The list of sectors set out below should not be viewed as being exhaustive and opportunities may exist in other sectors. We consider nevertheless that these are likely to be the sectors where most opportunities exist for Indian companies.

Aerospace & DefenceFrance is a world leader in the aerospace and defence industries and many major global players in these sectors are headquartered in France.

France is present in both the civil and defence aerospace markets. For example, EADS, with its Airbus and Eurocopter subsidiaries, and Dassault Aviation, with its Falcon executive jet and its Rafale fighter jet, both have their headquarters in France. A large part of their supplier base is also present in France.

India has one of the fastest growing civil aviation markets, but few capabilities in the manufacture and maintenance of civil aircraft. French companies should be well placed to take advantage of the opportunities in this sector.

Similarly, India has a major need to improve its defence capabilities, with large investment programs announced for its army, navy and air force. There are strong historical links between France and India in the defence sector, with India acquiring the Mirage fighter jet from Dassault and submarines from DCNS. Other projects in the sector are likely to be signed in the future.

France has shown its willingness to transfer technology to India so these developments could give Indian companies the opportunity to make a major breakthrough in these sectors on a global basis.

Healthcare & Pharmaceuticals France has the highest spending per capita on health in Europe, largely due to the comprehensive social security system in France, supplemented by widespread private insurance (�“Mutuelles�”). In 2000 the French health system was ranked by the WHO as the best in the world (the last time this ranking was published).

Given this background, the health sector in France is the largest in Europe and most of the world�’s leading pharmaceutical companies have activities in France. There are over 300 pharmaceutical production facilities across France, with activity concentrated around the �“PharmaValley�” cluster, in the Centre and Normandy regions, which together account for almost half of France�’s pharmaceutical production.

India has also developed a strong pharmaceutical industry, largely based on the manufacture of generic medicines in very cost competitive conditions. Given France�’s leading edge in the pharmaceuticals industry, India�’s competitive cost base and its rapidly growing domestic market, significant opportunities exist in the sector for closer cooperation between French and Indian companies.

Similarly, India has a significant need to increase and improve the quality of its medical care, creating opportunities in the hospital and medical equipment sectors. Many French players in this market are small and lack the resources to enter the Indian market. Opportunities exist therefore for Indian companies to partner with companies in France in the sector and to promote French hospital and medical equipment sales in India.


Value added manufacturing France has suffered a decline in its industrial base in recent years, but continues to be a world leader across a large number of industrial sectors. Foreign investors continue to invest heavily in French industry, with major investments in the machinery, automotive, electronics, electrical, plastics and chemicals sectors. Significant opportunities exist in these sectors in France for Indian companies, as many local companies with leading technologies are faced with stagnant or declining local markets, and lack the resources to venture into fast growing developing markets, such as India.

India has ambitious plans to expand its manufacturing base in the current national plan for manufacturing, but can only do this with access to improved technology, both to serve its domestic market, but also to compete in export markets. There is a major win-win opportunity here, which both Indian companies and their French counterparts are currently failing to seize.

Opportunities also exist for Indian companies to become suppliers to major French groups in France, and through these relationships, to become suppliers to these groups on a global basis. Several French groups are among the leaders in their respective areas: Alstom in metro and train manufacturing; Schneider Electric and Legrand in electrical equipment; Areva, GDF Suez and EDF in the energy sector; Essilor and Saint Gobain in the glass sector; PSA, Renault and Michelin in the automotive sector, to name but a few.

Within the manufacturing sector, France is also recognised as a global leader in the production of equipment used in the infrastructure sector. There are significant opportunities for French expertise in this sector to be used to help meet India�’s significant needs in this area. Again many French smaller companies are reluctant to invest in India in this sector, so opportunities exist for Indian companies to invest in French companies and hence to leverage their expertise in India.

IT ServicesThe French IT services market is one of the largest markets where Indian IT companies have yet to establish a significant presence. Major opportunities exist for Indian players in two key areas.

Firstly, French groups are expected to increasingly outsource their IT functions. These groups have operations all over the world, but in order to win their global business, Indian IT companies will have to be present in France where the French groups have their headquarters.

Secondly, France has a leading expertise in the area of software development and is widely recognised for the quality of its software engineers. As a result, there are many specialised niche players in the French software industry, such as in gaming and design technology, with whom Indian companies with global reach could partner. This would facilitate the geographical spread of the technology and of related ideas to wider markets to the benefit of both Indian and French companies.

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Other potential opportunitiesWhilst the most immediate opportunities exist in the areas set out above, and a few Indian companies have made some steps to seize these, there are a number of other opportunities which remain largely untapped.

