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France ranks among the most developed economies in the world. The French country is an active participant in world trade and as a result has a considerable influence on global commerce. After the Second World War, the government was convinced that working closely with Germany would be instrumental towards enhancing prosperity for France. Cooperation between the two countries saw the emergence of the European Coal and Steel Community. Based on such cooperation, the two countries would work with other European nations in a bid to canvass on the issue of production and processing of steel and coal. France played a leading role in the creation of the European Union (EU), which has been critical in lowering government involvement in economic issues as many industries were privatized. The signing of the Treaty of Maastricht in 1992 acted as a basis for bringing Europe to an economic and a political union. The practicality of the development coincided with the lowering of trade barriers and restrictions as integration caused the availability of French products across Europe. Such developments have increased the economic freedom in the country leading to many beneficial results. Sharing trade policies with the rest of Europe has enabled France to enter commercial activities with other countries of the world from an advantageous position in terms of discussing business deals.
The disintegration of the Roman Empire had paved the way for the delinking of France from the European economy. Trade and town life declined as a result. However, during the Medieval ages, France traded in luxurious products, such as silver, papyrus and silk. At the turn of the Carolingian age, France began trading in agricultural products. Despite the emergence of agriculture as an important economic activity, civil wars had a negative influence on it.
It was not until the Renaissance age that France grew to an economic powerhouse. At the time, agriculture and industry expanded, however, economic activities were restricted. After the French revolution, the economy experienced a new stage of development. The guild and stringent tax systems were abolished. However, during 1790-1796 the country performed dismally in international trade as it was in debt and only resorted to printing money to make the payments. Since that time, the country has undergone major transformation as it is a part of the European Union, which is both a political and economic union.
The top trading partners of the French republic are Germany, Canada and countries drawn from the EU. The fact that Germany shares similar political interests with France explains the statistics. In addition, being a member of the European Union implies that no trade restrictions exist between the two powerhouses of Europe. Besides, it is noted that Germany is close to France geographically. Additionally, France is the second largest trading nation in Europe after Germany. The two countries exchange machinery, such as aircrafts, automobiles, steel, iron, chemicals and agricultural products.
One of the most notable trade agreements between France and international partners is the Free Trade Pact it has with Canada on agriculture. The agreement disallows tariffs on agricultural products making the exchange between the two countries advantageous to both of them. By entering such agreement, farmers from the two countries are able to focus/specialize in given foods leading to the production of cheaper and competitive products. Additionally, the arrangement contributes to lowering the cost of living in the two nations as consumers can access products at lower prices. In essence, the agreement is positive in stimulating economic growth in the two countries. The table below represents France’s international trade from 1975 to 1998.
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Trade (expressed in billions of US$): France |
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|
Year |
Exports |
Imports |
|
1975 |
53.086 |
54.222 |
|
1980 |
116.030 |
134.866 |
|
1985 |
101.674 |
108.251 |
|
1990 |
216.588 |
234.436 |
|
1995 |
286.738 |
275.275 |
|
1998 |
305.384 |
287.687 |
SOURCE: International Monetary Fund. International Financial Statistics Yearbook 1999.
Following the entry of the country into the EU, France had to adopt the policies of the wider economic and political union. For instance, the decision by the EU to erect barriers on foreign firms and their products is likely to affect the country because it is bound to follow suit, in particular, the recent restrictions related to safety, environmental and health matters.
Tracing France’s international trade is pegged at 1997 when its exports to the top ten best performing economies stood at 9.3%. In the subsequent two years, the country’s exports stood at 9.8% and 9.4% respectively. In effect, by 1999, the economy of France was only behind those of the United States, Germany and Japan.
At the time, France was also ranked fourth in terms of volumes of goods exported worldwide. Shifting attention to the agricultural sector revealed that the country was the second largest exporter of agricultural services and products. The sector included services rendered to the tourism and financial services sectors of the economy. The nation was also the fourth leading exporter in the durable products industry. Having ranked fourth overall, it also emerged that France had members drawn from the EU as the most regular trading partners. However, Germany and Italy were critical cooperators with the country on trade, although the trading imbalance between them was a concern. In the year 1999, France had a trade surplus of seventy-nine billion francs with its EU trading partners. It has to be noted that in the same year, the country had a trade surplus of sixty-six billion francs with the Organization for Economic Co-operation and Development countries (OECD). The deficit that France had with some countries from Asia and Russia was linked to economic cycles experienced at that time.
Among the over two million companies that operate in France, approximately five percent are involved in export-related activities. Although many of the entities are under the ownership of French nationals, others are multinational organizations with widespread ownership. For instance, IBM, Hewlett Packard, Daimler Benz and Michelin were among the leading exporters in France. However, the PSA, the Renault Group and the Airbus Industrie have been holding the top three ranks for a long time. The main items exported from France include: vehicles and spare parts, such as tires, electricity, aircraft, plastic products, office goods, industrial equipment, plastic goods, computer products, food items, chemicals and pharmaceutical products.
The leading four exporters in the country account for ten percent of all exports, which outweighs the number of products, which the preceding companies managed to generate. Further, it is recognized that the top ten performers earn to fifteen percent of the country’s total exports revenue. When ranking the best one hundred companies of France, the amount generated by them accounts for approximately thirty-five percent of the entire export returns. Given that the leading entities run various subsidiaries across different business lines, it is possible that the leading ten companies can, in future, produce approximately fifty percent of the country’s exports. As a result, conglomerates like Alcatel-Alsthom account for a considerable volume of exports.
