French Entrepreneurs Swim The Channel

A burdensome business climate sends them fleeing to Britain

At a Sept. 18 seminar in Ashford, England, where the Eurostar train stops between London and the Channel tunnel, 150 angry French business owners are gathered. They are here to learn from compatriots who have fled France to set up shop in Britain. "We're sick of it," says one visitor of the environment back home.

More than 1,000 French entrepreneurs are now doing business in Britain, and the number is growing. It's not surprising that French businesses are fleeing their homeland. So far, the Socialist government of Lionel Jospin has turned a deaf ear to suggestions by business leaders, venture capitalists, and technology companies to make starting a business in France more attractive. On Sept. 22, Growth Plus, an association of fast-growing French companies, made 25 proposals to the Jospin government, including eliminating social security taxes and reducing the cost of layoffs for companies with fewer than 10 employees. They also suggested that all students, bureaucrats, and politicians do mandatory internships in industry.

If Paris doesn't listen, the brain drain will get worse. The Ashford meeting was the work of entrepreneur Olivier Cadic. After 14 difficult years in Paris running the electronics company he started, Cadic, 35, calculated what his financial situation would be under British rules. Instead of the $80,000 net profit InfoElec made in 1995, it would have made $300,000. So Cadic relocated to Britain and on Sept. 18, 1996, created an association called France Free...To Do Business. Then he started bringing other French business owners across the Channel "to open their eyes."

Cadic's complaints against the business climate in France echoed through the audience at his group's anniversary meeting. Not only are they trying to avoid heavy taxes, tough labor laws, and a crippling bureaucracy; French entrepreneurs are tired of being treated as the evil of society. "We live in a Marxist system," says Jean-Pierre Letouzet, president of RGA Systemes, a systems engineering company. "France has never been capitalist. We're not prepared for globalization, and we're sinking." Adds Jean-Noel Mermet, managing director of Frenger, a London-based consultancy offering advice to French companies: "People distrust businessmen and believe they are thieves." Mermet left France for Britain 14 years ago and says he can't imagine going back.

In 1996, a dozen entrepreneurs contacted Mermet for advice on moving their headquarters to Britain. In the first half of this year, the number of inquiries grew to 120. Frenger usually advises larger companies that want to trade in Britain, but with the growing trend of small businesses crossing the Channel, Mermet is adapting his services. Says Mermet: "It's only the beginning, because more people will discover that they can't do business in a hostile environment." British towns are eager to attract the French investment.

Franck Feret is one convert. Owner of a French ambulance service with 80 employees, he learned at Ashford that he could cut his labor costs 15% by hiring new staff in Britain. He got the idea from Hotel & Catering Staff Supplies Ltd., a British company that sends hotel and catering personnel to France at a lower cost than French hotels incur themselves. Even with the fee that Hotel & Catering Staff Supplies charges, the workers it sends are a bargain for its French clients. British employers pay 10.2% of salaries in payroll taxes, compared with 46% in France. Now, Feret is thinking of asking Hotel & Catering Staff Supplies to recruit his new hires.

WORRIES. The policies of France's new socialist government so far are likely to accelerate such a trend. Since coming to office, Jospin has raised corporate taxes from 36.6% to 41.6% on companies with annual revenues above $8 million. Although the government plans tax credits for small companies and startups, entrepreneurs doubt they will go far enough. They also worry the government will delay privatizing the state pension system, which looks likely to run out of money after 2005.

A year ago, Olivier Cadic challenged French authorities on national radio: "Explain to me why it is better to be unemployed in France than a worker in England." Until the question is answered, more and more business owners will travel to Ashford seeking advice and a new chance to thrive.