Food processing industryOne area where great potential exists is the food processing industry. France is widely viewed as the culinary capital of the world. It has a very large agricultural sector and food processing industry, with over 10,000 companies in the sector, and is ranked second in the world after the US.

In addition to its large network of smaller and medium sized companies, many of the world�’s leading companies in the sector are French: for example, Pernod Ricard and LVMH in the wines and spirits sector; Bel, Bongrain, Danone, and Lactalys in food products and processed foods; a number of major co-operatives in agricultural products; and world leaders in the seed and food additives sectors. These champions, and their smaller counterparts, have helped France develop leading edge expertise in the processing food sector.

By contrast, in India very little food is processed and much food goes to waste because of the lack of a proper cold chain. Today only 2% of Indian food is processed and nearly 40% of food perishes without being consumed. Major improvements are required in the area of food preservation to counter this waste, including improved �“vacuum fresh packaging�”, canning, freezing and cold chain management.

Indian companies should seek to exploit the many opportunities that exist for collaboration in this area with French companies. This has yet to happen on any significant scale, but the opening up of the Indian multi-brand food sector could act as a catalyser for such development, when finally approved by the Indian government.

Renewable energyThe energy sector and, in particular, the renewable energy sector also offer major opportunities for Indian companies. France is the second largest producer of nuclear energy in the world and the leading producer of renewable energy within the European Union. It has, in particular, established strong positions in biomass and hydro-electric energy.

A drive to develop other renewable energy sources was introduced by the Grenelle Environment Round Table, a major sustainable development event held in France in 2007. This brought together government organisations and major French companies to set ambitious goals in a range of areas linked to sustainable development. These goals include the objective to achieve 20% of energy from renewable sources by 2020 in France. As a result, there has been significant support from all interested parties for the development of leading technologies in this area. As well as having global leaders in the nuclear sector with Areva and Alstom, France can now also boast several leading companies in solar energy, as well as biomass and wind energy technologies.

Current energy supply in India is insufficient to meet demand. The high cost of fuel imports is also a serious concern for economic security and a drain on the trade balance. In future scenarios, coal, which covers approximately half of current electricity generation, is likely to remain dominant, but there are strong moves for the development of alternative energy sources. These are occurring in areas where France has developed significant expertise: nuclear and renewable energy. There are, therefore, many opportunities for Indian companies to partner with French companies to bring these technologies to India to meet current and future demand.


Investing in France made easy

In this section, we include insights from some of our PwC experts involved in advising foreign investors in France on a daily basis. These insights identify some key things that Indian investors should know when considering an investment in France. This includes advice on subjects such as employee and social security matters, the legal framework, tax considerations, acquisitions and joint ventures, and investing in distressed assets.

As a general rule, Indian companies are allowed to make investments overseas. However, in certain sectors they need prior approval of the RBI (Reserve Bank of India) and in other cases, investment is prohibited. The main purpose of these restrictions is to control foreign exchange movements. More information on these requirements is included in Appendix 2.

Employee and social security matters

In my experience with Indian companies in France, the subjects of immigration procedures/visas and understanding local social security regulations have to be addressed at the outset. The key need is to understand the local system and ensure that complying with its requirements does not raise issues which can impact the investment decision.

The time necessary to complete French immigration procedures should not be underestimated - generally it takes two to three months before the assignee can start to work in France, depending upon the category of visa and the place of work. Once the visa has been obtained, the assignee then needs to obtain his/her residence card before the visa expires, which can be problematic.

It may also be difficult to obtain a work permit for a foreign (non-European) employee because for new hires of non-European nationals, an absence of suitable candidates in the national market needs to be demonstrated, which is seldom the case at the moment.

In terms of social security regulations, when a person works in France, he/she is normally subject to French social security arrangements. Although France and India have recently ratified a social security convention, it only covers basic retirement arrangements. French complementary retirement charges, however, would also normally not be due if the Indian employee of a French entity has an Indian �“certificate of coverage�”.

There are various other areas, outlined below, regarding employee matters that are important to understand when doing business in France. However, a key piece of advice is to contact a specialist early to help guide you through the process, allowing you to focus on your business.

William Phillips / HR Lawyer

A few words from our expert

PwC | 19

�• France has a well developed body of labour laws, regulations and industry-wide collective bargaining agreements that provide for high levels of employee protection compared to most countries. There is also an extensive body of legislation that grants collective negotiation and representation rights that generally increase as the headcount of the employer increases (notably employee delegate elections from 10 employees or more and works council elections from 50 employees or more).