Anyway, it is difficult to deny the fact that small businesses contribute to the country’s exports, as well. Since 1990s, the input of smaller organizations has been on the rise. It is indicated that approximately half of the country’s products were produced by entities employing between ten and five hundred employees. Famously known as Small-to-Medium Enterprises (SMEs), such companies concentrate on agro-foodstuffs, wood and leather products.
Since 1990s, foreign investment has grown steadily in France. Foreign Direct Investment has taken the form of start-ups and expansion, leading to the creation of thirty thousand jobs in 1999. The development was an eight percent increase from the previous year. The presence of skilled labor and the adoption of facilitative policies might have contributed to the increase in such investments. The US, Canada and German firms were the leading contributors to the jobs created. At the time, France stood as the fourth largest recipient of international investments.
Upon the realization of the contribution played by foreign investment, companies from France widened their presence abroad. In 1998, the country had established a presence in other countries valued at two hundred forty billion francs. Thus, focusing on direct capital investments, France was a net exporter to other parts of the globe.
Deciding on the leading products traded by France is relative. However, it is generally accepted that France exports automobiles, aircraft and spare parts, pharmaceuticals products, automobile equipment, steel and iron products, cosmetics, refined petroleum products, organic chemicals, wine, champagne and electronic products. On the other hand, the country imports natural gas, oil, automobiles, aircraft and related equipment, petroleum, products, computer and related products.
Focusing on trade between France and Germany, the available information demonstrates that the two countries take advantage of their cooperation. France sells low technology goods to Germany, such as agricultural produce while, the latter trades high technology products.
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Top 5 Products exported byFrance |
Planes, Helicopters, and/or Spacecraft (6.7%), Packaged Medicaments (5.2%), Cars (4.5%), Vehicle Parts (3.6%) and Refined Petroleum (3.0%) |
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Top 5 Products imported by France |
Crude Petroleum (6.5%), Refined Petroleum (5.4%), Cars (4.8%), Packaged Medicaments (3.0%), and Planes, Helicopters and/or Spacecraft (2.5%) |
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Top 5 Export destinations of France |
Germany (15%), Belgium-Luxembourg (8.8%), Italy (7.1%), the United States (6.9%) and the United Kingdom (6.6%) |
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Top 5 Import origins of France |
Germany (19%), China (7.9%), Italy (7.8%), Spain (6.4%) and Belgium-Luxembourg (6.4%) |
France 13th with an Economic Complexity Index (ECI) of 1.4572
The above table illustrates the main engagements of France. It is evident that Germany is the country’s main trading partner given that it takes most of France’s products, while Germany also consumers the bulk of its products.
Countries often encounter challenges in their attempts to trade internationally. France is not an exception in such regard. For instance, investors in France indicate that the country is attractive because it has competent skilled labor, good infrastructure, adequate technology and is strategically located. In addition, the membership of the country in the EU, which uses Euro, makes trade easier because the use of the currency facilitates trade and movement of people, capital, services, as well as goods. Anyway, the French government, in its attempts to liberalize and open the economy with a view to attracting additional investment, has not succeeded. It was caused by the perceived disincentives involving an unattractive tax environment, characterized by a rigid labor market, an unwelcoming behavior towards foreign investment, expensive labor and lack of predictability, which undermine the country’s pursuit of economic development. In particular, the country’s tax regime has a negative influence on foreign investors.
Among the numerous challenges that investors encounter in France, the issue of a highly strenuous retail distribution chain networks coupled with French global manufacturers and suppliers with strong control over their retail networks are a great concern. It is also noted that in many industries, independent retail/wholesale outlets are disappearing and being replaced by top retail chains with significant shares in the French market and neighboring EU countries and beyond. Many of the organizations with such arrangements have a strong presence with strict processes that impede the operability of new suppliers/operators. Thus, ongoing competitive market innovation, high retail mark-up and the changing environment imply that foreign investors have to increase their efforts in order to gain a share in the French market.
The determinants of trade surplus enjoyed by France is attributable to demand and cost/price developments within the country and the rest of the world. With specific focus on the 1990s, the adoption of the nominal exchange rate is perceived to have played a major role in the performance of the country economically. Particularly, in 1992/93, France’s major trading partners devalued their currencies meaning that the nation would enjoy an increase in exports and a declining demand for imports. In practice, currency devaluation puts an importing country at a disadvantage because it has to pay for products. However, for a nation that exports more, it becomes an advantage. The implication is that the country is threatened by policy shifts in other countries.
Given that France is developed economically with a diverse and sophisticated customer base, its opportunities for expansion are wide. In addition, France has a strong manufacturing industry which provides quality products. Moreover, the population of the country is affluent meaning that the consumption of products is not a concern. While the market is seen to be similar with that of the United States, French consumers are discriminatory, thus, marketers have to be informed about the market state.
Significant opportunities for food exist, as well. Given the rise in the demand for health products and organic products, traders have an opportunity to tap into the growing market segment by focusing on health products. In addition, companies based in the country can consider the US as a market for products, such as food and other innovative products.
Regarding the establishment that the country has an unwelcoming economic environment, France might consider revising its policies with a view to attracting more foreign investors. Similarly, the country would benefit from reviewing its retail channels. Changing the operation requirements to mirror procedures in other countries would present France an opportunity to advance.
At present, it can be stated that France is a leading economic country globally. Its entry into the EU has played a part in improving its state as an economic power. Additionally, it is noted that France has used its policy tools to influence economic development. In particular, the use of tax policy, currency devaluation and investment in infrastructure has greatly enhanced the performance of the economy. However, disincentives, such as unattractive tax environment, rigid labor market, expensive labor and lack of predictability, are the challenges that undermine the country’s economic pursuits. France should consider reviewing its retail channels to match its trading partners in order to enhance its attractiveness to external investors.
