Globalization and E-commerce:

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for domestic uses. France began to catch up with pioneering countries during 1999-2000, but the Internet bubble reduced the pace of adoption. " The French late adoption of digital technologies is partly due to the strong involvement of France in the development of two pre-existing technologies: the Minitel (principally dedicated to B2C) and EDI (dedicated to B2B). Both technologies provided the users with a sufficient level of service to support their business processes, but hindered their propensity to switch to new Internet-based technology. Consequently, most available indicators underestimate the actual level of e-commerce in France, especially the French business readiness to switching to Web-based commerce. " The late adoption of technology was not the only inhibitor for e-commerce. In France's recent economic history, decisionmakers focused for too long on other issues. France had to adapt its economy and its industry to a competitive and global environment. Since the State played a strong role in an economy that was not widely open to competition, a wide set of reforms had to take place between the mid-1980s and the late 1990s. " However, this restructuring policy prepared France for the adoption of e-commerce. as France was transformed into a service economy. Most organizations became more flexible by externalizing non-core activities and by implementing modular principles of organization. French companies went international as well. This new business climate favored the adoption of e-business and e-commerce practice by the end of the 1990s. " When macroeconomic and industrial restructurings were achieved, the French government launched a strong information society policy. Since 1998, the government has been furthering the deregulation of telecommunication services, reshaping the legal framework to adapt to digital technologies, promoting IT training and innovation, and developing e- government. " These policies were both a component of and aligned with the year 2000 e-Europe initiative of the European Union (EU), which promoted the development of a strong digital economy. Specific support programs (in R&D and development of content) were combined and an intensive effort for legislation and inter-member benchmarking occurred (to stimulate member states to align on the most advanced state), the Commission and the Council of the EU tried try to stimulate development of a dynamic digital industry in Europe, and to boost the adoption of digital technologies and the new-methods of work and business enabled by them. " While the European and the French policies had a significant impact on the adoption of digital technologies and e-commerce development, they were insufficient to really enable France to catch up. The bursting of the Internet bubble slowed the pace. Moreover, B2C e- commerce was inhibited by the efficiency of the French distribution system that serves at a low cost alternative to the Internet for most of the population. The existing installed base of EDI, especially in the automobile and distribution industries, inhibits B2B e-commerce over the Internet. Consequently, the French e-commerce path of development is unique since it 2 relies less on the Internet than in many other countries. Despite these inhibitors, France is adopting digital technologies and related practices at a higher pace than the other European countries. " Within France, e-commerce is quite contrasted in the various regions and industries. The Paris area (one-fifth of the French population), the IT industry, the professional services and distribution industries, and large companies are as intensively digitized as most advanced countries, industries and companies worldwide. However, many regions, industries, and SMEs remain archaic. This digital divide is a major inhibitor to the generalization of e- commerce practices, because it prevents France from benefiting from strong potential network externalities. 3 INTRODUCTION While France is one of the most developed countries in the world, and it has a tradition in developing and using ITs (especially telecommunications technologies), most international comparisons point out that the use of PCs and the Internet in France is much less intensive than in countries with the same characteristics. This has a strong impact on e-commerce based on the Internet. The early and wide adoption of alternative technologies (the Minitel and EDI) partly explains this (Brousseau, 2001). Since these technologies are still widely used, the French intensity of use of digital technologies is usually underestimated. Moreover, the in-depth implementation of these technologies in the economy and in the population delayed the adoption of the Internet. However, other factors contribute to the specific French path of evolution toward the digital economy. Two major factors are highlighted in the paper. " First, France 9s low rate of e-commerce adoption is due to the late adoption of the technologies. Until the very late 1990s, the digital revolution was not identified as a priority by most governmental and business decisionmakers, because France had to modernize its economy before going digital. While investment in ITs was not neglected, the priorities were clearly to deregulate, to go international, and to re-engineer the business process and organizations. This late take off would not have prevented a French catch-up if the bursting of the Internet bubble had not dried up the capital market and ruined enthusiasm. " Second, many inequalities generate digital divides among the most educated and the less, the Paris region and the French "provinces", large firms and SMEs, modern and archaic industries. These divides are clearly inhibitors of e-commerce since they check adoption of both digital technologies and e-commerce. Since many potential users and businesses cannot interact digitally with others that are not digitized, many decide to delay adoption. Both factors are not barriers to e-commerce practices; they are inhibitors, which explains why France is still behind. However, some positive factors have developed. " First, the French production system is now composed of firms and industries whose organization allows the implementation of e-business and e-commerce practices. Innovation capabilities have been reinforced especially in ITs. Moreover, France benefits from digital skills both in terms of IT production and use. It has a tradition in producing efficient telecommunication equipment and services, as well as software. The early diffusion of on- line services, both in businesses and in the public; the generalized use of smart-cards and mobile phones by the public; and the relatively high-rate of use of EDI and on-line information exchanges by businesses combine to create a climate that is favorable to the development of e-commerce. " Second, the French economy is now quite liberalized and open to foreign competition. Business decisionmakers are aware of what is happening abroad and seek to implement similar business processes in France. 