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Executive Report on Strategies in France
ICON Group International, June 2007, Pages: 390
How to Strategically Evaluate France
Perhaps the most efficient way of evaluating France is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”).
Framework for Prioritizing Countries
Demand/Market Potential Driven Firm
Relative Accessibility
Accessibility/Supply Averse Firm
Relative Accessibility
In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market - neither a market-driven nor a cost-driven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities.
Latent Demand and Accessibility in France
This report provides an extremely detailed overview of factors driving latent demand and accessibility in France. Latent demand is largely driven by economic fundamentals. But, latent demand only represents half of the picture. A country may at first sight appear to be attractive due to a high latent demand, but it is often less attractive when one considers at the macro level how easy it might be to serve that entire potential and/or general business risks.
Chapter 2 deals with macro-accessibility. While accessibility will always vary from one company to another for a given country, the following domains are typically considered when evaluating macro-accessibility in France:
Openness to Trade in France
Openness to Direct Investment in France
Local Marketing and Entry Strategy Alternatives
Local Human Resources
Local Risks
Across these domains, a number of not-so-obvious factors can affect accessibility and risk. These are also covered in Chapter 2, which is presented from the perspective of an American firm, though it is equally applicable to most firms entering France. This chapter has been authored by local offices of the U.S. Government. I have included a number of edits to clarify the provided information as it relates to the general strategic framework.
In Chapter 3, I summarize the economic potential for France over the next five years for hundreds of industries, categories, and products. The goal of this chapter is to report my findings on the real economic potential, or latent demand, represented by France when defined as an area of dominant influence. The data presented are the result of various spatial econometric and time-series forecasting models which, for each category presented, are applied to forecast and allocate latent demand across all countries of the world and major distribution centers or centers of dominant influence within each country. This is accomplished knowing that economic fundamentals (e.g. income) generally vary from one country to another within a given country over time. In this chapter, I report the allocation for each category for France as an area of dominant influence in Europe and, potentially, the world.
The report concludes with trade indicators for France. Often, the amount of trade flowing into and out of a country is a strong indicator of trading partners, trade openness, and related latent demand. Trade indicators are purely statistical in nature. Although international trade is not a direct measure of latent demand, it does provide an indicator of general market conditions with respect to trade flows and trade openness in France.
As a whole, this report presents a strategic assessment of France by considering an extremely broad set of factors affecting both latent demand and accessibility, as outlined in the following chapters.
MACRO-ACCESSIBILITY IN FRANCE
Economic Fundamentals and Dynamics
Government Intervention Risks
France has a tradition of highly centralized administrative oversight of its essentially market-based economy. Considerable progress has been made in privatization, although the government maintains a presence in industries such as aeronautics, defense, automobiles, and telecommunications, and can still exert control over privatized firms.
Trade Barrier Risks
As a member of the European Union, France shares common external tariff, and, in many cases, non-tariff barriers with other members of the Union. Product safety and sanitary standards affecting imports into France are increasingly established at the EU level. The United States and EU have negotiated Mutual Recognition Agreements covering certain product standards that should ease entry into EU and French markets for U.S. firms. Despite occasional highly publicized disagreements, the sizable bilateral trade between the U.S. and France is for the most part, non-controversial.
Labor Force
Frances private sector labor force is one of the countrys strongest points in attracting foreign investment, combining high quality with relatively competitive unit-wage costs.
The labor code sets minimum standards for working conditions including the workweek, overtime, vacation and personal leave. Other labor standards are contained in collective agreements, which are usually negotiated by sector on a national or regional basis by the various unions and employers associations. French absenteeism is modest by European standards and in the private sector peaceful labor relations prevail.
While the rate of unionization in France has steadily declined to about half that of the United States, French labor law provides an extensive institutional role for employee representatives and for organized labor. For example,
In companies with more than 10 employees, employee delegates are elected for a one-year term. These delegates are authorized to present individual or collective claims and grievances relating to working conditions to the management of the company, to inform government labor inspectors of any complaints under the labor law, and to concur with management in any reorganization of the workweek. Management is required to meet with employee delegates at least monthly.