�• As soon as an employer plans to have his first employee in France, he should ensure that he complies with legal requirements in the areas of employment, immigration, social protection, individual and payroll taxes. There may also be a corporate tax risk generated by the employee�’s activity (permanent establishment, transfer pricing, etc.); see our tax expert�’s advice hereafter.

�• Generally non-European nationals need a work permit to work in France. The need for a work permit is determined by the nationality of the person and his role in France, and not by how long he will be present in France. Moreover, the distinction between a business trip and work is not defined by law. Violations of immigration sanctions can result in fines and other penalties, which can also impair the company�’s ability to obtain work authorisations in the future.

�• Although European States recognise the work permit of a non-European national obtained in another European State, the work permit is only accepted if the assignee has been authorised to work as a salaried employee in the first European State, and not as a temporary assignee/secondee, as favoured by many Indian groups. As a consequence, many Indian groups that have a pan-European approach to business development and client service mistakenly believe that multiple work authorisations are not needed and unwittingly risk violating immigration, social security and labour rules.

�• In terms of employment law, whenever a person works in France, there will be a certain number of employment law provisions, such as minimum wage and working time, which will apply even if the employment contract is subject to foreign law.

�• Attention should also be given to the type of contractual arrangements chosen by foreign companies hiring their first workers in France. Even if the �“self-employed contractor�” status may seem attractive in terms of flexibility of wages and hours, this contractual structure could be re-qualified if the actual work pattern of the person is equivalent to salaried employment. Failure to comply with French law, and to make appropriate administrative and payroll declarations, could lead to possible sanctions, including exclusion from public contract bids.


French law provides for a safe framework for foreign investors in an easily accessible way:

�• Foreign direct investments do not generally require any prior notification to the State or any exchange control clearance. Prior authorisation from the Ministry of Economy is only required for foreign direct investment in a limited number of protected sectors, such as activities relating to the exercise of public authority or national defence, or gambling, trade in armaments or goods and technology with both civil and military applications.

�• French company law proposes several possible corporate structures including:

- Société à Responsabilité Limitée (a limited liability company) which is suited to small and medium businesses (maximum number of shareholders, transfer of shares restricted),

- Société Anonyme (a limited liability company) which is suited to large businesses (can be listed on a stock exchange),

- Société par Actions Simplifiée (a limited liability company) which is particularly suited to joint ventures or holding companies (no minimum capital, no minimum number of shareholders, freedom to define structure of governance).

Company incorporation is simple and rapid: a single authority (Centre de formalités des entreprises) handles all administrative formalities and the typical processing time to incorporate a company is 7 days.

�• France is a signatory of the main treaties governing the protection of Intellectual Property Rights (IPRs such as trademarks and patents) so these are protected through

registration in the same way as in most developed countries. Copyright is protected without registration.

�• French law provides for a special regime protecting tenants on property leases where a trade activity is operated (3-6-9 year term, right to renewal, payment of an indemnity upon termination).

�• Real estate transactions are covered by French Property Registration which allows third party claims and rights to be identified. All transactions have to be carried out by a Public Notary.

�• France is governed by civil law (as opposed to common law in many Anglo- Saxon countries) where the main source of law are statutes passed by Parliament (as opposed to customs and case law in common law countries).

�• French law, and in particular that relating to corporate, commercial and business law, increasingly reflects European Union legislation which is applied by French courts, either directly (EU Regulations), or after being transposed into French law (EU Directives).

�• Most commercial disputes come within the jurisdiction of State Courts. Arbitration has developed as an alternative way of resolving disputes, France being an attractive place for international arbitration with the ICC International Court being located in Paris.

�• The principles of French law also apply in francophone countries in Maghreb (Algeria, Morocco, Tunisia and Mauritania) and sub-Saharan Africa (Cameroon, Chad, Congo, DRC, Gabon, Guinea, Ivory Coast, Mali, Niger, Senegal �…). France also has the widest network of tax treaties with French speaking Africa, making France an efficient hub for structuring FDIs in the region.

Legal framework

Having assisted a large number of clients with their international investments, many in uncertain legal environments, France undoubtedly offers a safe and stable legal, regulatory and tax environment. In addition, although French labour law is complex and largely based on case law, in reality it offers a high level of stability and visibility.

French law is very codified and based on the same principles as those applied in many other countries of Latin origin (Italy, Romania, Spain, etc). Similarly these principles have also served as the basis of the legal systems in many African countries, particularly in French speaking Africa.

The French legal system works effectively, with solid recourse available under contract law to resolve disputes and settle debts. The processes for negotiating contracts,

setting-up companies and joint-ventures, and closing deals also meet the highest international standards and are comparable with Anglo-Saxon practices.

