CONFIDENTIAL

FOR INTERNAL USE WITHIN CLIENT COMPANY ONLY

HOW ATTRACTIVE IS FRANCE FROM A SWEDISH TRADE PERSPECTIVE?

COMPARISON WITH GERMANY AND THE UNITED KINGDOM
April 2014, Paris Business Sweden, France

METHODOLOGY
Date & Authors: Conducted in Paris in February-March 2014 by Eric Andr and Robert Wentrup, Business Sweden, Paris Limitation Limited number of key parameters used, hence not an extensive study. Limited to a comparison with the UK and Germany. Lack of data availability of numbers on subsidiary activity in 2012 and 2013. No measurement of the performance or financial result of Swedish firms in the analyzed markets

Aim of the study The objective with the study is to analyze the attractiveness of the French market as a potential target market for Swedish firms and compare it with a couple of its European peers, e.g. UK and Germany.

The ambition is to give an overview and understanding of the chosen market, and to create a knowledge base for further studies. It is not a in-depth macro-economic analysis.
Selection of parameters: GDP, and Public debt Most common economic performance parameter. Relevant indicators of economic health Domestic export performance and Import from Sweden Indicates the countrys openness towards international trade and current market size for Swedish exports. Number of subsidiaries and Number of employees in Swedish firms Relevant figures to gauge obstacles for foreign market entry and growth. Labor attractiveness ranking An overall view of the labor situation in the market. Particularly important for firms willing to recruit on a foreign market.

Reliability Weve used relevant key parameters and reports to measure the chosen markets. The report doesnt contain any of its own projections, but relies on secondary data, i.e. publications form reliable institutions The approach and course of action was research, aggregation and visualization of chosen data.

Sources Statistics: Eurostat, CIA, IMF, SCB, Konjunkturinstitutet Reports and rankings: WEF Global Competitiveness Report 201314, Tillvxtanalys Svenska koncerner i utlandet 2004-2011 Articles in New York Times by the Nobel Prize winner in Economics, Paul Krugman

BUSINESS SWEDEN

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EXECUTIVE SUMMARY (1/2)

FRANCE IS UNDERPERFORMING IN COMPARISON WITH UK AND GERMANY, BUT THE DEVELOPMENT IS NOT DRAMATIC AND THERE ARE REASONS TO BE OPTIMISTIC
BACKGROUND
This study was initiated as a response to the massive French bashing in popular press about Frances economic performance and attractiveness as a market. We wanted to understand if this criticism was valid and evidence-based, or if it was a result of political and journalistic interest. France is the worlds 5th largest economy and is an important trade partner for Sweden. 4,5 % of Swedens exports go to France, amounting to a value of 50 billion SEK 2013. Imports from France are slightly lower (45 billion SEK 2013) . Thus, the economic performance of France is highly relevant for Sweden. Four main key questions were identified for the study: How is the overall economic performance ? How have Swedish exports developed? How are Swedish subsidiaries developing on the market? How is the labour market?

RESULTS
The results shows that France is indeed showing weaker performance than UK and Germany in all categories.

However, in terms of general economic performance, the differences are not that important. Further to this, it should be noted that Germany has had an outstanding performance in last few years.
The negative trend of Swedish exports to France is more concerning. Additionally the growth rate of Swedish subsidiaries is slowing and Swedish firms employment numbers are decreasing. On the positive side, the forecasted growth looks promising. Demographic development is positive aspect, although it is out of scope for this paper. Another encouraging sign is the newly presented reform package that focuses on simplifying administration and ease of taxes for firms. Our main conclusion is that while France continues to be an important market for Swedish firms, a high growth in the near future should not be expected.