A company with more than 50 employees must have a joint management/employee enterprise committee, to which employee representatives are elected. The committee must be consulted for all major corporate decisions, but has no veto. The enterprise committee must be provided with the same information that is made available to shareholders. It is funded by the company at a rate equal to at least 0.2 percent of the firms payroll and, uses this money to finance social and cultural activities for the benefit of employees.
Workers also hold most slots on occupational health and safety committees, which are mandatory in medium and large size companies. Labor tribunals (playing a role largely equivalent to the NLRB in resolving labor disputes) are comprised of equal numbers of union and employer representatives. Appeals are possible to the level of the “Cour de Cassation”, one of Frances high courts.
Major and Third Country Competitors
As the worlds fifth largest economy, centrally located within the European Union, there is strong competition for market share in all French industrial and service sectors. American exporters to France generally face more competition from European companies than from Asian ones, although Japanese companies have successfully established a foothold in the French market, primarily through investment. German companies tend to be strong competitors, building on the many Franco-German joint ventures. Each sector has its own characteristics and should be carefully analyzed as part of a strategy to capture a share of the French market.
Infrastructure Development
Frances transportation infrastructure is among the most sophisticated in the world, benefiting from advanced technology and extraordinary investment by the government. The three main entry points for airfreight are the Orly and Charles de Gaulle airports in Paris and Lyons Saint-Exupery airport. France has twelve major seaports, many of which are equipped for container ships. There is also an extensive highway and river-transport system and a state-owned rail network that is among the most comprehensive and technologically advanced in the world.
Communications infrastructure is similarly advanced. Telephone lines blanket the country and there is easy access to the Internet via French and foreign service providers. The French “Minitel” telephone-based computer network is also widespread and provides many consumer services. France is behind the U.S. and some other countries in the use of personal computers and the Internet, but is catching up rapidly. The government is trying to promote better use of information technologies.
Political Risks
France is a democratic republic whose political system is based on a written constitution that was approved by referendum in 1958. According to the French Constitution, as amended, the President of the Republic is elected by direct suffrage every five years. The President presides over the cabinet, commands the armed forces, concludes treaties, and directs foreign policy. He is also empowered to dissolve the National Assembly and, in certain emergency situations, may assume full power. The President appoints the Prime Minister, but because France’s political system is a hybrid of presidential and parliamentary elements, the majority in the National Assembly traditionally determines the party or political coalition from which the President must choose a Prime Minister. This has occasionally resulted in the head of state (the President) and the head of government (the Prime Minister) being from opposing parties, an arrangement known as “co-habitation”.
The Constitution provides for a bicameral parliament consisting of a National Assembly and a Senate. National Assembly Deputies are directly elected by universal suffrage for five-year terms. Under current rules, Senators are indirectly elected for nine-year terms, with one third of the Senate being renewed every three years.
The French political spectrum includes numerous political parties. Key parties, from right to left, include:
Extreme-Right National Front (FN)
Center-Right Union for a Popular Movement (UMP)
Centrist Union for French Democracy (UDF)
Center-Left Socialist Party (PS)
Greens (Verts)
French Communist Party (PCF)
Marketing Strategies
The United States and France produce many of the same goods and services and export them to each other. Therefore, marketing products and services in France can bear some resemblance to marketing them in the United States. French business representatives are sophisticated and knowledgeable about their respective markets. At the same time, American firms must take into consideration certain business practices, cultural factors, and legal requirements in order to do business effectively in France.
Distribution and Sales Channels for Food and Non-Food Items
The Retail Network
France possesses a diverse and comprehensive retail network, which increasingly resembles that of the United States. From the largest department store chains to the smallest individual proprietorships, French distribution channels are demonstrating some significant new trends, which could affect how products are sold in France.