4 " Third, the enabling infrastructure for e-commerce is there. France benefits from an excellent logistic, legal, and business services infrastructure. Most of the barriers that made Internet access scarce and costly (by 1997) have now been removed. There are also a few French firms that have developed viable (and sometimes profitable) e-commerce operations. In many cases, e-commerce companies are subsidiaries of retail chains that are quite successful in the global market. " Fourth, the central government, which has a strong influence because of the importance of the state in the national economy, and because of the centralization of the country, implemented a strong policy to boost the development of a French information society and digital economy. This policy was reinforced by the European policy aimed at sustaining the development of a unified and dynamic European digital arena. NATIONAL ENVIRONMENT Population and Demographics Population, Urbanization and Population Density France is one of the four most populated countries of the EU (Table 1). As most European countries, its population is rather stable, mostly urban, and well-educated. Due to a higher rate of fertility and immigration, it is slightly younger than the average EU member. However, with the extension of life expectation, the aging population is following the European trend (Table 2). Due to its agricultural tradition, a greater share of the population still lives in rural areas as compared to other EU countries with the same level of development (Table 1). However, most of the French population lives in quite densely populated areas. Table 1 points out that there are huge differences among European countries. First, there is a sizeable gap between large and small EU-members. The big five (Germany, U.K., France, Italy, Spain) are 4 to 10 times more populated than the small countries and there are no mid-size countries. This suggests that many figures are simply not comparable since several smaller countries are less populated than several large cities in the big five. Moreover, it is clear that large countries are less homogeneous (in terms of population characteristics, social and economic structures) than smaller ones. Therefore, comparisons among the figures of large and small countries have therefore to be interpreted cautiously. In addition, it has to be pointed out that the urbanization intensity is significantly higher in northern Europe than in southern Europe (Germany and U.K., vs. France, Spain and Italy). This is also true for the level of development (see GDP per capita, Table 15). However, while France is clearly a Mediterranean country in terms of urbanization, it is clearly a more northern country in terms of development. This explains why many French figures reach the average European figures; France stands as a kind of intermediary country among the Northern and Southern European blocs. 5 TABLE 1 Demographic Overview and Urbanization Demographics Population 2000 a Urban population (% of total) 2000 b % over age 65 1999 c % under age 15 1999 c Germany 82,175,800 87.50 15.84 15.66 United Kingdom 59,766,000 89.50 15.74 18.79 France 58,800,000 75.60 15.65 18.89 Italy 57,298,000 67.00 17.22 14.51 Spain 40,600,000 77.60 16.46 14.85 Poland 38,765,000 65.60 11.82 20.09 Netherlands 15,956,566 89.40 13.55 18.25 Greece 10,645,000 60.10 17.32 15.56 Czech Republic 10,244,000 74.70 13.56 16.90 Hungary 10,228,000 64.00 14.40 17.25 Belgium 10,161,000 97.30 16.36 17.41 Portugal 10,020,000 64.40 16.00 17.04 Sweden 8,880,532 83.30 17.20 18.88 Austria 8,211,000 64.70 14.97 16.97 Switzerland 7,164,400 67.70 14.97 17.07 Denmark 5,330,020 85.30 14.45 18.23 Finland 5,176,000 67.30 14.59 18.54 Norway 4,485,000 75.50 15.40 19.58 Ireland 3,730,000 59.00 11.17 21.56 United States 275,129,984 77.20 11.85 21.20 Scandinavia d 23,871,552 78.81 15.75 18.61 European Union e 376,749,918 79.54 15.97 16.83 OECD f 1,115,304,202 77.55 12.63 20.43 a Source: International Telecommunication Union, Yearbook of Statistics 1991-2000 . Geneva: International Telecommunication Union, 2001. The data for population are mid-year estimates. b Source: World Bank Group, WDI Data Query located at http://www.devdata.worldbank.org/data-query/. WDI definition: urban population is the midyear population of areas defined as urban in each country and reported to the United Nations. It is measured as a percentage of the total population. c Source : World Bank, World Development Indicators CD-ROM 2001 . d Only countries included in the 44-country sample are used in the classification. Scandinavia here consists of the following countries: Norway, Sweden, Denmark, and Finland. e Only countries included in the 44-country sample are used in the classification. EU here includes the members of the European Union excluding Luxembourg. f Only countries included in the 44-country sample are used in the classification. OECD here denotes the OCED member countries, excluding Luxembourg, Slovakia, and Iceland. TABLE 2 Evolution of the Age Distribution 1995 1996 1997 1998 1999 2000 p 2001 p Population 57,752,535 57,935,959 58,116,01858,298,96258,496,61358,744,113 59,039,713 < 20 Years 26.1 26.0 25.9 25.8 25.7 25.6 25.4 20Y<x<64 58.9 58.7 58.6 58.5 58.4 58.4 58.5 > 65 Years 15.0 15.3 15.5 15.7 15.9 16.0 16.1 < 15 Years 19.6 19.4 19.2 19.0 18.9 18.9 18.8 > 60 Years 20.1 20.2 20.4 20.5 20.6 20.6 20.6 p Stands for provisional Source: INSEE, 2002, ( www.insee.fr ). 