Why France Is the Best Bet for Tech Entrepreneurs in Europe

The promise of foreign direct investments (FDI)

Amid the Brexit turmoil, three European countries broke into ranks of nations with the highest growth potential for entrepreneurs. Netherlands ($68 billion), Ireland ($66 billion), and France ($50 billion) are among the nations with highest foreign direct investment (FDI) inflows, ranked among the US ($311 billion), Mainland China ($144 billion), Hong Kong ($85 billion), Australia ($60 billion), Brazil ($60 billion), Singapore ($58 billion), and India ($45 billion).

FDI flows to the European Union fell by 26% in 2017 when compared to 2016, amounting to $370 billion. Much of the drop is explained by the UK taking a significant hit (-90%). However, despite the overall decline, a generally positive economic outlook meant that FDI inflows grew in 19 out of 32 European economies in 2017, UNCTID reports in its latest edition of the Investment Trends Monitor.

One of the countries showing a significant potential for entrepreneurial activity is France, where FDI inflows grew 77% in 2017. While the FDI growth is reported to be mainly due to large M&A deals, there are reasons to believe that France will be one of the most alluring nations to pick up the slack of slowdown among other European countries. Among Europe’s 10 leading host countries for foreign investment, France is the only western European country in which industrial sectors attracted more than 50% of foreign investments.

Vote of confidence from defining players

A vote of confidence in the French tech sector and the economy has been cast by some of the most powerful corporations – Google and Facebook unveiled significant investments in France this Monday, according to the Financial Times. Not only is Google planning to open a new AI center in the country within weeks (its second in Europe after Zurich), it is also adding four Google Hubs across the country, which will focus on free training in online skills and digital literacy. The first of four centers will open its doors in the first half of this year with the aim of training more than 100,000 people each year, the edition reports.

More than ever, we’re committed to help France find new ways to grow in this digital era—whether through helping people retrain, or growing a business, or using amazing talent to research and build new products for the world. We hope these new investments will help the country, academia and local businesses turn France into a true digital champion, Sundar Pichai wrote in a blog post, outlining the company’s plans for development in France and the advantages of the local ecosystem.

Facebook and SAP have also expressed strong interest in the French economy. While Facebook plans to invest €10 million in its French AI center over the next five years, doubling the number of AI scientists at its research base in Paris and increasing its funding of Ph.D. candidates 4X, SAP pledged to invest more than €2 billion in France over the next five years. The investment includes plans for a new incubator to develop more than 50 startups and investments of €150 million a year in research & development, the Financial Times reports.

Attractive legal framework

France has a special appeal from a business inception and operational perspectives. The business environment in the country has been evolving towards greater simplification and transparency, allowing for entrepreneurial activity and innovation to flourish. According to the France Attractiveness Scoreboard 2017 by Business France in partnership with the French Ministry for the Economy & Finance and the French Commission for Regional Equality (CGET), the French government is exempting entrepreneurs founding or buying businesses with an annual turnover of less than €40,000 from having to pay social security contributions for one year (starting on January 1, 2019). Moreover, the state is increasing the taxation regime thresholds for micro-entrepreneurs in 2018 to €170,000 for retail activities and €70,000 for the provision of services and non-commercial activities, thereby opening eligibility for this simplified tax system to as many independent workers as possible.

Tax reform is one of the most impactful ways for governments to support the startup community. And France is actively reshaping its approach to taxes to become the country of opportunities in the tech sector. The French government is planning to decrease the standard corporate tax rate from 33.3% to 25% by 2022, starting in 2018. It will also be transferring the tax burden from employee contributions onto the social security surcharge to lower payroll taxes and boost employment. By transforming the competitiveness and employment tax credit into a permanent reduction in employer social security contributions from 2019, the country provides greater hiring incentives to businesses.

Not only is the country redesigning its tax legislation to attract business ventures, the process of starting a venture in the country is also due to change. According to the France Attractiveness Scoreboard 2017 mentioned earlier, the plan (which due to be unveiled in 2018) will comprise a number of initiatives, including company formation, growing a business in line with statutory provisions & regulations, and transferring a business; equity/long-term debt/cash financing; corporate digitization & innovation; relations between businesses and authorities; and exploring new export markets. In 2016, only 3.5 days were required to found a company in France (compared with 4.5 days in the United Kingdom and 10.5 days in Germany).

A country with an experience of fostering innovation

Moreover, a €57-billion, five-year investment program is being planned to boost France’s growth potential by fast-tracking ecological transition, building a knowledge society, driving competitiveness through innovation, and ushering in government for the digital age, the report emphasizes. The country will also establish a new €10-billion fund for industry and innovation, with a particular focus on breakthrough innovation.

