PARIS—French companies have been shifting activities abroad to both old and new member countries of the European Union, a new report shows, contradicting public perception that a switch to low-wage emerging markets is devastating French industry.
Controversy and election pressure over the issue, known in France as "delocalization," is a hot subject and a driving factor in government policy to rejuvenate French industry.
French manufacturing in particular has fallen behind in terms of competitiveness in the last 10 years, being outpaced notably by companies in Germany. The French government has launched policies to correct this.
The decline in competitiveness has contributed to a significant structural trade deficit, a factor holding down growth. This has triggered an industrial renewal campaign by the French ministry to encourage consumers to buy products made in France.
The study released today by the official statistics institute INSEE also found that during a recent three-year period, the number of jobs cut by nonfinancial businesses attributable to delocalization by French companies totaled about 20,000.
By comparison, the number of people officially unemployed in France rose by 39,800 in April alone, to a record total of 3.26 million in April, labor ministry data showed.
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INSEE reports that from 2009 to 2011, 4.2% of French companies delocalized at least one activity, but that they turned first toward other EU countries rather than emerging countries, contrary to public perception.
These switches displaced activity first to the 15 oldest members of the European Union, which accounted for 38% of the relocations. These switches were driven by a strategy of reducing nonwage costs and by the quality of the environment for making contracts.
The next highest-rated destinations were the collective nations of Africa, which accounted for 24%; the newest members of the European Union, 22%; China, 18%; and India, 18%.
INSEE said that its study on global chains of activity "leads to an estimate that the number of jobs cut in France directly because of delocalizations carried out between 2009 and 2011 by commercial nonfinancial companies employing more than 50 people is about 20,000, or about 6,600 job cuts per year over these three years."
Such switches in activity were made mainly by businesses in the manufacturing sector and information and communication services, INSEE said. These companies were usually involved in exporting or were already operating abroad through subsidiaries.
The movement of activity to emerging countries such as India and China was often motivated by access to low costs—both wage- and nonwage-related—and by access to developing markets.
Regarding movement of activity to new members of the European Union, attractive wage costs have also been a factor, INSEE said.
The French government is under political pressure to raise the performance of the economy, which fell into recession in the first quarter, and to reduce the country’s record unemployment rate. It is also under pressure from the European Union to make quick progress with structural reforms to control public budget deficits and raise efficiency in the economy.
Copyright Agence France-Presse, 2013