6 These various elements of population and urbanization are both drivers and inhibitors to e- commerce: " The aging population could be a strong support for the development of on-line services. However, the low digital literacy of the elderly does not encourage the development of such services. " The relatively high-share of youth in the total population also could have a positive effect, since it is the most digitized part of the population. However, French youth remain less intensively trained in ITs than their foreign counterparts (Table 45) even if governmental actions are beginning to fill this gap (Table 44). " The relatively lower overall density of the French population could also have a positive impact on the demand for on-line services and remote commerce systems. Most French live in quite dense areas, but the majority of households do not have access to the Internet (Figure 4). The French distribution system is based on efficient supermarket and specialty store networks, (Brousseau, 2001), so the incentive to buy on-line is not very strong. In addition, since the population remains less urbanized overall than in many other European countries, the cost and the delay to implement a high speed digital network that would cover most of the population is significantly higher than in many European countries. Economy GDP & Economic Growth France 9s macro-economic climate has to be linked with the radical liberalization of the economy that has occurred since 1983. Prior to then, the French people believed in strongly "administrated" market economies. In addition to a dense web of regulations, the government directly operated the economy through public expenditures, large state-owned companies, and systematic arbitration of conflict. The peak of this trend was the 1981-1983 period when the French Socialist Party came to power. In 1983, however, the French Socialists made a radical ideological change and became social-democrats. Since then, the French elite 4whether "liberal" or "social-democrat" 4has been conducting a policy of liberalization of the French economy aimed at enabling France to compete more efficiently in the European integrated market, and more generally in the global economy. This led to a cut in subsidies to support specific business, deregulation, privatization, and economic restructuring. The European integration process was a major driver for this evolution. The French economy had to be liberalized because of the single market policy (achieved in 1992). The process of deregulation of network industries and privatization of former monopolies is still on its way in the last highly regulated industries (electricity and railways). The government had to strongly reduce its level of direct intervention into the economy both because of the emergence of a strong anti-trust regulation at the European level (that forbid public subsidies that distort competition) and because the goal of developing a single currency (achieved in 2001) imposed strong public budget constraints. The liberalization process of the French economy led to a wide re-engineering of French industry. Focused on the management of organizational change to adapt firms, industries, and the workforce to enable them to face a new competitive environment. French decisionmakers did not 7 identify the coming digital revolution early enough. This partly explains why France took off quite late (Brousseau, 2001). At the same time, this policy was a prerequisite to enable France to be competitive in the global economic arena. As pointed out in Table 3, French exports grew at a stronger pace than imports in the last 20 years, enabling the trade balance to become structurally positive. This is the main proof of the enhancement of the competitiveness of "France Inc.". TABLE 3 The French GNP Structure Billions of Euros 1980 1990 1995 1996 1997 1998 1999 2000 Resources GDP 878.11,121.01,181.81,194.91,217.61,259.1 1,295.81,335.9 Importation 142.6211.7249.8253.8271.2302.6 317.0362.1 Uses Households Consumption 505.7627.5649.0657.3658.2680.7 699.7717.4 Public Current Expenditures 192.2251.5282.2288.6294.7294.3 300.3306.8 Non-Profit Organizations Expenditures 4.15.27.07.27.47.6 8.08.3 Investment 174.1236.1222.1222.1221.9237.4 252.2267.6 Net Acquisitions of Stocks 0.60.90.90.91.01.2 1.31.3 Inventories Variations 6.95.64.4-2.6-2.07.4 5.00.0 Exportations 134.8205.6266.0275.2307.7333.3 346.6390.2 Total 1,015.31,332.11,431.61,448.61,488.91,562.0 1,613.01,697.2 Source: INSEE. Comptes Nationaux. 2002. www.insee.fr Restructuring the French economy was also an effort to make the economy more dynamic. France is today one of the European countries that enjoys steady growth (Table 5). While growth reduced for the year 2001 in all the western economies, France was one of the countries that benefited from the lighter recession. This is due to the strength of domestic demand (Tables 3 and 4), especially household consumption and business investments, which have been quite dynamic since 1998. TABLE 4 The French GDP Growth Broken up by Macroeconomic Categories In point of GNP 1995 1996 1997 1998 1999 2000 Households Consumption 0.7 0.7 0.1 1.9 1.5 1.4 Public Current Expenditures 0.0 0.5 0.5 0.0 0.5 0.5 Investment 0.4 0.0 0.0 1.3 1.2 1.2 Including Business Investments 0.2 -0.1 0.0 0.9 0.6 0.8 Trade Balance 0.0 0.4 1.3 -0.5 -0.1 -0.1 Including Exportations 1.7 0.8 2.7 2.1 1.0 3.3 Including Importation -1.6 -0.3 -1.5 -2.6 -1.1 -3.4 Inventories Variations 0.6 -0.6 0.0 0.8 -0.2 0.1 GDP 1.7 1.1 1.9 3.4 2.9 3.1 Source: INSEE. Comptes Nationaux. 2002. www.insee.fr Frances 9s increasing international competitiveness combined with healthy growth based on a strong domestic demand, can be interpreted as the result of the French restructuring policy that allowed significant productivity gains in the second part of the 1990s (Table 6). As compared to the other large European countries, France is today the nation that enjoys the more healthy and 8 dynamic economic climate. While the mid-1980s and the first half of the 1990s were characterized by "austerity" policies resulting in a depressed economic climate, the "dividend" came in the late 1990s. This macroeconomic climate explains the late French takeoff in the digital economy and the vigor of the catch up efforts. Until 1998, the ability of French firms (and households) to invest in digital technologies was low (weak final demand, depressed investment). Moreover, productivity gains were primarily identified as deriving from industrial restructuring and organizational re- engineering. It did not incite households and businesses to go digital. Since then, firms that are more efficient invested in digital technologies and e-commerce because these technologies and the related business practices became the new drivers of productivity gains (Tables 6 and 28). TABLE 5 Quarterly Growth Rates in GDP at Constant Prices 1999 Q4 2000 Q1 2000 Q2 2000 Q3 2000 Q4 2001 Q1 2001 Q2 2001 Q3 2001 Q4 U.S. 2.0 0.6 1.40.30.50.30.1 -0.30.3 Japan -1.3 2.0 0.8-0.70.31.0-1.2 -0.5-1.2 Belgium 1.8 0.2 1.00.80.90.2-0.5 0.0-0.2 Denmark 1.5 -0.2 1.60.30.8-0.50.4 0.50.2 Finland 1.5 2.1 0.91.60.70.0-1.8 1.4-0.5 France 1.2 0.8 0.9 0.6 1.0 0.4 0.2 0.5 -0.1 Germany 0.8 1.0 1.20.10.20.40.0 -0.2-0.3 Italy 1.0 0.8 0.30.50.80.80.0 0.1-0.2 Netherlands 1.3 0.8 0.60.50.70.00.3 0.00.0 Spain 1.1 1.2 1.00.40.81.00.2 0.90.2 Sweden 1.1 0.8 1.20.60.30.40.0 0.10.3 U.K. 0.8 0.4 0.80.90.60.70.5 0.40.1 Source: OECD, Quarterly National Accounts Database, 2002, www.oecd.org TABLE 6 Trends in Multi-factor Productivity Growth 1, 2 1990-95 and 1995-99 Business Sector, Percentage Change at Annual Rates 1990-95 1995-99 Finland 3.0 3.6 Denmark 1.5 1.5 Netherlands 1.9 1.5 Sweden 1.3 1.3 United States 1.0 1.2 France 0.9 1.1 Germany 1.1 1.1 United Kingdom 0.8 1.0 Japan 1.3 0.9 Italy 1.2 0.8 Spain 0.9 0.5 1 Adjusted for hours worked, based on trend series and time-varying factor shares. 