BUSINESS SWEDEN

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EXECUTIVE SUMMARY (2)

OF THE THREE COUNTRIES, GERMANY IS THE TOP PERFORMER
PARAMETERS
PUBLIC FINANCES (DEBT & GDP) High level of public debt in France, UK, and Germany France is the worst off, with debt accounting for 92% of GDP

RELATIVE PERFORMANCE MATRIX (DATA FROM 2004)

(1 = TOP RANKING)

France Public debt GDP Growth Domestic export performance Import from Sweden Growth of Swedish subsidiaries Turnover of Swedish subsidiaries Nr. of employees in Swedish firms Labor market attractiveness ( 2nd ) 3rd 3rd 3rd 3rd 2nd ( 2nd ) 3rd

UK ( 2nd ) 2nd 2nd 2nd 2nd 3rd ( 2nd ) 2nd

Germany 1st 1st 1st 1st 1st 1st 1st 1st

GENERAL TRADE PERFORMANCE Decreasing trade between France and Sweden Trade decrease in line with French exports and GDP development

French real GDP growth better then EU and UK average since 2008

SWEDISH COMPANIES IN FRANCE & ABROAD Constant growth in numbers of subsidiaries in all countries Slower growth rate in France than in other countries, concerning the number of subsidiaries and the number of employees

COMPETITIVENESS OF FRANCE French market places 23rd in WEFs competitiveness report France is well behind Germany, UK and Sweden, which are all in the top 10

Total

3rd

2nd

1st

PARENTHESES USED WHEN EQUAL

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CONTENT
Macro-economic development General trade performance Swedish companies in France and abroad Competitiveness of France Appendix

BUSINESS SWEDEN

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PUBLIC DEBT: SWEDEN IS UNIQUE, HAVING DEBT ACCOUNTING FOR ONLY 38% OF GDP
DEBT EVOLUTION FROM 2001 Sweden managed to control the debt during financial crisis France has a constant increase in public debt since 2006 The UK has increased their debt level dramatically in only 4 years (2008 2012) GOVERNMENTAL DEBT 2012, % OF GDP France: 92% UK: Germany: Sweden: 88,7% 81% 38,2%

GOVERNMENTAL DEBT 2001-2012, % OF GDP PER COUNTRY

GOVERNMENTAL DEBT 2012, % OF GDP PER COUNTRY

100%

EUROSTAT, CIA BUSINESS SWEDEN 2 MAY, 2014 6

INFLATION: DEFLATION IS THE BIGGEST FEAR FOR THE EU

Swedens inflation rate is unstable Inflation in the UK, Germany and France is at the same level as in 2012 The inflation rate in all of the countries dropped during the crisis Today, the main problem is not letting inflation get too low With a euro that is highly valued, further deflation would hit the Eurozone and European companies hard
5,0

INFLATION RATE FROM 2000-2012

4,0

3,0

2,0

1,0

0,0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -1,0 Germany France United Kingdom Sweden

TILLVXTANALYS, SCB BUSINESS SWEDEN 2 MAY, 2014 7

GDP GROWTH: FRANCE RECORDED SLOW RECOVERY WHILE GERMANYS GROWTH RATE WAS IMPRESSIVE.
IMFS FORECAST ON GDP GROWTH COMING YEARS, IN %

Germany surpassed the UK and France in 2006 in terms of GDP growth France was fairly stable during the crisis and seems to be on the path of recovery
8
Germany catching up

2014 France Germany UK 0,9% 1,6% 2,4%

2015 1,5% 1,4% 2,2%

IMF forecasts France worse of

4 France Germany United Kingdom 2004 -2

France better of

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Sweden

-4

-6

TILLVXTANALYS, SCB BUSINESS SWEDEN 2 MAY, 2014 8

REAL GDP GROWTH: FRANCES PERFORMANCE STRONGER THAN THE UK

When looking at the real GDP, the negative view on the French performance since 2008 seems to be unjustified. The British performance was clearly worse than the French until the last couple of quarters (2013-2014). Paul Krugman about the UK: It really is amazing to watch a so far brief and not all that impressive cyclical upswing get sold as a gigantic policy triumph. But I guess thats politics.