Small-and medium-sized family-owned firms, which traditionally accounted for a majority of French wholesale and retail trade, are rapidly losing ground to hypermarkets - large retail outlets carrying a wide variety of products at discounted prices. At the same time, mail order marketing and specialized chain stores have shown strong growth, further demonstrating the changing needs and preferences of consumers. On the other hand, a law limits the amount of retail space that can be purchased or leased commercially, with a special exemption required for space purchased or leased that is greater than 300 square meters.
French Food Retailer Formats
French food retailers fall under six principle formats:
Hard-discounters
Hypermarkets
Supermarkets
City center stores
Department stores
Traditional outlets
The first five account for 75 percent of the country’s food distribution; the sixth, which includes neighborhood and specialized food stores, accounts for about 25 percent.
With an eye to capturing market share from the restaurant and fast-food sectors, hyper/supermarkets began to sell ready-to-eat products such as roasted meats (cooked chicken, etc.), fresh-baked bread, and pastries. They also focus on premium quality food including regional and exotic products. Recently, creation of Web-based distribution networks such as Global NetXchange has resulted in cross-border alliances, such as Sears and Carrefour.
Primary Food Retail Channels
Hypermarkets (Hypermarchés)
Supermarkets (Supermarchés)
City-Center Stores & Department Stores (Grands magasins)
Convenience Stores (Magasins populaires)
Hard Discounters (Magasins Discount)
Large Specialized Stores (Grandes surfaces specialisees)
Multi-Channel Retail Groups (Groupes de distribution multi-canaux)
Mail-Order Marketing (Vente par catalogue)
Traditional outlets (Magasins de detail traditionnels)
Gas-Marts (Boutiques de stations d’essence)
Central Buying Offices (Centrales dachats)
Food Service (Hotel, Restaurants, Restauration collective)
Hypermarkets (Hypermarchés)
Hypermarkets are technically defined as stores with a minimum selling area of 2,500 square meters. On average, French hypermarkets are self-service retail stores offering 25,000-40,000 products for sale at competitive prices (3000-5000 food items and 20,000-35,000 non-food articles.) They are generally located in suburbs, and cover a total sales area of 6.8 million square meters. The top five hypermarket companies are Carrefour, Leclerc, Auchan, Geant and Cora.
Supermarkets (Supermarchés)
Supermarkets are also self-service retail grocery stores. In essence, supermarkets are smaller versions of hypermarkets, with a selling area between 400 and 2,500 square meters. They usually carry 3,000-5,000 items, of which 500-1500 are non-food products, and cover a total sales area of 6.7 million square meters. The top four supermarket companies are Intermarché, Champion, Super U, and Casino.
City-Center Stores & Department Stores (Grands Magasins)
Defined as high-quality supermarkets, and dating back to the turn of the century, these establishments are smaller than regular supermarkets, are usually located in town centers and offer a wide selection of food and non-food products. These stores number over 300 in total and tend to be grouped under major leading companies such as Monoprix/Prisunic. Currently over 26,000 people are employed by the 140 department stores in France. Paris has the highest number of department stores of any French city, and six of the ten top-selling stores are located there.
Department stores have lost some market share in all areas except in the medium-to-high price range. A unique feature of the French department store is that many non-food products are sold by the manufacturers’ own sales staff, which can account for up to 20 percent of the stores total sales force. Some department stores in Paris such as Galleries Lafayette, Au Printemps, and Le Bon Marché/La Grand Epicerie de Paris have gourmet food sections. Although they do not account significantly for total food sales in France they set the quality standard for product presentation.
Convenience Stores (Magasins Populaires)
Convenience stores are generally located in city centers of small-to-medium size towns. They are selfservice stores run by one or two independent operators, i.e., individuals not paid by the distribution group. These stores have a total of approximately 1,500 outlets representing no more than three percent of total food sales.
Hard Discounters (Magasins Discount)
Compared to hyper/supermarkets, hard discount stores offer a smaller range of goods for lower prices. These stores represent about 8 percent of total food sales and usually sell generic products or their own private-label items. The top five hard-discount companies are Lidl, Ed, Aldi, Leader Price and Le Mutant.