Experience tuning its system to nurture innovators is the country’s ace up the sleeve. According to the 2017 Top 100 Global Innovators report, just two nations account for 75% of the organizations on the list of 100: Japan and the US, making them the major innovation hubs of the world. However, six of the others have been present on the list since the inception of the report series in 2011, and France is among them (+ Germany, Netherlands, South Korea, Sweden, and Switzerland).

One of the most advanced infrastructures in the world

French infrastructure is among the best in the world, according to the 2017 Edition of the White Paper on International Rankings. France is ranked at number 13 for scientific infrastructure, and its structural advantages can be seen through variables such as the availability of qualified engineers (6th), high-tech exports (7th), environment-related technologies (5th), and energy intensity (8th).

France also stands out for its innovation capacity and scientific performances, as seen, for example, by the number of Nobel prizes since 1950 (4th), qualified engineers available in the labor market (6th), the number of R&D personnel (6th), business expenditure on R&D (6th), patent grants (6th), scientific articles published (7th), and intellectual property enforcement (12th).

The Global Competitiveness Report 2016-2017, which was cited in the report, places France at number 21 out of 138 countries, up one place from the previous year, and the 10th among the European Union countries. Some of France’s main strengths include:

  • France’s infrastructure was ranked among the best in the world (7th), with first-class rail (4th) and road (6th) networks (in October 2017, Ambroise Fayolle, Vice-President, European Investment Bank (EIB) signed with Philippe Yvin, CEO, Société du Grand Paris, a [€1-billion credit agreement for the construction of a new metro line part of the Grand Paris Express project], along with a high-quality electricity supply (7th).

  • A skilled workforce and a high-quality education system, both of which are acclaimed throughout the world.

  • France has a sophisticated business culture and plays a leading role in innovation (ranked 17th under the innovation pillar). Its scientific research institutions were also well regarded (9th), as were its capacity for innovation (8th), university-industry collaboration in R&D, and company spending on R&D.

  • France’s openness to international trade through low trade tariffs (5th), and the size of the French market (7th) were also seen as major advantages for France as a competitive business location.

Bruno Le Maire, French Minister of Economy & Finance, stressed that France is already highly regarded for the quality of its infrastructure. The French government will continue to invest in its infrastructure should it be for transportation, broadband, or climate change. Alongside the modernization of its regulatory framework, this creates an attractive landscape for international players – investors, corporates, banks – to develop their activity on the French market, as well as in Europe and globally from Paris. In addition, France benefits from a powerful, competitive, innovative private financing – banks, private equity, complex structuration – backed by recent regulatory improvements. The key asset of this strong financial ecosystem is human capital, served by top-ranking higher education and research institutions.

Vibrant institutional and startup scenes

France hosts an array of promising financial technology startups across segments, and counts over 750 firms combining finance & technology:

In addition to France being home to promising startup ventures, four French banks are among Europe’s 10 largest banks, including two of the top three: BNP Paribas (2nd) and Crédit Agricole (3rd). Moreover, six French financial institutions – AXA, BNP Paribas, Crédit Agricole, Groupe BPCE, Société Générale, and CNP Assurances – made it to the top 200 of the *Fortune *Global 500 in 2017, according to Business France.

French capital is reported to be the leading European destination for foreign financial companies: 500+ international businesses, banks, insurers and financial firms operate in Paris, employing ~126,000 people. In all, 90 billion euros are reported to be currently invested by foreign investors in French financial assets. Moreover, with some ¥20 billion in bank deposits, Paris has become a hub for the internationalization of the yuan. Paris is also home to 29 of the world’s top 500 companies, ranking number one in Europe, and third in the world after Beijing (56) and Tokyo (40), for the number of multinational company headquarters.

The future holds even more promising opportunities for individuals and businesses in France. Business France emphasizes that in 2019, Paris will become home to the headquarters of the European Banking Authority, following the United Kingdom’s withdrawal from the European Union. The European Securities & Markets Authority (ESMA), one of the two other European financial supervisory bodies, is already based in the French capital.

Not only is France building a strong and attractive local infrastructure for innovators, the country is also building bridges to other ecosystems to pull up its rank and leverage connectivity. French Tech London, the official online hub of the French tech ecosystem in London, is one of the prominent examples of such bridges along with the new initiative to build a target >€1-billion-dollar French-German fund for startups. Another unprecedentedly large project called Station F is bound to become the world’s biggest startup campus and will certainly contribute to attracting attention to France as one of the leading startup hubs globally.