France's Sleek New Export and Investment Machine

UNCLAS SECTION 01 OF 05 PARIS 000214 SENSITIVE SIPDIS WHITE HOUSE FOR USTR E.O. 12958: N/A TAGS: EFIN ETRD EIND EINV FR SUBJECT: France's Sleek New Export and Investment Machine Ref: A) Paris 1553: B) Paris 1599 PARIS 00000214 001.4 OF 005 Summary -------------- ¶1. (SBU) France is already world's fifth largest exporter, but recently restructured its export promotion and investment machine to stay competitive and increase assistance to small and medium enterprises (SMEs). The new "French Export Team" streamlined the roles of the major export promotion entities, and in September 2009, launched "Programme France," a unified export promotion strategy and architecture. Anchored by UbiFrance - France's export promotion agency - and the public and private-sector chambers of commerce, Programme France now includes partnerships with volunteer trade advisors, lenders, credit guarantee agencies, and even the national intellectual property office. Meanwhile, the Invest in France Agency is boosting its leverage with similar but more limited partnerships. Programme France will have some growing pains, but France's aggressive approach to export promotion and inward investment bode well for its future competitive stance and position as a global economic leader. End summary. France Favors Its Big Players Over SMEs -------------- ¶2. (SBU) France has traditionally -- and successfully -- marshalled significant public, private, and political resources to boost its largest companies (e.g., L'Oreal, Louis Vuitton-Moet Hennessy) and national champions (e.g., Areva, Electricite de France, Gaz de France, Renault, Alstom) as they compete in key sectors: aerospace, energy, transportation, agriculture, luxury goods, etc. French presidents and ministers conduct aggressive commercial diplomacy and exploit cultural programs such as the "Year of France in Brazil" to crack open new markets (Ref A). As a result, France has consistently punched above its weight in the global marketplace and its large companies have done well. Drop in Exporter Companies Triggered Reform -------------- ¶3. (U) However, the number of French exporters began to drop in 2001, with a particularly steep decline between 2002 and 2005. SMEs were noticeably absent from the export scene, and a Ministry of Economy report showed that the majority of the top 1,000 French exporting companies, responsible for 70 percent of total export value, were large French industrial corporations or branches of international firms. In general, SMEs were hampered by their size and inability to innovate. The study found that 30 percent of first-time exporters did not export in the following year. Many firms exported to just one or two European countries. ¶4. (U) GOF and private sector sources readily admitted that the diverse public and private services available to help fledgling exporters were either duplicative and ferociously competitive with each other, or unknown to the general public and disconnected from each other. SMEs also complained that French embassies only helped large corporations, and the Ministry of Economy concluded that the Ministry of Foreign Affairs sidelined commercial objectives. Friction between the major players in export promotion detracted from their overall mission and hindered new and sustained export activity. At the same time, France was grinding through the General Revision of Public Policies (RGPP),which mandated a leaner central government with fewer public servants and a rationalization of France's often confusing public administration. The simultaneous budget reform (la Loi organique relative aux lois de finances (LOLF)) also demanded "accountability from the first euro" and quantifiable objectives. The French Export Team and Programme France -------------- ¶5. (U) In response, Minister of Economy Christine Lagarde and Junior Minister for Trade Anne Marie Idrac created the "French Export Team" in early 2008 to "simplify export assistance and increase efficiency." In April 2008, the ministries of Economy and Foreign Affairs, UbiFrance, and the public and private sector chambers of commerce in France and overseas signed an agreement ("2008 Convention") to clarify their respective roles and set out the terms of their future cooperation. In September 2009, the French Export Team announced "Programme France," a unified export promotion assistance strategy and architecture that focuses on SMEs. ¶6. (U) While the Ministry of Economy's General Directorate for Treasury and Economic Policy (DGTPE) oversees Programme France in general, UbiFrance has primary responsibility for the initiative. But along with this robust new mandate and increased budget (through PARIS 00000214 002.4 OF 005 2011) come new quantified objectives that demand greater accountability. Overseas, UbiFrance offices, French Embassy Economic Sections, and French bilateral chambers of commerce are meeting to deconflict their roles on the ground and streamline their services. New agreements with volunteer trade advisors, financiers and specialized service providers broaden the Programme's