EUROSTAT, NEW YORK TIMES BUSINESS SWEDEN 2 MAY, 2014 9

REDUCTION OF FRENCH PUBLIC DEBT IS FORECASTED

FORECASTED DEBT AS % OF GDP LOOKS WORSE FOR THE UK
Compared to a lot of its neighbors France isnt excessively indebted Further, low growth and/or low productivity is not a critical indicator of economic health Paul Krugman, Nobel Prize in Economics, indicates that the complaints and French bashing is partly a result of distress, on the part of other interested parties, with the political decisions made by the current government Paul Krugman Youd think that France was a disaster area. Yet the numbers, while not good, just arent that dramatic.

EUROSTAT, NEW YORK TIMES BUSINESS SWEDEN 2 MAY, 2014 10

CONTENT
MARCH, 2014
Macro-economic development General trade performance Swedish companies in France and abroad Competitiveness of France Appendix

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FRANCE HAS SEEN A MINOR DECREASE IN EXPORTS IN THE PAST DECADE

WEAKER PERFORMANCE THAN ITS PEERS While Frances exports did not decrease by much during the crisis, they have not managed to increase exports by much over the 12-year period Germanys performance has been outstanding TRADE WITH SWEDEN IN BILLION SEK (2012)
250,00

Billions

200,00

150,00 Export Import

EXPORT AS A % of GDP PER COUNTRY

2000
France Sweden Germany UK 29% 47% 33% 27%

100,00

2003
26% 44% 36% 26%

2006
27% 51% 46% 29%

2009
23% 48% 42% 28%

2012
27% 49% 52% 32%

% Dif.
50,00 -2% +2% +19% +5% -

TILLVXTANALYS, SCB, THE WORLD BANK BUSINESS SWEDEN 2 MAY, 2014 12

DESPITE A REBOUND IN 2010, SWEDISH EXPORTS TO FRANCE HAVE FALLEN BACK TO 2009 LEVELS
Swedish exports to France (2013): 50 billion SEK
Billions

TRADE(SEK) AND GDP (%) DEVELOPMENT

70 20,0%

This decline is not remarkable considering the decrease in trade among EU countries in 2013 Total exports to Sweden: -7% Total imports from Sweden: -6% Swedish exports to France: 4,6% Swedish exports to EU represents 58 % of total exports (Europe 75 %) Evident correlation with GDP fluctuations Consequently, export /imports are likely to grow moderately in 2014

60

15,0%

50 10,0% 40 5,0% 30 0,0% 20 -5,0%

10

0 2007 2008 2009 2010 2011 2012 2013 Import from France GDP - France Export to France GDP - Sweden

-10,0%

SOURCE: SCB, IMF, KONJUNKTURINSTITUTET BUSINESS SWEDEN 2 MAY, 2014 13

IMPORTS OF COAL AND PETROLEUM PRODUCTS FROM SWEDEN HAVE INCREASED DRASTICALLY
Significant exchange between France and Sweden in:
Billions

EXPORTS TO FRANCE FROM SWEDEN (SEK) TOP 5 SECTORS

12

Vehicles and chemicals (two very cyclical industries) Paper products NB: Swedish and French firms may have moved production thereby reducing the overall levels of import or export

10

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Varuexport till bestmmelseland, ej bortfallsjusterat
Coal and refined petroleum products Chemicals Pharmaceuticals Vehicles Paper

SOURCE: SCB BUSINESS SWEDEN 2 MAY, 2014 14

CONTENT
MARCH, 2014
Macro-economic development General trade performance Swedish companies in France and abroad employment by Swedish firms Competitiveness of France Appendix

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EMPLOYEES IN SWEDISH SUBSIDIARIES ABROAD EXCEED THE NUMBER OF EMPLOYEES IN SWEDEN

The trend of people working abroad the last 15 years has NUMBER OF EMPLOYEES IN SWEDISH SUBSIDIARIES ABROAD AND IN SWEDEN been impacted most dramatically by growth in service industries. There was a major shift in employment trends between 1998-2002 The gap between Swedes employed abroad versus in Sweden has been more stable since 2003 Changes in figures may be an effect of acquisitions. I.e. A group that is Swedish one year may be foreign the next, and vice versa