Large Specialized Stores (Grandes Surfaces Specialisees)
Large specialized stores offer an extensive choice of goods in a specific category at a competitive price and with an emphasis on customer service. This dynamic sector is composed of over 8,300 stores, including such store categories as toys, health and beauty, gardening, and media/books/music. Do-it-yourself equipment stores are the most numerous (2,679), followed by textile (1,726) and furniture stores (1,287).
Multi-Channel Retail Groups (Groupes de Distribution Multi-Canaux)
The distinctions made above between hypermarket chains, supermarket chains, etc. are becoming blurred. In the last several years, major multi-channel retail groups have emerged, which own chains of different types of stores. Pinault-Printemps and Nouvelles Galeries Reunies fall into this category, because they own chains of specialty and convenience stores.
Direct Marketing (Vente à Distance)
The French direct marketing market for consumer products and services is one of the largest in the world. Although total mail-order sales are still greater than telephone sales, a general downward trend in mail-order sales was observed in recent years just as telephone and Internet sales have undergone a rapid expansion. One out of two French households buys through mail order with an average annual purchase of USD 300. Textile products make up 44.7 percent of direct sales, books and records 14.6 percent, and furniture and home decoration 9.1 percent.
Traditional Retail Food Outlets (Magasins de Detail Traditionnels)
Traditional outlets include a broad array of establishments from corner grocery stores, bakeshops, and neighborhood butcher shops, to open air markets and frozen and gourmet food stores. The aggressive expansion of mass distribution outlets threaten these traditional outlets, which account for 20 percent of the country’s total retail food distribution and represent a total of about 50,000 stores. To survive, these outlets must have flexible store hours, product variety, and special services such as home delivery. Small neighborhood store chains offer U.S. suppliers entry into the French market.
Gas-Marts (Boutiques de Stations d’Essence)
Gasoline stations account for less than one percent of total food sales with about 400 outlets in France.
Central Buying Offices (Centrales dAchats)
In addition to contacting the largest store chains listed above, introducing products via central buying agencies is an excellent distribution method. A complete list of French central buying agencies, the Annuaire des Supermarches, Hypermarches, Centrales dAchat et Groupements dAchats, is available for about USD 308 (freight included) from:
L.S.A - Libre Service Actualites
Mr. Clerget Philippe
12/14, rue Mederic
75809 Paris Cedex 17
France
Tel: (33) 1.56.79.43.00
Fax: (33) 1.56.79.43.06
Web site: http://www.lsa.fr
Food Service Sector (Hotels, Restaurants, Restauration Collective)
The French HRI sector is large and sophisticated. It is a saturated and highly competitive food sector. Entry through this sector must be planned carefully. Successful products or food systems are innovative and price competitive. U.S. style outlets, especially fast food, represent a 14 percent market share.
For more information on the Retail Food Sector in France, visit the following Web site: www.fas.usda.gov/gainfiles/200111/135682728.pdf.
For more information on the Food Service Sector in France, visit the following Web site: www.fas.usda.gov/gainfiles/200205/145683433.pdf.
Agents and Distributors
Considering the host of distribution options available in France, it is important for the would-be exporter to select the method best suited to his or her product. French buyers generally prefer to purchase through an intermediary, making sales directly to the end-user a scarce practice. However, sales of expensive, technically sophisticated goods are an exception to this rule.
Intermediaries may take one of three primary forms under French law:
Distributor
Agent
Salaried Representative
Distributor
A distributor (concessionnaire) is an individual or legal entity that purchases goods directly from a producer for the purpose of resale. The distributor operates independently and is only bound by the written provisions of the distribution agreement. These agreements, however, are subject to specific rules and regulations regarding exclusive distribution and price-fixing.
The conditions of contract termination are an important concern, and vary with the type of distribution agreement. Either party without prior notification or indemnification may terminate a distribution agreement of specified duration at the end of the contract period. If the termination takes place before the end of the contract period, the terminating party may be sued for breach of contract.