reach, and the website, http://www.exporter.gouv.fr/exporter/, provides a one-stop shopping window, making the Programme's activities and services more accessible, organized, and interconnected. Through the "exporter" website, users can also access the site www.programme-france.gouv.fr, which contains a catalogue of all the export and outward investment promotion activities of every French Export Team partner. The New and Improved UbiFrance -------------- ¶7. (SBU) UbiFrance's main objective is to connect French businesses with market opportunities overseas and help the companies export their products successfully. Modeled on a private corporation, this fee-for-service government agency often took a back seat in Paris and overseas to political and macroeconomic priorities. Programme France seeks to reverse this trend by giving UbiFrance lead authority over export promotion and separating overseas UbiFrance staff from French Embassy Economic Sections. UbiFrance must also attain specific objectives over the next three years: 20,000 businesses assisted through trade missions, seminars, prospecting trips, etc; 10,000 new businesses identified and brought to export status through partnerships with the Chambers of Commerce and Industry; and 10,000 business interns placed in companies overseas. UbiFrance is accountable to the DGTPE and an administrative council comprised of businesspeople and government advisors. ¶8. (U) By mid-2010, UbiFrance will have approximately 500 staff in its Paris headquarters and 1,000 in 64 overseas offices in 44 countries. All staff have more flexible, private (i.e., not civil service) contracts, which helps the GOF reduce its public servant workforce as mandated by the RGPP. The majority of UbiFrance's Paris staff are engineers or technical specialists organized into various sectors such as agronomy, housing/health, marketing, etc. UbiFrance has no official regional offices in France outside of Paris, a situation that the domestic chambers of commerce fought hard to maintain. UbiFrance has nine Economic Missions in the United States, headquartered in New York. Each mission has both geographic and sectoral responsibilities. For example, the Chicago and Detroit offices cover thirteen Midwestern states and a wide variety of industrial sectors including iron and steel, autos, mechanical industry, agriculture, etc. Programme France also aims, from 2009 to 2011, to improve the synergy between UbiFrance and the domestic and overseas chambers of commerce, which tend to approach this partnership warily, since their own fee-for-service structures compete with UbiFrance's new primacy in the field. Public and Private-Sector Chambers of Commerce and Their Uneasy Relationship With UbiFrance -------------- ¶9. (SBU) Domestic chambers of commerce and industry (CCIs) operate in each of France's 100 departments and are represented in Paris by the Assembly of Chambers (ACFCI or Assemblee des Chambres Francaises de Commerce et Industrie). The CCIs are public-sector entities that finance up to 70 percent of their budget through various business activities, a fact ACFCI highlights to bolster its claim of independence from the central government. Due to historical legacies, the CCIs manage all of France's airports (except in Paris),many of the ports, large conference facilities and major professional training programs (200,000 students),including many of the top French business schools. The CCIs also receive 30-40 percent of their budget from a share of the so-called professional tax (which is being phased out),but this tax revenue remains outside the mainstream budget process, circumventing central government oversight. Per the 2008 Convention, the CCIs' role in export promotion is to seek out local French companies with export potential and develop or improve their production and export capabilities. With close ties to local government and some say a political slant, CCIs can suffer from a lack of professionalization and hit-or-miss personnel. But this local network with excellent ties to small business is critical to the success of the French export machine. According to the ACFCI's annual report, the CCIs assisted 8,000 companies develop their export potential in 2008. ¶10. (SBU) The French CCIs overseas (Chambres de Commerce et d'Industrie Francaises a l'Etranger, or CCIFEs) are the international analog to the domestic chambers but are essentially private business clubs. Each club, in return for membership in the CCIFE network, must commit to certain operating principles, PARIS 00000214 003.6 OF 005 including helping any French company that seeks assistance. Represented in Paris by the Union of CCIFEs (UCCIFE),the CCIFEs support themselves through their fee-based services and corporate sponsorship. There are 114 CCIFEs (21 in the U.S. alone) in 78 countries, with a combined membership base of 25,000 companies, about 50 percent of which are non-French. Most offices provide initial consultations, market studies, communication campaigns, organization of meetings, colloquia, and trade shows, as well as more specialized services. The directors of UCCIFE and