2 Series end in 1997 for Belgium and Italy; 1998 for Denmark, France, Japan, Netherlands, and U.K.; data for Germany starts in 1991. Source : OECD calculations, based on data from the OECD Economic Outlook No. 68. See S. Scarpetta et al., Economics Department Working Paper No. 248, 2000 for details; May 2001. Despite this recovery, the French growth remained behind the average European growth in the second half of the 1990s. This partially explains why the level of unemployment (Table 18) 9 remained significantly above the European means in the year 2000. The high level of unemployment is also the other side of the coin of the very good French performance in terms of inflation (Table 7). TABLE 7 Economy 2000 Economy Unemployment Rate 2000 a Inflation, GDP Deflator (annual %) 2000 b Average GDP Growth, 1995-2000 b Ireland 4.10 5.27 9.93 Poland 16.10 7.74 5.47 Finland 9.70 1.25 5.09 Hungary 6.40 6.76 3.66 Netherlands 3.30 2.58 3.47 Spain 14.07 3.45 3.45 Portugal 4.00 2.89 3.30 Norway 3.40 6.89 3.24 Greece 11.10 2.88 3.15 Sweden 4.70 1.57 2.96 United Kingdom 5.50 1.78 2.76 Belgium 7.00 3.61 2.65 Denmark 5.40 3.98 2.65 France 10.02 .53 2.40 Austria 3.60 2.39 2.24 Italy 10.50 2.55 1.95 Germany 7.90 -.59 1.67 Czech Republic 8.30 1.09 1.65 Switzerland 2.70 1.26 1.48 United States 4.00 2.05 4.01 European Union c 7.21 2.44 3.40 Scandinavia d 5.80 3.42 3.48 OECD e 6.56 4.79 3.43 a Source: International Labor Organization, LABORSTA (http://www.laborsta.ilo.org), Table 3A. b Source: World Bank Group, WDI Data Query located at http://www.devdata.worldbank.org/data-query/. WDI definition: Inflation as measured by the annual growth rate of the GDP implicit deflator. GDP implicit deflator measures the average annual rate of price change in the economy as a whole. Annual percentage growth rate of GDP at market prices based on constant local currency. Aggregates are based on constant 1995 US$. c Only countries included in the 44-country sample are used in the classification. Scandinavia here consists of the following countries: Norway, Sweden, Denmark, and Finland. d Only countries included in the 44-country sample are used in the classification. EU here includes the members of the European Union excluding Luxembourg. e Only countries included in the 44-country sample are used in the classification. OECD here denotes the OCED member countries, excluding Luxembourg, Slovakia, and Iceland. Sectoral Distribution Even at an aggregate level, the evolution of the structure of the French production system can be observed. Like other developed countries, France is today a service economy, but France deepened its specialization in services for the last two decades (Table 8). Over the last 20 years, the growth of commercial services was faster than the growth of the whole economy, while the contribution of agriculture and manufacturing industries to GNP decreased. Faster growth occurred for professional services, commerce, and transportation. Public services grew a little faster than GDP, but this was mainly due to the effort toward education and to the mechanistic 10 growth of health expenditures with the aging population. Industry, on average, grew at a slower pace than the economy, two industries experienced strong growth: equipment and intermediary products. The reshaping and modernization of French industry required switching to an economy based on dynamic industries (manufacturing and services) serving professional customers. It also developed skills in new industries that are essential in the "new economy": namely commerce, logistics, and transportation. One can note however, the relative weakness of the French finance industry. Second, the industries that developed the most as compared to others (professional services, logistics) confirm the idea that France switched to a modern organization of operations based on the externalization of many functions to specialized professionals that lead to the development of network firms. TABLE 8 The Distribution of the Value Added Among Industries (In Billions of Euros 1995) 1980 1990 1995 2000 Agriculture. Forest. Fishing 29.1 33.9 35.5 39.7 Manufactured Products 185.4 215.6 230.6 264.3 Food and Agro-business 28.8 29.2 29.6 29.0 Consumption Goods 34.3 38.8 38.5 41.3 Automobile 13.7 13.6 13.8 21.5 Equipment 26.9 35.1 39.8 47.3 Intermediary Products 51.4 71.9 77.8 91.4 Energy 32.4 27.3 31.1 34.5 Construction 56.2 62.0 57.3 51.8 Commercial Services 377.9 535.6 549.3 630.0 Commerce 72.8 110.8 115.5 128.4 Transport 29.2 40.4 42.8 54.4 Financial Services 37.5 60.4 55.4 52.4 Real Estate 90.6 120.9 130.3 143.5 Professional Services 91.9 140.9 146.0 187.3 Consumers Services 60.7 62.4 59.2 65.0 Public Services 152.9 199.0 222.5 240.6 Education,. Health,. Social Support 86.0 113.4 126.6 136.2 Administration 66.9 85.6 95.8 104.4 Adjustment -29.6 -47.8 -39.5 -31.7 Total 778.7 999.2 1 055.7 1 195.0 Source: INSEE. Comptes Nationaux. 2002. www.insee.fr As they concern e-commerce, these figures point out again that France had to proceed to in-depth restructuring before going digital. The late digital take off can be explained better by these significant changes than through "cultural" factors. The reorganization of industry in networks of firms and the dynamics of commerce, transport, and professional services are strong drivers for development of e-commerce. It does, however favor the development of B2B commerce rather than B2C, since French consumers already enjoy an efficient distribution system (Table 9). French manufacturing and services industries that serve the mass market are less efficient than their foreign competitors (as pointed out by the French deficit of the trade balance for consumers services and consumption goods; see Table 9). 