Either party without indemnification after a fair notice period may terminate a distribution agreement with an unspecified duration, usually six months. The termination of such a contract by the producer without fair notice may be grounds for damage claims by the distributor.
Agent
This category covers commercial agents as well as those persons acting as agents but not fulfilling the requisites for commercial agent status. Unlike distributors, agents do not actually purchase goods for resale; instead, they match up buyers and sellers on a commission basis. All agents exercise their activities in an independent manner, and their principals are exempt from payment of payroll taxes. Agents assume their own fiscal charges (business license tax and value-added tax) and social charges (health insurance, social security and retirement/pension benefits).
Commercial Agent
Agents with a written contract have the status of commercial agents (agents commerciaux) if they exercise their activity as a sustained independent profession and fulfill the following conditions:
Do not have a written employment contract
Negotiate sales and purchases on behalf of producers, manufacturers, or dealers
Are registered with the Tribunal of Commerce as commercial agents
A commercial agent is independent and free to act on the behalf of any other firm. However, in the case where the agent wishes to represent one of his or her principals competitors, consent of the principal must first be secured.
The principal may justifiably terminate the commercial agent contract only if the agent shows substantial deficiency in carrying out his or her obligations. Otherwise, contract termination gives the agent a right to indemnification, often equal to two years commission.
Other Agents
Persons who do not fulfill all the requirements for commercial agency, and who are not in a position of subordination to the company they represent, are considered agents. Notarial act or private agreement can effect authorization of an agent. Either party may terminate the agency agreement at will, but the non-terminating party has a right to indemnification of losses.
Salaried Representatives
Unlike agents, salaried representatives have employment contracts. They and their employers share the burden of payroll taxes contributing to social security, unemployment compensation, and retirement/pension plans.
Statutory Representatives
Whatever their qualifications or title, persons are considered statutory representatives if they exercise their activity as a sustained independent profession and fulfill the following conditions:
Engage in the activity of a sales representative for the account of one or more employers
Abstain from executing commercial operations on their own behalf
Institute mutual commitments with employers regarding the nature of goods or services offered for sale, the region of activity or the category of clients, and the rate of compensation
Statutory representatives, like all employees, perform their work according to the instructions of their employers and benefit from the system of labor law protection. However, they possess a special right to indemnification if their employment is unjustly terminated. This indemnity is based on the size and importance of the clientele created by the statutory representative.
Non-Statutory Salaried Representatives
Representatives who are subordinate to their employers and who do not fulfill the requisites for statutory representative status fall into a separate category and are considered regular employees.
Finding a Partner
The Department of Commerces International Trade Administration offers several services to help the would-be exporter identify potential foreign representatives. The three primary services available from the Commercial Service in France are the Gold Key Service, the International Partner Search (IPS) and Industry Targeted Mailings. To request any one of these services and to learn about other services, firms should contact the nearest U.S. Department of Commerce District Office. The number can be found in the U.S. government pages of your telephone directory, or you may call 1-800-USA-TRADE and visit the U.S. Commercial Service France Web site: http://www.buyusa.gov/france/en/page14.html. For more information, send E-mail to Paris.Office.Box@mail.doc.gov.
Contacting and Evaluating Potential Representatives
Once the U.S. company has identified several potential representatives, it should contact them directly in writing. Just as the U.S. firm is seeking information on the French representative, the representative is interested in corporate and product information on the U.S. firm. The U.S. firm should provide full information on its history, resources, personnel, the product line, previous export activity, and all other pertinent matters.
At the same time the firm is providing information on itself, it should also engage in a thorough investigation of the potential representative. Following is a list of important facts the firm should endeavor to find out:
Current status and history, including background on principal officers
Personnel and other resources
Sales territory covered
Current sales volume
Typical customer profiles
Methods of introducing new products into the sales territory
Names and nature of U.S. firms currently represented
Trade and bank references
Assessment of whether U.S. firms special requirements can be met
View of in-country market potential for the U.S. firms products
Exporters have the right to explore the qualifications of those who propose to represent them overseas. Therefore, the U.S. firm should not hesitate to ask the potential representative(s) or distributor(s) detailed questions.