ACFCI serve on each others' boards and coordinate their respective policies. ¶11. (SBU) In the past, the domestic and overseas chambers passed businesses off to each other depending on the service required, and functioned independently of UbiFrance, although with some contact with the embassies. Now, the 2008 Convention commits the chambers to coordinating more with UbiFrance, with which they are required to share their carefully cultivated business contacts and projects. Many chambers are reluctant to do this; a fear echoed by private consultants who claim UbiFrance is "dumping" services at below-market prices and forcing consultants out of business. On the other hand, UbiFrance complains that the chambers often abuse the Programme France label (a small Eiffel Tower with a tricolor scarf and the word "france" beneath it) and provide uneven services at high prices. Now another potential competitor has entered the field: the EU is creating its own chambers, as smaller member states realize they need export assistance but cannot afford their own bilateral networks. The UCCIFE is pushing the EU to create a Chamber of Member-State Chambers, open only to other bilateral chambers, rather than to individual businesses. The UCCIFE claims it will take at least two more years to sort out the respective authorities between UbiFrance and the chambers and avoid continuing clashes over territory and client bases. Programme France's Financial Partners -------------- ¶12. (SBU) Programme France has drawn in two financial entities -- OSEO and COFACE -- to round out the export promotion portfolio. Billing itself as "the Company for Entrepreneurs," OSEO provides direct financing, guarantees bank loans, and co-finances loans to small innovative business seeking to export. OSEO's 2008 and 2009 budgets were 733 million euros and 544 million euros, respectively, and the organization received 1.5 billion in the "grand emprunt," President Sarkozy's special debt offering for future-oriented investments. (Ref B) OSEO claims that one secret of its success is speed; it can react to financing requests in five to ten days. OSEO employs 1,000 people in its 37 regional offices in France, 600 in its high-end Paris headquarters, and operates only domestically. UbiFrance represents OSEO overseas. According to OSEO's international office, OSEO economic stimulus financing helped 70,000 businesses pull themselves out of the financial crisis. ¶13. (U) Coface is a French corporation founded in 1946 as a specialized export credit insurance company, managing its own products and state guarantees for French exports. Privatized in 1994, Coface has expanded internationally to include 6,816 staff in 67 countries, including the United States. Coface is France's leading credit information provider, and in 2008, launched a worldwide rating on the business environment (Coface Rating). In 2009, Coface announced its intention to become a financial rating agency like the three major Anglo-American agencies, though limiting itself to corporate ratings. In France, Coface also manages public export credit guarantees provided by the French state. Examples of large and small COFACE projects: credit insurance for Brazil's possible purchase of Dassault's Rafale jets; and insurance for the costs related to an entrepreneur's business exploration trip. Helping Hands: INPI, MEDEF, and Trade Counselors -------------- --- ¶14. (U) Programme France also taps other specialists to assist budding exporters. The National Intellectual Property Institute (INPI) is the national government's self-financing IP agency and has 20 domestic offices and branches in the French embassies located in Beijing, Rabat, and Abu Dhabi, and the French Economic Mission in Rio de Janeiro. As a Programme France partner, INPI advises exporters on international patent issues, particularly SMEs. MEDEF International is the 20-year old spin-off organization of MEDEF, the French employers union, and helps connect French companies with visiting international officials, or organizing business delegations to foreign countries. Finally, the French Foreign Trade Counselors (Conseillers de Commerce Exterieur de la France (CCEF)) is a prestigious hundred-year old network of private businesspeople serving voluntarily as honorary foreign trade advisors. Experts in their areas, the trade advisors help shape trade policy, advise SMEs, and sponsor business interns abroad. There are currently PARIS 00000214 004.4 OF 005 3,800 CCEF: 2300 French senior executives in 140 countries; and 1700 in France working as managers and executives in exporting or multinational companies. (CCEF's are nominated by the Prime Minister, subject to a rigorous background check and pay annual dues of 800 euros for the privilege to serve.) However, the new UbiFrance-CCEF partnership is bumpy. A French consultant said he and his fellow San Francisco consultants who also volunteer as CCEFs "reacted badly" to being told they should now coordinate everything with (professional competitor) UbiFrance: "Why should I work for them for free?" The Inward Investment Machine: Well-Built But Underpowered -------------- ¶15. (SBU) In 1969, France opened the first French Delegation for Development and Regional Action (DIACT) in New York to encourage international investment in France. Throughout the 1970s, further offices were opened in Chicago, Los Angeles, Japan, Germany, the UK, Sweden, Switzerland, and Spain. The offices adopted the "Invest in France" title and became, within French Embassies, the departments responsible for inward investment in France. In 2001, the New Economic Measures Law established the Invest in France Agency (IFA), a public "industrial and commercial body" placed under the authority of both the Ministry of Economy and the Ministry of Regional Development. The 2007 IFA budget was 22.2 million euros, coming entirely from government funding. ¶16. (U) The Invest in France Agency is now the main government agency charged with attracting inward investment to France. It covers every stage of the investment decision-making process, from researching the market to actually setting up a business in France. Activities include promoting the French territory to international investors and opinion leaders; prospecting for investors and internationally mobile investment projects; acting as a link between investors and local authorities to facilitate investment and site selection bids; and monitoring and studying international investment flows, and providing individualized after-care services. IFA works in close coordination with French regional economic development entities as well as with private partners (logistics, real estate, energy, banks, lawyers, accountants and other business-to-business (B2B) service providers) to come up with the appropriate and most effective/competitive offer to the potential investor. IFA will also do a pre-selection of appropriate locations in France, based on the specificity of the project, thus helping potential investors avoid being approached by too many regional economic development agencies and local entities. ¶17. (U) In contrast to UbiFrance and the chambers of commerce, IFA's services are free, but the agency works closely with a network of corporate partners -- the IFA Club -- which provide a range of fee-based services to potential investors. IFA's staff are typically sectoral experts on three to five-year contracts, with steep quotas they must fill each year, e.g., visiting 200 new companies a year to sell France as an investment destination. IFA maintains 21 overseas offices -- 11 in Europe, four in North America (New York, Chicago, San Francisco, Toronto),and seven in Asia -- which employ 79 people (22 in North America) in addition to the 60-person IFA headquarters in Paris. These offices are considered part of the French public service. Through the French embassies, the DGTPE represents IFA in another 30 countries. ¶18. (U) The IFA covers every stage of the investment decision-making process, from researching the market to actually setting up a business in France. IFA has limited partnerships with DGTPE, UbiFrance, FirmaFrance (the official French exporter directory),and Maison de la France (the French Government Tourist Office website), as well as with French regional entities. Through these partnerships, IFA is represented at international and domestic trade shows, has access to French business listings, and obtains testimonials from the heads of international businesses already operating in France. In the near term, Invest in France will focus on 15 emerging high-tech, high-value-added sectors: renewable, efficient, and nuclear energy; electronics/telecom; medical and pharmaceutical; bio-, nano,- and animation technology; non-food agricultural products; and waste management. ¶19. (SBU) While the IFA structure seems impressive, business contacts say their impact is often limited. Our French investment consultant contact told EconMinCounselor that the San Francisco office is too small to be effective and only helps large companies. However, IFA is the biggest sponsor of the annual World Investment Conference, organized to attract investment to Europe, and it recently received a 13 million euro injection. Revving the Engine and Hitting the Gas PARIS 00000214 005.4 OF 005 -------------- ¶20. (SBU) Comment: France is already a top exporter, and if Programme France can quell the current rivalries and increase efficiency, exports could boom, especially for SMEs. The 1.5 billion euros available through the "grand emprunt" to finance innovative SMEs will provide another significant boost. While some lack of innovation or quality in French products is partially to blame for declining exports over the past decade, a well-designed French widget now stands a better chance of reaching a fertile export market. The French inward investment machine needs a similar revamp: while the basic structure exists, performance lags behind potential. While much depends on the economic policies that President Sarkozy's government adopts, or fails to, France's aggressive approach to export promotion and inward investment bode well for its future competitive stance and position as a global economic leader. End comment. PEKALA