11 Openness to Foreign Trade and Investment The evolution of the trade balance is also evidence of the reshaping of the French industry. While systematically negative in the 1980s the trade balance became positive in the 1990s (Table 9). This is explained by several factors. Except for energy, which trade balance is fully dependent on, the international oil market, French industry became more competitive in exporting goods and services. Moreover, French industry is quite efficient at exporting food and agro-business products, automobile equipment, commercial and professional services. Tourism plays an essential positive role as well (Table 10). The main weaknesses are in consumer goods. While it is positively evolving with the passing of time, the French trade balance remains negative with most developed countries. It is slightly positive with the other EU members, negative with all the other OECD countries, and positive with the developing world (Table 11). This reflects an insufficiently modernized industry. TABLE 9 The French Trade Balance Broken Up by Activities (1980-2000) Billions of Euros 1980 1990 1995 1996 1997 1998 1999 2000 Agriculture. Forest, Fishing 0.2 3.61.41.81.91.9 2.32.2 Manufactured Products -15.6 -23.7-0.53.315.912.5 7.2-10.1 Food and Agro-business 0.6 3.85.96.28.27.2 7.37.4 Consumption Goods -0.7 -6.2-3.8-2.7-2.1-4.0 -4.0-6.8 Automobile 3.9 3.53.43.69.89.0 8.29.4 Equipment 3.6 -0.85.27.111.010.1 7.99.0 Intermediary Products -1.7 -9.8-2.01.02.3-0.4 -0.7-6.7 Energy -21.4 -14.2-9.2-12.0-13.4-9.4 -11.4-22.2 Services 0.9 0.53.43.55.95.3 5.78.0 Commerce -0.6 -0.20.70.62.22.0 2.33.5 Transport 0.5 -0.30.40.71.01.2 1.00.7 Financial Services 0.1 -0.30.40.00.4-0.3 0.10.8 Professional Services 0.9 1.42.22.72.62.7 2.63.1 Consumers Services 0.0 -0.1-0.4-0.5-0.3-0.3 -0.4-0.1 Correction CAF/FOB 2.4 3.33.33.23.64.1 4.34.5 Territorial Correction 1.4 6.68.58.310.210.9 13.415.2 Total Trade Balance -10.7 -9.816.220.137.434.6 32.919.8 Source : INSEE. Comptes Nationaux. 2002. www.insee.fr TABLE 10 The French Trade Balance in the Year 2000 Broken Up by Activities 2 Billions of Euros Balance Imports Exports Goods (FOB/FOB) -21.9 2,147.30 2,169.20 Tourism 99.4 215.5 116.1 Non-Tourist Services 52.7 277.9 225.3 Source: INSEE. Comptes Nationaux. 2002. www.insee.fr 12 TABLE 11 The French Trade Balance in the Year 2000 Broken Up by Regions Billions of Euros Exports Imports Balance Exports/Imports in % European Union 15 168.2 166 2.1 101.3 Non EU OECD 46.0 53.1 -7.0 86.8 United States 24.5 27.9 -3.4 88.0 Japan 4.1 12.5 -8.4 32.9 Developing Countries 40.6 25.0 15.5 162.2 World 272.23 268.43 3.8 101.4 Source: Ministère de l'Économie, des Finances et de l'Industrie, 17/12/2001(www.industrie.gouv.fr) In 2000, imports and exports each accounted for around one-fourth of the French GDP (Table 3). The French economy is therefore widely open. This is primarily true with the other members of the European Union, but the U.S. is an essential partner as well (Table 11). This strong role of France in the global economy can also be seen in the FDI statistics (Table 12). Among large economies and together with the U.K., France has exported and imported capital with higher intensity. This reflects both the attractiveness of the country and the recovered international competitiveness of its industry. TABLE 12 Inward and Outward FDI Flows as a Share of GDP (Average 1990-98) Inflows Outflows Japan 0.04 0.67 Italy 0.31 0.70 Germany 0.31 1.68 United States 0.92 0.99 OECD 1 1.00 1.40 EU 1.38 2.12 France 1.42 2.11 Denmark 1.69 1.72 Spain 1.69 1.01 Finland 1.80 3.32 United Kingdom 2.29 3.38 Netherlands 3.12 5.53 Sweden 3.20 3.75 Belgium-Luxembourg 4.67 3.47 1 Excluding the Slovak Republic; for outward flows, excluding Greece, Ireland, and Mexico. Source: OECD, International Direct Investment database, May 2000. Foreign affiliates represent a very significant share of the manufacturing industry, although they are more marginal in services (Tables 13, 14). FDI figures illustrate that French firms are used to competing in a global arena and that French service companies are quite competitive (with the exception of the finance industry). 13 TABLE 13 Share of Foreign Affiliates in Manufacturing Turnover 1 and Employment (1998 or latest available year) Turnover Employment Japan 1.8 1.1 Germany 10.8 6.0 Italy (1997) 16.2 11.5 Finland (1999) 16.2 15.9 United States 18.3 13.4 Sweden 21.9 21.1 Netherlands (1997) 30.4 19.7 United Kingdom (1997) 31.4 17.8 France 31.7 27.8 Ireland 72.3 47.5 1 Production instead of turnover for Canada and Ireland. Source: OECD, AFA database, May 2001. TABLE 14 Share of Foreign Affiliates in Services, 1998 Turnover Employment Japan (1997) 0.67 0.24 1 United States (1997) 8.29 3.59 France 9.02 5.26 Finland 15.33 8.93 Netherlands (1997) 16.78 8.85 United Kingdom (1997) 17.17 9.73 Sweden (1997) 18.15 4.83 Italy (1997) 20.96 7.21 Belgium (1997) 26.60 18.86 1 1994 for foreign affiliates and 1995 for all domestic firms Source: OECD, FATS database, May 2001. To sum up, the French economy was deeply restructured from the mid-1980s to the late 1990s. In 20 years, this country whose industry was dominated by large state owned companies (so called "National Champions"), where businesses were coordinated by very powerful administrative services that managed national plans, and whose economy was heavily regulated, was turned into a country in which most of the markets are now competitive and open to foreign competitors, most of the former public monopolies (except for railroads, gas and electricity) have been being privatized and deregulated, and in which industry is global and open to global competition. The French restructuring prepared industry to go digital. Its structures are now modernized around a model of flexible specialization. Firms dynamically re-engineer their relationships with a network of business partners to adapt to competitors' strategies, and to the evolving preference of consumers, and to technological changes. Since digital technologies and networks have to be used in such a model, the renewed shape of French industry should be a major driver for the development of e-commerce. In addition, the quality of French professional services companies, the efficiency of the logistics-distribution system, and the openness of the French economy should further facilitate the development of both B2B and B2C commerce. However, the late take off combined with the