The French business community is very international in its approach to business and a growing number of small and medium sized companies have gained significant international exposure in the past decade.

My experience of working with Indian investors indicates that the key to success is to involve professional advisors early in the process to help clarify any differences between the parties and to identify appropriate solutions in a secure legal way, whilst helping to bridge cultural differences and thereby minimise misunderstandings.

Nicolas Granier / Corporate-M&A law


PwC | 21

Tax considerations

When foreign investors come to France for the first time, they are often surprised by the many generous tax schemes that are available to encourage investment in France. These include generous tax deductions to encourage investment in capital equipment and a particularly favourable tax regime for R&D expenditure.

In addition, it is very easy to repatriate cash from France with minimal tax deductions on interest and dividends. In fact France has signed more bilateral tax treaties than any other country in the world to eliminate the double taxation of profits.

France has a large body of tax law which is clear and not subject to arbitrary interpretation by the tax authorities. This provides a stable and clear tax environment in which investments can be made.

Although individual income tax rates can be high, there are generous allowances which can be used to reduce tax payable. The regime is particularly favourable for families, with tax deductions available for each child. Special tax concessions are also available for foreign employees.

As with any investment in a new country, appropriate planning is required to ensure that full advantage is taken of these incentives and that the investment is structured in the most appropriate way.

Renaud Jouffroy / Corporate and individual tax


Corporate

�• France has a standard corporate income tax rate of 33.33%, but a tax basis which can be significantly reduced through multiple deductions, including one of the most generous depreciation allowance regimes among OECD countries.

�• France also has a very efficient tax consolidation regime allowing the tax consolidation of the profits and the losses within French group entities and the tax free repatriation of earnings within the French tax group.

�• Full tax deductibility of interest paid is allowed on loansand there is no withholding tax on interest paid, which when combined with the tax consolidation regime outlinedabove, makes France an attractive location for leveraged buyouts.

�• France offers a good tax base for international holding companies because it has numerous bilateral tax treaties to eliminate double taxation situations.

�• The R&D tax regime in France is the most generous research tax credit system in Europe, with a tax credit ranging from 30 to 40% of the R&D expenditure. France also has a favourable intellectual property regime with a 15% reduced corporate income tax rate on revenues from the licensing of patents and patentable inventions.

�• A single tax authority contact point and the extension of the tax ruling procedure, where the tax authorities can provide in advance a binding interpretation on a number of subjects, have improved the efficiency of dealings with the tax administration and reduced uncertainty for companies.

Individuals

�• France has one of the most generous systems in Europe for foreign employees (�“impatrié regime�”). Income tax exemption can be claimed by foreign employees and executives moving to France which includes an exemption of their �“expatriation bonus�” that they may receive from their activity in France and of other remuneration received for business trips abroad.

�• Income tax rates are progressive up to 41%, with surtaxes of 3% on income that exceeds �€250,000 for a single person and �€500,000 for a married couple, and of 4% for income which exceeds �€500,000 for a single person and �€1,000,000 for a married couple.

Indirect taxes: VAT and Customs

�• VAT is a neutral tax for companies having commercial activities i.e. companies collect VAT on their own sales and deduct the VAT that they have paid on purchases of goods and services.

�• France�’s standard VAT rate is 19.6%, but there are various reduced rates. The rate on certain agricultural products is 7%, while that on food is 5.5% and that on medications 2.1%.

�• There is a uniform customs regime throughout the EU so that goods can move freely within the area.


Acquisitions and Joint Ventures

France has one of the most developed M&A markets in the world, with both active corporate and PE investors. Foreign companies are also very present in the French market with a large proportion of acquisitions being carried out by foreign companies.

This openness of the French economy is also reflected in the ownership of the leading companies on the French Stock Exchange �– over 40% of the shares of CAC 40 companies are held by foreign investors.Foreign acquirers are attracted to France by the diversity of its economy, its leading technological position in many sectors and by the success of its companies in European and world markets.

A large number of French companies are owned by private equity funds which need to rotate their portfolios. In addition, France is also faced with the issue of owner managers looking to retire and the next generation not picking up the baton. These factors taken together have continued to drive the French M&A, which has been very dynamic in recent years despite the economic downturn.

Opportunities also exist to acquire distressed assets. Companies which have been unable to rise to the challenges presented by globalisation (in particular, by not accompanying their large customers in their global expansion) have found it increasingly difficult to compete. Smaller companies have also often been impacted by the economic downturn in Europe in recent years, in certain cases lacking the financial resources and geographical breadth of operations to survive.

But where are the Indian buyers? Very few Indian companies have looked at the French market in recent years and when they have done so, they have often either been slow to take advantage of the opportunities available or have made some poor investment decisions. Their track record in the French M&A market is generally not good.