Employees abroad

Employees in Sweden

TILLVXTANALYS, SCB BUSINESS SWEDEN 2 MAY, 2014 16

THE SERVICE INDUSTRY REPRESENTS THE GREATEST PROPORTION OF GLOBAL SWEDISH JOB GROWTH
The increasing number of Swedes employed abroad by Swedish subsidiaries in the last 15 years can be attributed to a few groups that made large acquisitions abroad Between 2010 and 2011, the number of employees abroad has increased both in the manufacturing and service sectors
NUMBER OF EMPLOYEES ABROAD, BY SECTOR

Employment growth abroad is also in part due to expansion in developing countries and the outsourcing of manufacturing
Principle manufacturing sectors: agriculture, mining and construction Principle service sectors: reparations, transports of people and goods, hotel and restaurant, finance and insurances, info and communications, consulting, healthcare, culture

Employees in Manufacturing Employees in Services Employees in Others

TILLVXTANALYS, SCB BUSINESS SWEDEN 2 MAY, 2014 17

SWEDISH EMPLOYMENT IN FRANCE IS DECREASING, DUE TO A DECLINE IN THE MANUFACTURING SECTOR

EMPLOYEES IN SWEDISH SUBSIDIARIES Overall flat development France: 64 000 employees 2011. Does not include co-joint firms such as Renault Trucks UK catching up France in 2011
NUMBER OF EMPLOYEES IN SWEDISH SUBSIDIARIES
110 100 90 80 70 60 50 40 30 20 10 2004 2005 2006 2007 2008 2009 Germany 2010 2011 France Great Britain

EMPLOYMENT PER SECTOR IN FRANCE After 2007, the number of employees in manufacturing is diminishing rapidly This decrease aligns with patterns in Sweden and the rest of the world, resulting in an increase in employment in the service industry
EMPLOYMENT IN SWEDISH SUBSIDIARIES PER SECTOR
Thousands 50 45 40 35 30 25 20 15

Thousands

10
5 0 2005 2006 2007 2008 2009 2010 2011

Manufacturing

Service

TILLVXTANALYS, SCB BUSINESS SWEDEN 2 MAY, 2014 18

CONTENT
MARCH, 2014
Macro-economic development General trade performance Swedish companies in France and abroad development of Swedish subsidiaries Competitiveness of France Appendix

BUSINESS SWEDEN

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EVIDENCE OF NEAR-MARKET INTERNATIONALIZATION PATTERN OF SWEDISH FIRMS

Strong correlation between number of subsidiaries and export performance Nordic countries are over performing in the ratio of Swedish subsidiaries versus export performance Poland is an exception, with a large number of subsidiaries relative to export and market turnover Germany is slightly underperforming in ratio of Swedish subsidiaries versus export performance Can be explained by the fact that Swedish firms are keener to work with partners on the German market than in the Nordic markets Swedish firms in USA have a significantly higher turnover than other markets
Country Ranking: Number of Swedish subsidiaries per country Ranking: Total turnover of Swedish subsidiaries per country Ranking as Swedish export market (goods)

Norway Finland Denmark USA UK Germany Poland

1 2 3 4 5 6 7

3 6 7 1 5 2 13

1 4 6 5 3 2 11

China
France Netherlands

8
9 10

9
4 8

10
9 7

SOURCE: TILLVXTANALYS BUSINESS SWEDEN 2 MAY, 2014 20

THE RECOVERY EFFECT WAS NOT AS VIGOROUS IN FRANCE AS IN OTHER COUNTRIES

No big decline in conjunction with the 2008 crises in any country France has not made a fast recovery, in contrast to the US, GB and Germany The growth of Swedish firms indicates that the U.S. market is seen as very attractive
GROWTH, IN %, OF SWEDISH GROUPS ABROAD NUMBER OF SWEDISH GROUPS WITH SUBSIDIARIES
France slower recovery Financial crisis