dot com crash contributed to a specific path of development with less 14 impressive growth. There was less cash burning, since the French managers are more careful and benefit from foreign experiences. Wealth French GDP per capita is a bit above the average level of EU (Table 15). In comparison, the GDPs per capita of the U.K. and Germany are significantly inferior to the U.S. and reach the average of OECD countries. It has to be pointed out that these differences in wealth per capita among nations are not really due to significant differences in terms of productivity. Indeed, when deflated by the numbers of hours worked per year (Table 16) it can be seen that the French GDP per capita is not far from the U.S. level. This shows that the French industry does not suffer from a strong competitive disadvantage when compared to the U.S., while it is a much less intensive user of ITs. Moreover, the French GDP per capita grew at a 3% per year trend for the last five years, confirming the dynamism of the French economy (Table 17). In terms of inequalities, France ranks a little higher than the average EU member does. The U.K. is one of the most inequalitarian countries in Europe. The upper and the middle classes, representing more than 80% of the population, is wealthy enough to access digital networks and to consume on-line. From an economic point of view, the smaller percentage of those unable to afford IT is this is not a significant inhibitor for e-commerce. This is, however, a political issue since they could become second class citizens that would be excluded from wealth, jobs, and social life. This political aspect of the digital divide is particularly sensitive in France due to the persistent (while decreasing, see Table 18) rate of unemployment that has a strong social cost (de-skilling of the unemployed population, social support programs, urban violence). 15 TABLE 15 Wealth and Inequalities, 2000 Wealth GDP in billions US$ 2000 a GDP per capita 2000 a Share of income or consumption, richest 20% 1987-1998 b Share of income or consumption, poorest 20% 1987-1998 b Norway $159.43 $35,548.04 35.80 9.70 Switzerland $241.01 $33,639.37 40.30 6.90 Denmark $162.41 $30,470.04 34.50 9.60 Sweden $227.37 $25,603.08 34.50 9.60 Ireland $94.76 $25,403.52 42.90 6.70 United Kingdom $1,416.09 $23,693.92 43.00 6.60 Finland $120.81 $23,341.17 35.80 10.00 Netherlands $367.81 $23,050.88 40.10 7.30 Austria $188.92 $23,008.57 33.30 10.40 Germany $1,866.12 $22,708.86 38.50 8.20 Belgium $225.70 $22,212.32 34.50 9.50 France $1,280.17 $21,771.62 40.20 7.20 Italy $1,070.82 $18,688.63 36.30 8.70 Spain $555.00 $13,670.06 40.30 7.50 Greece $111.93 $10,515.00 40.30 7.50 Portugal $104.61 $10,439.93 43.40 7.30 Czech Republic $50.76 $4,955.46 35.90 10.30 Hungary $45.63 $4,461.60 39.90 8.80 Poland $157.61 $4,065.74 40.90 7.70 United States $9,962.65 $36,210.70 46.40 5.20 Scandinavia c $670.02 $28,067.79 35.15 9.73 European Union d $7,792.53 $20,683.55 38.40 8.29 OECD e $25,461.49 $22,829.19 40.19 7.71 a Source: International Telecommunication Union, Yearbook of Statistics 1991-2000 . Geneva: International Telecommunication Union, 2001. ITU definition: the data are current price data in national currency converted to US$ by applying the average annual exchange rate (from the International Monetary Fund, IMF) to the figure reported in national currency. GDP per capita is calculated by dividing GDP in US$ by the mid-year estimate of population obtained from the United Nations. b Source: United Nations Development Program, Human Development Report 2000 . New York & Oxford: Oxford University Press, pp. 169-172. Dates for the data vary by country from 1987 to 1998. c Only countries included in the 44-country sample are used in the classification. Scandinavia here consists of the following countries: Norway, Sweden, Denmark, and Finland. d Only countries included in the 44-country sample are used in the classification. EU here includes the members of the European Union excluding Luxembourg. e Only countries included in the 44-country sample are used in the classification. OECD here denotes the OCED member countries, excluding Luxembourg, Slovakia, and Iceland. 16 TABLE 16 French GDP Per Capita and GDP Per Hour Worked, 1999 GDP per capita (US = 100) GDP per hour worked (as % of US) Belgium 73 110 Netherlands 78 109 Italy 68 106 United States 100 100 France 1 65 97 Germany 70 94 Denmark 79 93 EU 66 91 United Kingdom 68 87 Sweden 68 84 OECD 2 72 82 Finland 67 82 Spain 54 76 Japan 75 74 1 Includes overseas departments. 2 Excluding Poland, Turkey, and the Slovak Republic. Source: OECD, GDP and population from National Accounts database; working-age population, labor force and employment from Labor Force database; hours worked from OECD calculations, see S. Scarpetta, et al., Economics Department Working Paper No. 248. TABLE 17 French GDP & GNP Per Capita 1980-2000 In Euros/Inhabitants 1980 1990 1995 1996 1997 1998 1999 2000 GDP per Capita 7,972.4 17,351.419,886.520,326.820,908.921,746.3 22,393.023,170.2 GNP per Capita 8,017.3 17,282.419,781.420,315.120,957.221,847.7 22,540.523,356.4 Source : INSEE. Comptes Nationaux. 2002. www.insee.fr TABLE 18 French Working Population, Unemployment, and Salaried Employees 1990-2000 In Thousands 1990 1995 1996 1997 1998 1999 2000 Population 58,170.9 59,429.7 59,634.3 59,838.8 60,049.3 60,293.8 60,628.4 Working Population 25,431.7 25,998.0 26,295.4 26,479.6 26,645.4 26,926.4 26,958.2 Unemployment 9.4% 12.0% 12.8% 12.9% 12.3% 11.7% 10.3% Salaried Employees 79% 78% 77% 77% 78% 79% 80% Source : INSEE. Comptes Nationaux. 