This situation can and should change. If French know-how and Indian entrepreneurial flair can be combined, the two can make a winning combination. A few more successful acquisitions and joint ventures between Indian and French companies in France could show the way.

John Hadley / Transactions


�• France is a safe market in which to carry out transactions: M&A practices are in line with international standards (letters of intent, due diligence, data room, sale and purchase agreement, representations and warranties, threshold and deductibles, shareholder agreements, closing audits, etc).

�• Contracts are generally drawn up in English when one of the parties is foreign. Arbitration procedures in a neutral country are often acceptable.

�• The major international investment bankers, accountants and lawyers are all present in France, as are many of the international PE funds.

�• The public takeover rules which apply to acquisitions of shares in listed companies are comparable to those on other major foreign stock exchanges.

�• Merger control rules under French law or European Union law apply subject to certain turnover thresholds being met.

�• Purchase or sale of assets may qualify as a transfer of undertaking (fonds de commerce) and be therefore governed by specific legal provisions protecting employees and creditors.

�• Acquisition multiples are generally lower in France than in India, reflecting lower growth prospects. Multiples had been inflated by the very active role played by PE funds in the French M&A market, but the funds have been less active in recent years as debt finance has become less available.

�• Many opportunities exist for tie-ups between French and Indian companies, as French companies search for new growth opportunities in developing markets and Indian companies seek access to leading technologies.

�• The acquisition of distressed assets can be a good way of entering European markets and accessing technology at low cost (see hereafter).

PwC | 23

Investing in distressed assets

Trying to organise my first climbing expedition to the Indian Himalaya in the monsoon of 1988, I was inspired by a Colonel in the Indian army to visit Garhwal instead of the drier Ladakh region.

I was worried about monsoon weather and asked him �“Won�’t it rain?�” He looked at me with a wry smile. �“It rains in England�” he said softly. �“When you get to Uttarkashi, take local advice from my friend at the Nehru Institute of Mountaineering�”.

Over twenty years later, spent mainly working with troubled companies (13 years in Paris), I feel that

investing in distressed assets in France is a bit like that monsoon expedition to the Himalaya. It rains, but don�’t be put off by the rain �– it goes with the territory and can provide excellent opportunities.

My experience working with Indian investors in France suggests that the key to success is being involved early, getting to know the target company, its people and its problems, showing an interest in and commitment to its future and taking local advice to help find your way through the process.

Chuck Evans / Business Recovery Services


�• Distressed assets can be acquired at various stages:

- Before any formal proceedings have begun

- Once a �“Safeguard Process�” (�“Plan de Sauveguarde�”) has started

- Once a formal insolvency process (�“Redressement Judiciaire�”) has been launched

- After liquidation proceedings (�“Procédure de Liquidation�”) have commenced

�• Each process is explained in more detail below.

�• Before formal proceedings - it is possible to acquire distressed assets before any insolvency process has begun, but any reorganisation of the distressed business is likely to be expensive and time consuming.

- Care should be taken to understand potential liabilities (such as shadow director or co-employer risks) which may fall on a potential acquirer if assistance is being provided to a distressed business before acquiring it.

- Whilst there is scope for distressed debt investing in France, �“loan to own�” strategies are difficult to implement and need the consent of shareholders. Accordingly distressed debt investing in France is generally undertaken for its own benefits rather than as a means to acquiring control of distressed companies.

�• Safeguard process �– this process allows a distressed company time to renegotiate its debts with its creditors and during this period, the creditors cannot act against the company. If a 2/3 majority of creditors vote for a

restructuring of a debtor�’s liabilities, the other creditors can be forced to accept the proposed solution (�“cramming down�” the dissenting creditors). An investor may, therefore, be able to buy-in to a reorganized capital structure.

�• Insolvency process �– if a company enters into insolvency in France, the French court appoints an �“Administrator�” to run the business on a temporary basis and to ask potential buyers to submit a bid for the business. In such a situation, investors are able to structure their offer in terms of the assets and parts of the businesses that they wish to acquire and the number of employees that they intend to retain to meet their needs.

- The Administrator chooses between the competing offers based on a number of criteria, but the viability of the acquirer�’s project is a key element in his decision. In particular, the chances of maintaining employment at a reasonable level are a key element for insolvency courts when assessing competing offers. This means that in addition to acquiring the assets and goodwill of the business, the acquirer should demonstrate his ability to finance the development of the reconfigured business and safeguard future employment.

