This record is a partial extract of the original cable. The full text of the original cable is not available.

271358Z Mar 06

UNCLAS SECTION 01 OF 02 PARIS 001948 
 
SIPDIS 
 
SIPDIS 
 
PASS FEDERAL RESERVE 
PASS CEA 
STATE FOR EB and EUR/WE 
TREASURY FOR DO/IM 
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER 
USDOC FOR 4212/MAC/EUR/OEURA 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV FR
SUBJECT: FOREIGN COMPANIES PLAY A SIGNIFICANT ROLE IN THE 
FRENCH ECONOMY 
 
Ref:  PARIS 1129 
 
¶1. SUMMARY.  The paradox behind the rise of "economic 
patriotism" in France is the significant role of foreign 
companies in the French economy.  The National Statistical 
Agency released a report documenting that foreign companies 
were responsible for 17% of value added, 30% of exports, and 
one employee out of seven in the economy excluding the 
financial and the government sectors in 2003.  The presence 
of foreign investors is well anchored in the industry and 
banking sectors, and has been developing in the services 
sector. END SUMMARY 
 
Foreign Companies Employ One Employee Out of Seven 
--------------------------------------------- ---------- 
¶2.  The National Statistical Agency, INSEE, released a 
report in March on the presence of foreign companies in 
France, asserting "the French economy is more open to 
foreign investment than that of its neighbors."  French 
affiliates of foreign companies employ one out of seven 
employees in the French economy excluding the financial and 
the government sectors.  "This is more than in Germany, the 
U.K., the Netherlands (one employee out of ten), and the 
U.S. (one employee out of twenty). 
 
¶3.  Employment in foreign companies established in France 
almost doubled to 1.9 million in 2003 from 1.1 million in 
1994 due to acquisitions (versus green-field investment), 
which tripled to 18,700 from 5,800 in 1994.  French 
companies acquired since 1994 employ 900,000 workers. 
Employment in the 2,500 companies acquired before 1994 and 
still under foreign control remains unchanged at 650,000. 
Employment is related to the changing demography of 
companies.  Some affiliates of foreign groups existing in 
1994 disappeared or became subsidiaries of French groups, 
and some were created.  Overall, an additional 4,800 
affiliates were created, corresponding to 100,000 employees. 
Foreign companies in France are much larger than the 
national average.  Typically, the French affiliate of a 
foreign company employed an average of 105 employees 
compared with an average of 5 people employed by French 
companies. 
 
¶4.  In 2003, U.S., EU and Japanese companies employed 
750,000 people in France.  The U.S., the first foreign 
investor in France, employed 430,000 people.  Germany, the 
number one EU investor, employed 280,000 people.  Japanese 
companies employed 49,000 people.  This is much more than 
that reported in 2003 for Chinese companies (1,100 people), 
although their presence today is certainly more important 
due to new Chinese businesses and acquisitions (for example, 
the 2005 acquisition of Marionnaud, a perfume and beauty 
shop that employs 9,000 people, by the Hong Kong-based AS 
Watson). 
 
¶5.  Based on INSEE's study, the weight of foreign companies 
in value added to the economy increased to 17% from 10% in 
¶1994.  In the industry sector, including energy, foreign 
companies accounted for 28% of the value added.  They 
accounted for 34% in the semi-finished goods sector, and 12% 
in the construction sector. 
 
Heavily Involved in Foreign Trade 
--------------------------------------------- 
¶6.  According to Foreign Trade Minister-Delegate Christine 
Lagarde, foreign companies in France also accounted for 30% 
of total French exports of goods and services in 2005.  She 
stressed that it was possible to attract more foreign 
investment "which substantially contributes to the French 
economy." 
 
Foreign Investors have a Strong Presence in Industry 
--------------------------------------------- ------- 
¶7.  Based on employment data, foreign companies have 
increased their penetration of the industrial sector since 
¶1994.  While total industrial employment in France stagnated 
over the 1994-2003, employment in foreign companies in the 
industry sector has increased 33% since 1994.  Most 
industrial groups in France have survived; only 2 of the 20 
largest industrial groups that existed in France in 1985 
(excluding groups in the energy sector) have disappeared. 
Foreign groups had a particularly strong presence in 
pharmaceutical-perfumes, mechanical equipment, wood-paper, 
chemicals, and electrical and electronic components sectors. 
And Increase Investment in Services 
----------------------------------- 
¶8.  Since 1994, the presence of foreign investors has 
significantly increased in the services sector (notably, in 
interim-work, cleaning, and collective catering) and in the 
retail trade sector (notably, supermarket chains and 
furniture stores).  Overall employment in the services 
sector more than tripled, and nearly tripled in the retail 
sector.  In 2003, foreign companies were not present in the 
transportation sector, as was the case in other 
industrialized countries. 
 
Foreign Presence in the Banking Sector 
-------------------------------------- 
¶9.  Based on Banking Commission data, France had 186 foreign 
banks with total assets accounting for 10% of total bank 
assets at the end of 2004, some with sizable branch 
networks. The largest acquisition in recent years was that 
of CCF by HSBC in 2000. 
 
Comment 
------- 
¶10.  INSEE's study provides a snapshot of employment in 
foreign companies in France, although it offers no 
information about turnover or labor productivity.  That 
said, the study and other official sources provide evidence 
that foreign investors play a significant role in the French 
economy.  Their role in terms of value added and employment 
is probably more significant today since foreign investment 
flows doubled in 2005 (reftel).  The timing of the report's 
release coincides with GOF efforts to defend its "economic 
patriotism" policy against claims that France is becoming 
protectionist.  Using this data to prove that point, 
however, runs afoul of the maxim that historical results are 
no guarantee of future performance. 
STAPELTON