500 450 400 350 300 250 200 150

Country US Poland Germany UK Netherlands France

2004-2011 +109% +84% +56% +56% +54% +42%

100 50 2004 2005 France USA 2006 2007 2008 2009 2010 2011 Great Britain Holland Germany Poland

TILLVXTANALYS, SCB BUSINESS SWEDEN 2 MAY, 2014 21

FOUR FIRMS ACCOUNT FOR 64 % OF TOTAL SWEDISH EMPLOYMENT IN FRANCE

Big increase of establishments in the 1980s and constant growth since then Securitas, Ikea, Volvo and H&M are the four biggest employers These four companies established in France during the 80s and 90s In 1994 Sweden joined the EU Joining the EU was logically followed by a growth curve during 90s and 00s The increased ease of starting subsidiaries may help to explain this trend
120 100 80 60 40 20 0 50's 60's 70's 80's 90's 00's Number of new establishments

FOUR BIGGEST SWEDISH EMPLOYERS IN FRANCE 2012 Securitas Ikea Volvo H&M 20 000 10 000 5 400 5 503 First establishment in France 1988 1981 1953 1998

NUMBER OF NEW SWEDISH SUBSIDIARIES ESTABLISHED IN FRANCE (BY YEAR)

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THERE ARE 460 SWEDISH-RELATED SUBSIDIARIES IN FRANCE. SWEDISH FIRMS OFTEN HAVE MORE THAN ONE SUBSIDIARY ON THE FRENCH MARKET
Definitions: Number of Swedish enterprise groups with subsidiaries in France. These groups can have one, or many, subsidiaries in France. On average one Swedish enterprise group has 1,3 subsidiaries in France. 100% Swedish subsidiaries in France. 100 % owned subsidiaries by Swedish enterprise groups. Co-owned subsidiaries. Subsidiaries with a Swedish owner and a French or international owner Investments in French companies . Swedish companies with minor shares in French companies Total Total number of Swedish-related subsidiaries in France 194 335 56 69
NUMBER OF SWEDISH INVOLVEMENTS IN FRANCE, BY CATEGORY

Number of Swedish enterprise groups with subsidiaries in France

100% Swedish subsidiaries in France

Co-owned subsidiaries

Swedish investments in French companies

Total: 460

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SWEDISH GROUPS HAS AN HIGHER AVERAGE TURNOVER IN FRANCE THAN GERMANY AND THE UK
With equal amount of employees and a lower number of subsidiaries, France is outperforming the UK in turnover per employee 2011 More statistics needed to draw broad conclusions France has a turnover of 850 million SEK per group that is active in France Germany and the UK have a notably lower turnover, with 590 million SEK per group and 350 million SEK per group, respectively
250

TURNOVER IN SWEDISH GROUPS WITH SUBSIDIARIES ABROAD, IN BILLION SEK

300

200

150

2010 2011

100

50

0 France Germany UK Holland Belgium

SOURCE: TILLVXTANALYS.Only statistics for two-tear comparison was available. BUSINESS SWEDEN 2 MAY, 2014 24

THE SWEDISH VALUE CHAIN APPEARS TO BE MOVING TOWARDS THE BRICS

Employees in Swedish subsidiaries, in 2011 China: 71 200 France: 64 100 Brazil: 34 300 India: 33 800 Brazil and India are half of the size of the French market in terms of the number of employees of Swedish subsidiaries
GROWTH OF SWEDISH GROUPS ABROAD (%)
150 200 250

NUMBER OF SWEDISH GROUPS , 2004-2011

100

2004-2011
China India +168% +165%

CAGR
15% 15% 8% 13% 5%
0 2004 2005 Brazil 2006 India 2007 China 2008 2009 Russia 2010 2011 France 50

Brazil
Russia France

+138%
+71% +42%

TILLVXTANALYS, SCB BUSINESS SWEDEN 2 MAY, 2014 25

CONTENT
MARCH, 2014
Macro-economic development General trade performance Swedish companies in France and abroad Competitiveness of France Appendix