�• Liquidation proceedings �– it is possible to acquire individual assets out of a liquidation process, but in these circumstances the goodwill of the business would be lost, as well as the skilled workforce;

�• Time constraints are tight in distressed situations and we recommend early involvement in such processes to understand the business and its management and to perform necessary due diligence.


Conclusions

Our study has highlighted the significant increase in investment and trade between France and India in recent years. These flows, however, remain at relatively low levels given the size of both economies. In addition, these flows are not balanced, with Indian exports to France exceeding French exports to India, and French investment in India being far in excess of Indian investment in France. In particular, Indian investment in France is very low, the most recent figures available showing a total stock of only �€362m.

Why is Indian investment in France so low?

This situation reflects a number of factors. Most importantly, India has significant investment needs in its domestic market and its outbound FDI to France can be expected to be much lower than French outbound FDI to India. In fact, although the proportion of total Indian FDI made in France is very low, this proportion is very similar to the proportion of total Chinese FDI which comes to France.

Another factor identified by our study relates to the relatively low profile which France enjoys in India. Many Indian companies know little about France, the strengths of its economy, and the opportunities that exist for foreign investors, whilst others have a number of negative misconceptions.

We believe that Indian companies are wrong to neglect France in this way. Those Indian companies which have established or acquired French operations are, based on our interviews with them, generally very pleased with their investments. Many further opportunities exist in France for Indian companies.

What does France have to offer Indian companies?

France is the world�’s 5th largest and one of its most open economies. It is one of the leading recipients of FDI in developed markets and welcomes foreign investment. More importantly for Indian companies, France is a leading player in many sectors, with access to state of the art technology, and provides a gateway to Europe, the world�’s largest trading zone. It is also home to a large number of the world�’s leading companies. Indian companies could reap significant synergistic benefits if they were able to secure access to this technology and to these customers and markets.

Many of the sectors where France is among the world leaders (Aerospace & Defence, Healthcare & Pharmaceuticals, Infrastructure Equipment, etc.) are also sectors which offer strong growth potential in India. Indian companies could benefit enormously from better access to state of the art technology and closer relationships with major international customers in these sectors. At the same time French companies need access to growth markets. Increased co-operation with French companies in these sectors, therefore, should be a win-win situation for both Indian and French companies. Significant opportunities are waiting for Indian companies in France, but to date they have been slow to take advantage of these.

PwC | 25

What have been the benefits for Indian companies from coming to France?

The Indian companies, which we interviewed, indicated that they have gained access to new technology, major corporate customers and access to European markets. They have also gained access to leading R&D expertise, and the particularly favourable tax regime which supports this. Having local R&D teams close to the European market has been a key success factor, for example, for the major Asian car manufacturers in the European car market. Indian companies have encountered some problems in France, but they have generally been able to overcome these by spending time to understand the local market and the French way of doing things and, in particular, by relying on local management.

Indian companies are most present in France in the IT sector. These companies arrived in France relatively late, but recognised that they must be present if they wish to gain access to the significant number of major French and international companies present in France. Their progress has been slower than they expected, but they have adapted their commercial approach to the needs of the French market and are looking to accelerate their growth. This is a good example of what Indian companies must do if they are to succeed in France.

What needs to be done to increase Indian investment in France further?

Our key recommendations to promote such investment are as follows:

�• Better publicity should be given to the benefits of investing in France. Misconceptions about France have to be eliminated and France�’s profile in India has to be increased.

�• Success stories have to be identified and publicised. Once these success stories become more common and more widely known, other Indian companies will be encouraged to follow.

�• More practical help should be given in both India and France to assist Indian investors. This is especially true for smaller and medium sized companies, which represent the overwhelming majority of Indian companies.

�• Changes are required to simplify administrative procedures, especially in areas such as business and employment visas. Stories of difficulties in this area continue to abound.

Major French groups have reached the stage where they are no longer asking themselves whether they should be present in India, but rather how should they invest in India. An increasing number of smaller French companies are also looking to the Indian market for new opportunities. We need to reach a similar situation where Indian companies are asking similar questions about the French market.

Both the Indian and French governments are aware that they need to play their part in promoting these changes. We hope that this report will make a useful contribution to this process.


