Ask any French IT entrepreneur whether they would start a new IT company in France and the answer of Philippe Triem, founder and chairman of Paris-based information systems management company Wincap Software SA, would be common: Probably not, France is still a very heavy country [in terms of government regulation]. The game should be different, we need to make it easier. Ask about the largest source of problems and the answer is unanimous — the government. Currently, France has high basic taxes and social security charges, and inflexible labor laws. For example, French working hours are currently limited to 39 hours by law and a band of inspectors have been making raids on managers working after 6:30pm and threatening heavy fines. Telecom provider Alcatel and defense electronics firm Thomson, have both been recently cited. This situation is also set to get worse. Beginning in 2000, French working hours will be reduced to 35 hours. On top of this, France’s top earners are saddled with a wealth tax, and a new tax was introduced in 1995 that treats any gain on vesting stock options as salary for tax purposes. This has made options, a cornerstone of most IT industry compensation plans, prohibitively expensive for both companies and employees.
Punishing levies
These punishing levies have dissuaded many companies from locating or setting up a company in France, and they have persuaded many more to leave. For example, a slew of French companies have relocated from France to Ashford in the UK, one stop on the London to Paris ‘Channel Tunnel’ rail service. Most claim that their operating costs have halved as a result. Fiscality is the basis of the French problem and entrepreneurs are leaving because of the fiscal problems, says Bruno Vanryb, CEO of communications software company BVRP Software SA and current president of Croissance Plus, an alliance of small high-growth companies that has been lobbying the government for changes. The second major gripe of French entrepreneurs is government funding for IT. Securing funds has become such an arcane art that there are now professional grant negotiators to navigate the system. Paris-based search engine tools developer Trivium SA received a grant from the Agence National Valorisation de la Recherche (Anvar) to help pay for two R&D staff, but in retrospect, it was not worth the effort, says Richard Collin, Trivium’s CEO. We certainly could have raised the capital more effectively elsewhere, he says. When you are a start-up, the critical thing is time. Doing one thing means that you can’t do another. It was a mistake. And little attention has been paid to the commercial prospects of many research projects. The Government is giving out public money without looking at the basics, such as the market potential of the company. The result is that we have brilliant research but nothing in terms of employment and revenues, says Michael Lerendu, chief financial officer at Wincap Software. Vanryb believes the French Government is now becoming more attentive to the needs of IT companies, however, and particularly start-ups. I have met with Dominique Strauss Kahn (the French finance minister) twice and President Chirac once. Five years ago, these people wouldn’t have seen me. I would have been washing the toilets, he says. And following lobbying by Croissance Plus, the Government is looking at amending the stock option law. France does have some appeal. The arrival of the Euro will create a very large European market, with France at its heart. However, France, together with Germany, is being blamed for delaying the acceptance of digital signatures in Europe, and therefore slowing down the acceptance of e-commerce. The French government clearly needs to make some tax cuts and regulatory changes if it wants to persuade many of its technology TmigrTs to return, much less foreign technology vendors.