In addition, the U.S. firm is advised to obtain both businesses and credit reports to ensure that the distributor or representative is reputable.
Credit information service on French Companies (CISFC) can be obtained from the U.S. Commercial Service in France, using local credit information database provider. The cost is USD 100 per company credit information and USD 40 per company when attached to other U.S, Commercial Service France’s services such as Gold Key Matchmaking Services, International Partner Search, Trade Mission, Matchmakers, etc. For more information, send E-mail to Paris.Office.Box@mail.doc.gov.
Negotiating an Agreement with a French Representative
Once the U.S. firm has selected a prospective representative, the next step is to negotiate a foreign sales agreement. The content of this agreement is extremely important, as it will determine the legal basis for any relationship between the exporter and the representative. Although U.S. Department of Commerce District Offices can provide counseling to firms planning to negotiate agreements with French representatives, engaging a French lawyer is strongly advised.
In drafting the agreement, special attention must be paid to safeguarding the exporters interests in cases in which the representative proves less than satisfactory. Procedures and conditions for terminating the relationship should be clearly defined. Furthermore, any right to indemnification on the part of the exporter or distributor should be specified.
Franchising Activities
The French franchise industry is ranked first in Europe in terms of sales. Although it is a very competitive market, it offers many opportunities for U.S. franchises. Out of a total of 92 foreign franchises in France, 29 are American, accounting for 4 percent of the total franchise market sales. There remains significant potential for U.S. franchisers in sub-sectors yet to be fully exploited, such as specialty restaurants, business services, or renovation services.
Direct Marketing
Direct marketing in France is a growing industry. Direct marketing media includes:
Mailings
Catalogs
Telephone marketing
Targeted and non-targeted fliers
Press
Television
The best prospects for growth are specialty catalogs, which sell apparel, book records, as well as entertainment videos, since they are the most ordered items. At the same time, there is room for specialty catalogs that would take advantage of unexploited sectors.
E-Commerce
Direct marketing via the Internet is booming in France. Product and services sales, as well as the number of Web sites on the Internet, have increased dramatically in recent years.
The total amount of the transactions generated in the Internet by the French consumers is increasing. The once powerful Minitel has lost ground to the advantage of the Internet, which continues to rise at a steady pace. The product categories most searched are:
Consumer electronics (26 percent)
Computers (21 percent)
Travel (19 percent)
Books
CDs
DVD’s (8 percent)
Home appliances (6 percent)
American companies have prospered in the French market and will continue to do so if special attention is paid to their approach to the market and the products/services they offer. As outlined above, the best “first step” is to appoint an agent or distributor. However, expansion in the market can take various other forms, depending on the product/service.
Joint Ventures and Licensing Options
A joint venture with a French firm having similar commercial interests is one recommended approach. The French government encourages this type of investment and offers a wide range of incentives. In selecting a joint venture partner, the American company must carefully analyze its strengths and weaknesses and search for a firm that offers the appropriate support. Traditionally, a French joint venture partner strengthens the marketing activities of an American firm with its in-place distribution system. In certain industries, French manufacturers have skills that supplement those of the American partner. Financing is also of special concern. Each joint venture proposal requires special analysis and conditions if it is to be successful. A joint venture with a French firm that has full French government support can be beneficial as long as manufacturing decisions can be made independently of government involvement. Recognizing the differences in each market is essential for success; consequently, it is recommended that companies interested in forming joint ventures consult with the U.S. Commercial Service at the U.S. Embassy in Paris before making any alliances.
Steps to Establishing an Office
Establishing a subsidiary/branch office in France is also an advisable approach for some industries. The French government encourages the formation of new enterprises. In conjunction with the Paris Chamber of Commerce and other Chambers throughout the country, the French government offers extensive counseling and assistance to those wishing to set up an office in France. Detailed “how to” gu
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