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Appendix 1: Country profiles

France

5102 110201029002 )PPP( BIP

%1,2%7,1%4,1%6,2-)%(htworG

774 2712 2531 2280 2)PPP ,$SUnB( PDG

GDP per capita (US$, PPP) 33 237 33 910 35 049 38 450

AverageG20

Market size 4,8

4,4ycneiciffetekramtnemyolpmE

Institutions 4,5

4,4tekramlaicnanif eht foytirutaM

0,5ytilauq erutcurtsarfnI

8,4levelygolonhceT

9,4gniniarT & noitacudE

Economic Data(2)

General information(1)

Population: 63 million

Growth rate: 1,4 %

Unemployment rate: 9,8%

Language : French

2010

Trading partners (1)

Imports

Germany 19,3%Belgium 11,4%Italy 8%Netherlands 7,5%Spain 6,8%

Exports

Germany 16,4%Italy 8,2%Belgium 7,7%Spain 7,6%UK 6,8%

2010

18 / 142

4,4

5,0

5,6

5,2

5,0

6,3

5,7

Currency : Euro (EUR)

Paris

Marseille

Lille

Lyon

1 2 3 4 5 6 7

Business environment

Competitiveness(3) Overall Ranking

A1 A2 A3 A4 B C D

tnellecxE =7wol yreV =1

(4)

India

5102 110201029002 )PPP( PDG

%5,7%8,7%1,01%7,6)%(htworG603 6964 4750 4346 3)PPP ,$SUnB( PDG

GDP per capita (US$, PPP) 3 103 3 408 3 703 3 971

AverageG20

Market size 4,8

4,4ycneiciffetekramtnemyolpmE

Institutions 4,5

4,4tekramlaicnanif eht foytirutaM

0,5ytilauq erutcurtsarfnI

8,4levelygolonhceT

9,4gniniart dna noitacudE

Economic Data(2)

General information(1)

Population: 1,205 million

Growth rate: 10,1%

Unemployment rate: 9,4%

Language: Hindi, English, regional languages

2010

Foreign exchange market (1)

Imports

China 12,4%UAE 6,5%Saudi Arabia 5,8%US 5,7%

Exports

US 12,6%UAE 12,2%China 8,1%Hong Kong 4,1%

2010

56 / 142

3,4

3,6

6,2

Currency: Indian rupee (INR)

1 2 3 4 5 6 7

Business environment

Competitiveness(3) Overall Ranking

A1 A2 A3 A4 B C D

tnellecxE =7wol yreV =1

4,2

4,9

3,9

4,23,8

(4)

Delhi

Mumbai

Kolkata

Pune

Bangalore

Chennai

Hyderabad

Ahmedabad

Bhubaneshwar

Sources:(1) CIA World Factbook(2) International Monetary Fund, World Economic Outlook Database, September 2011(3) World Economic Forum, “The Global Competitiveness Report 2010-2012” (4) COFACE rating agency


Appendix 2: Regulatory restrictions from an Indian perspective

Investments in France by an Indian party: regulatory restrictions from an Indian perspective

India has extensive exchange control regulations regulating cross border foreign exchange transactions. The provisions regulating such transactions are outlined under the Foreign Exchange Management Act, 1999(�“FEMA�”).

All transactions under exchange control regulations are classified either as �“Current Account�” or �“Capital Account�”. Whereas current account transactions are those which affect the profit & loss account, capital account transactions are those which affect the balance sheet. As a general principal, all current account transactions are permitted unless specifically restricted whereas capital account transactions (such as immovable property, equity/ preference/ convertible debenture, foreign currency loans, offices) are prohibited unless specifically permitted.

Further, since overseas investments, being a capital account transaction, having an effect of outflow of foreign exchange, the Reserve Bank of India closely monitors these. The Regulation stipulated by RBI on Direct Investment by Residents in Joint Venture (�‘JV�’) / Wholly Owned Subsidiary (�‘WOS�’) Abroad (�‘ODI Regulations/ Regulations�’) prescribe the eligibility conditions pursuant to which an Indian party is permitted to make such investments.

Such overseas investments by an Indian party can either be made under the automatic route (i.e. without obtaining a prior approval of Reserve Bank of India (�“RBI�”)) or with prior RBI approval.

Investments under the Automatic route

�• An Indian party is permitted to make investments in JVs/ WOS abroad for any bonafide business activity.

�• Such investment is permitted up to 400% of the net worth of the Indian party as at the date of the last audited balance sheet of the Indian party.

The above ceiling of 400% includes contribution to the capital (equity or preference) of the JV/WOS, loans granted to the JV/WOS and 100% of the guarantees other than performance guarantees and 50% of the amount of performance guarantees issued to or on behalf of the JV/WOS.

�• Investment in JVs/ WOS may also be made out of balances held in Foreign Currency accounts of the Indian party or out of funds raised through ADRs/GDRs (the ceiling of 400% of net worth will not be applicable in such cases).

�• All transactions relating to an overseas venture / subsidiary should be routed through the branch of an Authorised banker.

�• Investment through SPV is permitted under the automatic route.