2002. www.insee.fr Potential E-commerce Participants While French wealth and inequalities should rank France in the set of countries where e- commerce is intensively used, France remains behind most of the developed countries when one considers the use of e-commerce on the Internet. One of the main causes is the under-training of French citizens and workers in the use of digital technologies. When compared to Europeans, French workers use computers less intensively in the work place (Figure 1). The fact that they have been able to access on-line services though Minitel, is one of the causes of this situation. French efforts to promote digital literacy have been insufficient as well. 17 FIGURE 1 Digital Literacy 1 Computer Training and Work 0% 10% 20% 30% 40% 50% 60% 70% 80% DK SFINNLLDUK AIRLFIB EELPEU % workers having computer training % workers who use computers for work Source: European Commission, 2001a, Euro barometer, Brussels: European Commission, November Behind the aggregated numbers, it has to be pointed that there are at least two digital divides in France, leading to a highly contrasted evaluation when one tries to assess e-commerce readiness. First, as in many countries, age and professional skill are strong determinants in using digital technologies (Figures 2 and 3). While the lack of reliable figures does not easily permit international comparisons, it seems that France is characterized by a high rate of inequality in access to digital technologies. French under 49 and executives seem to use computers and the Internet as intensively are their foreign counterparts. The intensity of use remains quite low for many categories, especially for farmers, blue collars workers, and even white collar workers (Figure 3). Second, there is a huge gap between the Paris region and the rest of France. Since France is a highly centralized country, Paris is not only the center of political power, it is the center of the economic activity as well. It accounts for one-fifth of the French population and almost one-third of French GDP (Table 19). Paris is therefore wealthier than the rest of France. Its population is more dynamic and better educated. Paris concentrates many of the activities that relate closely to the digital economy, as well. As a result, it is one of the most dynamic regions in Europe (Table 20). These explain why Paris is an area where the level of development of the digital economy is quite comparable to many large developed cities, while the rest of France (with the exception of 2 or 3 other large cities) is far behind. 1 In this figure and in Figures 4, 5, 7, 8, 9, 10, the abbreviations stand for: DK=Denmark, S=Sweden, FIN=Finland, NL=The Netherlands, L=Luxemburg, D=Deutschland, UK=United Kingdom, A=Austria, IRL=Ireland, F=France, I=Italy, B=Belgium, E=Spain, EL=Greece, P=Portugal. 18 FIGURE 2 Households with PCs according to the Age of the Reference Person 22 28 31 22 9 2 1 19 32 40 26 11 3 0 23 3535 46 29 14 3 1 27 28 0 5 10 15 20 25 30 35 40 45 50 Under 30 years 30-39 Years 40-49 Years 50-59 Years 60-69 years 70-79 years Above 80 Years Average 1998 1999 2000 FIGURE 3 Households with PCs according to the Social Status of the Reference Person 6 22 44 25 13 10 21 19 8 21 51 29 17 13 25 23 12 24 53 37 1818 29 27 0 10 20 30 40 50 60 Farme r s Independents E xe c utive s Le ga l & M e d ica l Prof. Emplo y ees Workers Retired & Une m ployed A v erag e 1998 1999 2000 Source: INSEE, Enquête Permanente sur les Conditions de Vie des Ménages (EPCVM), n°106, 2001 19 TABLE 19 Paris and France Paris region Rest of France Paris region vs. rest of France in % Population (in millions) 10.9 47.5 22.3% GNP 2000 (in millions of Euros) 1 395,228 988,125 39.9% PIB/Inhabitant (in Euro, 2000) 1 35,946 20,638 174.2% Value Added/Employee (in Euros, 1999) 1 70,580 49,850 141.6% Employment/Total Population in % 1 45 36 125.0% % of Engineers and Executives in the Active Population 24 9 266.7% Distribution of IT Start-ups 1, 2 50.7 49.3 102.8% Percent of SMEs with an Internet Access 3 73 57 128.1% Geographic Distribution of Employment in the Computer Industry 4 47.8 52.2 91.6% Geographic Distribution of Employment in the TV and Communication Industry 4 26.1 73.9 35.3% Geographic Distribution of Employment in the Software and Information Service Industry 4 58 42 138.1% Source: 1 INSEE, 2 IAURIF, 3 UFB/locabail, 4 GARP, 5 ESE INSEE TABLE 20 Paris and the Other Major European Cities GNP/Inhabitant index Share of National GNP (in %) GNP growth for the past 10 years (%) EU Average 100 Frankfurt 179 7 +70.4 Brussels 166 14 +58.8 Paris 165 29 +51.0 Stockholm 148 23 +37.9 London 145 23 NA Amsterdam 119 46 +54.5 Milan 119 20 +40.3 Madrid 82 16 +85.1 Source: CROCIS, "L'île de France et les Métropoles Européennes", Enjeux Ille de France, N° 25, 01/2001 When one contrasts European countries, it is clear that the most advanced countries, in particular in Scandinavia, are wealthier and more urban with a better-educated population. They are also less centralized than France. Decentralization stimulated the emergence of multiple local experiences and initiatives, while their homogeneity probably enabled these initiatives to percolate in the whole society. In contrast, many French initiatives were national and did not fit well with the specific needs of local populations. French citizens are not as familiar with English and Minitel already supported a wide portfolio of on-line services. Industry Structure Industry Concentration and Structure The French economy is one of the most service intensive economies in Europe, although it is far from the U.S. in that respect (Table 21). French industry is divided between large and small companies (Table 22), while Germany and Italy, for instance, are characterized by a dense web 20 of SMEs that are active on the global market. Large companies are more internationalized, more high-tech and in general more modern than, the network of small companies that are their subcontractors. They employ more skilled workers, use IT more intensively, and are managed as most of their global competitors. In contrast, French SMEs often do not go international and do not feel the necessity to use IT intensively. Those that use IT intensively work generally with large clients that pressure them to go digital. This is the case in the mechanical construction industry where French automakers extensively implemented EDI in the late 1980s (Brousseau, 2001). Of course, these features are very much dependent on the industry: some industries are mostly composed of small firms (intermediary goods and consumption goods), while others are more concentrated and dominated by large firms (equipment), even very large firms (automotive industries) (Table 23). The later are more likely to go digital than the former because large firms are generally more digital and because they tend to incite their competitors/partners in the industry to adopt ITs. There are therefore clear contrasts among industries in term of degree of digitization. While France modernized for the last two decades, its industry remains highly hierarchized between national champions (that are no longer public, and no longer national monopolies) and a web of smaller companies that are less dynamic. This generates a third type of digital divide. 