BUSINESS SWEDEN

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26

LABOR AND TAX LAWS HINDER FRANCES POTENTIAL

FRANCE SCORES LOW IN WEFS COMPETITIVENESS REPORT
Competitive advantages: Infrastructure - 4th in the world Business culture - 21st in the sophistication pillar Good position in innovation 19th in the world Size of market, 8th in the world Clearly behind the peers Germany and the UK in most areas Frances tax regime, which is ranked 127th is perceived to be highly distortive in that it disincentives decisions to work
France

WEFS MARKET COMPETITIVENESS RANKING

Overall rank 23rd Basic requirements 23rd Efficiency enhancers 19th Innovation & sophistication factors 18th

Sweden

6th

8th

7th

5th

Germany

4th

9th

8th

4th

UK

10th

24th

4th

10th

WEF GLOBAL COMPETITIVENESS REPORT 2013-14 BUSINESS SWEDEN 2 MAY, 2014 27

LOW FLEXIBILITY RESULTS IN AN INEFFICIENT LABOR MARKET

Flexibility in labor market can be defined as: Ease of wage determination Cost and possibility of firing Labor-employer relations Frances competitiveness would be enhanced by: Injecting more flexibility into its labor market, which is currently ranked 116th in the world Frances low ranking is a result of the strict rules on firing and hiring and the rather conflict-ridden laboremployer relations in the country. Tentative efforts being made in these areas would provide an important boost to Frances economic performance going forward
Sweden 18th 57th 9th France 71st 116th LABOR MARKET EFFICIENCY Overall rank Flexibility Efficient use of talent 46th

Germany

41st

113rd

11th

Great Britain

5th

10th

3rd

WEF GLOBAL COMPETITIVENESS REPORT 2013-14 BUSINESS SWEDEN 2 MAY, 2014 28

CONTENT
MARCH, 2014
Macro-economic development General trade performance Swedish companies in France and abroad Competitiveness of France Appendix

BUSINESS SWEDEN

2 MAY, 2014

29

THERE ARE A LOT OF COMPANIES THAT EMPLOY A PROPORTIONATELY SMALL NUMBER OF EMPLOYEES
SUBSIDIARIES IN EACH SERVICE SECTOR EMPLOYEES IN EACH SERVICE SECTOR

12% Travel, security, property companies 4% 5% 5% 7% 54% Retail trade Banks, insurance and credit institutions Wholesale trade Telecommunications 37%

18%

Wholesale trade Software producers and consultants Real estate activities 12% Banks, insurance and credit institutions Consultancies in PR Financial services

Transportation and warehousing Remaining sectors 5% 8% 8%

Retail trade, except

13%

6%

6%

Remaining sectors

TILLVXTANALYS, SCB BUSINESS SWEDEN 2 MAY, 2014 30

HOW DOES SWEDEN COMPARE TO FRANCE, THE UK AND GERMANY?

Sweden falls two places, to 6th position ,in the competiveness survey made by the IMF Sweden has been placing significant emphasis on creating the conditions for innovation led growth Mainly due to a somewhat weaker macroeconomic environment, the quality of Swedens public institutions have deteriorated slightly However, it remains first rate, with a very high degree of efficiency, trust, and transparency

France Public debt GDP Growth Domestic export performance Import from Sweden Growth of Swedish subsidiaries Turnover of Swedish subsidiaries Nr. of employees in Swedish firms Labor market attractiveness Total 3rd 4th 4th

UK 3rd 3rd 2nd

Germany 2nd 1st 1st

Sweden 1st 2nd 3rd

4th 3rd

3rd 2nd

2nd 1st

1st

Private institutions also receive excellent marks, with firms that demonstrate highly ethical behavior
Additional strengths include goods and financial markets The labor market could be more flexible, ranked 57th in the world

2nd

3rd

1st

Sweden has developed: A high level of technological readiness 1st A very sophisticated business culture,7th

3rd

3rd

1st

The status of being one of the worlds leading innovators 6th

4th

3rd

1st

2nd

These characteristics come together to make Sweden one of the most productive and competitive economies in the world.

4th

3rd

1st

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