Investments under the Approval route

Investment in financial services sector ~ Only an Indian Company engaged in the financial services sector activity can make investments in the financial services sector overseas, subject to fulfilment of additional prescribed conditions. Such conditions include:

�• The Indian Company should be registered with the regulatory authority in India for financial services activities;

�• Such Company has earned net profit during the preceding three financial years from the financial services activities;

�• Such Company has obtained approval from the regulatory authorities concerned both in India and abroad for venturing into such financial services activities

Any additional investment by an existing JV/WOS or its subsidiary in the financial services sector is also required to comply with the above conditions.

PwC | 29

The following entities are also permitted to make overseas investments, but with prior RBI approval

�• Proprietorship firms or other incorporated entities having high export performance can make investments up to 10% of the last 3 year average export sales or 200 % of its net owned funds, whichever is lower.

�• Registered Trusts and Societies (in existence for at least 3 years) engaged in manufacturing / educational / hospital sector are allowed to make investments in the same sector.

Prohibited Investments:

Investments in the following sectors are not permitted:

�• Real estate: Buying and selling of real estate or trading in transferable development rights (but this does not include development of townships, construction of residential/commercial premises, roads or bridges) or

�• Banking business

�• Investments in unincorporated entities (except for investments in oil sector and consortium to construct and maintain submarine cable systems, provided investments are approved by the Competent Authority)

Portfolio investments by Listed Indian companies

Listed Indian companies can invest up to 50% of their net worth as on the date of the last audited balance sheet in (i) shares and (ii) bonds / fixed income securities, rated not below investment grade by accredited registered credit rating agencies, and issued by listed overseas companies.

Indian Mutual Funds are permitted to invest up to US$ 7 billion in certain prescribed securities.

Indian Domestic venture capital funds can invest up to US$ 500 million in equity and equity linked instruments of off-shore Venture Capital Undertakings with prior SEBI permission.

Extension of loans and Guarantees by Indian entity

Loans and guarantees can be extended under the automatic route to overseas ventures/subsidiaries in which Indian entity has an equity participation. In other cases, approval is granted where the host country permits incorporation of companies without equity participation.

Personal or corporate guarantees are also permitted from resident promoter individuals, promoter companies, group companies, sister companies or associate companies, subject to certain conditions.

However, creating a charge on immovable/moveable property and other financial assets (except pledge of shares of overseas venture/Subsidiary) of the Indian parent/ group companies in favour of a non- resident entity requires RBI approval.

Prescribed valuation norms in case of acquisition of shares of an existing overseas company:

Scenario Valuation of shares by

In case of an investment of or less than US$ 5 million

Chartered Accountant or a Certified Public Accountant

In case the investment is more than US$ 5 million

Category I Merchant Banker registered with Securities and Exchange Board of India (�‘SEBI�’) or an Investment Banker / Merchant Banker outside India registered with the appropriate regulatory authority in the host country

In case the investment is by swap of shares

Category I Merchant Banker registered with SEBI or an Investment Banker outside India registered with the appropriate regulatory authority in the host country

These rules are applied to ensure that overseas investments are being made at a fair value, to prevent abuses of Indian Foreign Exchange Regulations.


With ThanksWe wish to thank all the companies and organisations in both France and India who took the time to participate in this study. We would especially like to thank the Indian Embassy in Paris for its support and assistance.

We would also like to thank the PwC teams in both India and France for their contributions to this report;

�• the editorial team - John Hadley, N.V. Sivakumar, Rashmi Upadhya and Sarah Healy Sueur

�• the interview teams - Daniel Ibrahim, Edouard Bitton, Nikhil Gidra, Rajeev Dhar, and Rashmi Nair

�• the team of experts - Akash Gupt, Chuck Evans, Neha Aggarwal, Nicolas Granier, Renaud Jouffroy and William Phillips

�• the research team - Eric Ayen, Matthieu Abgrall and Tristan Le Corre

�• the design team - Florence Tang-Le Dault, Stéphane Leray and Véronique Rode-Coupeau

About PwC in France and India

About PwC globallyPwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. Close to 169,000 people in 158 countries in firms across the PwC

network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information.

Bordeaux

CognacLimoges

Poitiers

Rennes

Toulouse

PauMontpellier

Nantes

Quimper

Saint-Malo

Lyon

Dijon

Bourg-en-Bresse

Grenoble

MarseilleNice

Paris

St-Quentin

LilleAmiens

Strasbourg

Metz

Monaco

Tours

Rouen

Delhi

Kolkata

Bhubaneshwar

ChennaiBangalore

Mumbai

Ahmedabad

Hyderabad

Pune

6 500Total employees

9offices

174partners

3 800Total employees

25offices

298partners

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