French study confronts angst on exporting jobs

(PARIS) - French companies which shift activities abroad do so mainly to both old and new member countries of the European Union, an official report showed on Wednesday, contradicting public perception that a switch to low-wage emerging markets is devastating French industry.

Controversy and election pressure over the issue, known in France as "delocalisation", is a hot subject and a big factor in government policy to rejuvenate French industry.

French manufacturing in particular has fallen badly behind, being outpaced notably by companies in Germany, in terms of competitiveness in the last 10 years and the government has launched policies to correct this.

The fall in competitiveness has contributed to a big structural trade deficit, a factor holding down growth and a factor in the balance of payments, and also the trigger of a campaign by the French ministry for industrial renewal to encourage consumers to buy products made in France.

The latest data, in a study by the official statistics institute INSEE, also found that during a three-year period, the number of jobs cut by non-financial businesses and attributable to delocalisation totalled about 20,000.

By comparison, the number of people officially unemployed in France rose by 39,800 in April alone, to a record total of 3.26 million in April, labour ministry data showed.

The INSEE survey said that from 2009 to 2011, 4.2 percent of French companies delocalised at least one activity but that they turned first towards other EU countries rather than to emerging countries, contrary to received ideas.

These switches displaced activity first to the 15 oldest members of the European Union, which accounted for 38.0 percent of the relocations. These switches were driven by a strategy of reducing non-wage costs and by the quality of the environment for making contracts.

The next biggest destination was Africa which accounted for 24.0 percent, the most recent members of the European Union 22.0 percent, China 18.0 percent and India 18.0 percent.

INSEE said that its study on global chains of activity "leads to an estimate that the number of jobs cut in France directly because of delocalisations carried out between 2009 and 2011 by commercial non-financial companies employing more than 50 people is about 20,000 or about 6,600 job cuts per year over these three years."

Such switches of activity were made mainly by businesses in the sectors of manufacturing industry and information and communication services, INSEE said. These companies were usually involved in exporting, or were already operating abroad through subsidiaries.

-- Access to developing markets --

The removal of activity to emerging countries such as India and China were often motivated by access to low costs, whether or not this related to wages, and by access to developing markets.

Regarding new members of the European Union, attractive wage costs could also be a factor, INSEE said.

The French government is under great political pressure at home to raise the performance of the economy, which fell into recession in the first quarter, and begin bringing down record unemployment.

It is also under pressure at European Union level to make quick progress with structural reforms to control public budget deficits and raise efficiency in the economy.

The Socialist-Green government, overseen by President Francois Hollande, has made strengthening France's external accounts, and notably the trade balance, a key policy issue.

Meanwhile, the Bank of France reported that the balance of payments on current account, which measures all current payments in and out of the country for trade, direct investment income and wage transfers, showed a revised deficit of 2.8 billion euros ($3.7 billion) for March after a deficit of 5.0 billion euros for February.

The Bank of France said that there had been little change in the main components of the balance, but noted that "direct investments showed an inflow of capital for the third month running, under the effect notably of disinvestment by the French abroad."

Data from INSEE also showed that French consumer prices edged up by 0.1 percent in May, having fallen by the same amount in April to show 12-month inflation of 0.8 percent, up from 0.7 percent, official statistics showed.

A big factor on the inflation front was a fall of energy prices, by 1.8 percent in the month and by 0.4 percent over 12 months.

Imported energy is a big factor on the French trade balance and therefore on the current account.