2 TABLE 21 The French Industry in Perspective France Germany Italy Spain U.K. U.S. Japan Population (in millions) 58.7 82.1 57.6 39.4 59.6 275.5 126.5 GNP (in billions of Euros) 1,404 2,032 1,165 606 1,533 10,804 5,145 Share of Manuf. Indus. In GNP (in %) 19.1 23.5 21.7 19.5 20.7 16 23 Share of World Exportations (in %) 5.3 8.8 3.9 1.9 4.6 12.5 7.7 Source: Ministère de l 9Économie, des Finances et de l 9Industrie, 17/12/2001; ( www.industrie.gouv.fr ). 2 (See also Brousseau, 2002c.) The three digital divides are: " The first is among individuals in function of wealth, education, and urbanization. It plays both at work and at home. " The second is linked to the physical localization of firms and individuals, whether they are in Paris or elsewhere. " The third is due to the size of firms that access and use the Internet and digital technologies. These three do not systematically overlap. Large firms located in the countryside can be intensive users of ITs, especially if they employ highly skilled workers, while small firms with unskilled workers will be low intensive in ITs, even if they are in Paris. 21 TABLE 22 French Manufacturing Firms Firm size by No. of employees No. of companies Cumulated employment Cumulated sales Exportation (FF millions) Investment (FF millions) Sales/ employee (FF OOO) Export/ sales (%) Invest/ sales (%) Benefit/ sales (%) Small (20-499) Large (>500) Non sign*. 20,696 887 760 1,474,959 1,454,781 38,517 1,467,672 2,684,945 136,588 373,045 982,236 44,803 59,506 121,297 1,857 995.1 1,845,.6 3,546.1 25.4 36.6 32.8 4.1 4.5 1.4 2.6 3.0 2.9 Total 22,343 2,968,257 4,289,2051,400,084182,6601,445.0 32.6 4.32.8 * Non Significant relates to holding companies Source: SESSI, (Service des Etudes et des Statistiques industrielles), 2001a TABLE 23 French Industry Structure Market Type Market Share of the Four Main Competitors (C4 Index) Market Share of Small Firms (20-499 employees) Market Share of Firms Owned Mostly by Non- Residents Consumption Goods Automotive Industry Equipment Intermediary Goods 5.6 63.7 13.9 7.8 46.8 7.7 38.6 50.6 36.9 20.1 39.3 36.4 Total --- 40.4 34.5 Source: SESSI (Service des Etudes et des Statistiques industrielles), 2001a Innovation Capabilities France's innovation capabilities are generally considered strong since the French (public and private) R&D system has been performing well since World War II. After the war, the French developed national technologies dedicated to large public equipment (ground transportation, aerospace, energy, nuclear, etc.). France was successful developing self-sustainable technological systems and exported them.. This explains some of the large French successes, such are Ariane (Space), Airbus (Aerospace), Alsthom (High speed trains) and Alcatel (Telecommunications). Thanks to these technological champions, the French trade balance remains positive for high-tech and medium-high-tech products (Table 24). This strength in managing large innovative projects aimed at developing integrated technological systems became a weakness with the globalization of the economy. The focus of the French R&D system on large integrated projects can explain why France missed the digital revolution at its early stage, and therefore why the French ICT industry is weak as compared to the French innovation capability (Table 25). " First, the innovative regime in the digital era is based on a decentralized process of step-by- step innovation, since standardized interfaces enable integration of the decentralized designed set. French firms were used to designing large integrated systems and this explains largely why there are few French players in the computer market. " Second, in the knowledge-based economy, the decentralization of the innovation process goes with the intensive use of Intellectual Property (IP). Inventors purchase a technology, marginally enhance it, and then resell the enhanced technology to other innovators. The 22 French tradition was to build comprehensive and independent technological systems under the leadership of one National Champion and/or the government. Firms did not develop capabilities to use IP instruments (as illustrated by the relatively low flows of IP revenues in the trade balance; Table 27). Therefore, French IT companies partly missed therefore the digital revolution because they were not involved in the decentralized R&D process that sustained it, due to their lack of competence in participating in such a process. This specific feature largely explains the French difficulty to catch up despite tremendous investments in ITs by the end of 1999 (Table 26). Because of its post-WWII tradition, France failed to develop a computer industry that would have been able to be integrated in the global computer industry. At the same time, the French telecommunication industry benefited from that national ability to innovate by developing large national projects. By the mid-1980s, France had one of the most digitized and modern telecommunication network in the world. But that strength became a weakness with the development of the Internet, because the French national system of innovation was unable to recognize that Internet technologies will dominate digital networks and that French innovation capabilities were poorly prepared to contribute. Nevertheless, Table 30 points out that these elements began to change recently. France is one of the EU countries that invests the most in R&D, software, and education, with most of the increase taking place after 1995. Such figures seem to confirm qualitative observations. In the 1990s, France began to reshape its innovation capabilities to adapt to the new competitive environment. Public funds were dedicated to the support of innovative efforts by SMEs. The French IP system was reshaped, companies were encouraged to train their personnel in IP, and public research institutions were stimulated to cooperate more closely with the business sector. While the French innovation system remains influenced by its traditional organization, it is evolving. This has an influence on the French ability to develop some strong competitive advantage in digital technologies, especially in software. France benefits from another driver for the Internet and e-commerce 4the importance of its IT industry. Several large international computer companies (IBM, Apple, Microsoft) located their European headquarters in France. The presence of these essential players is a strong driver since they promote the innovative use of ITs (both by their clients and their business partners). They also have a favorable influence on the emergence of innovative start-ups (that are more able to interact with them than if these large firms were only abroad). The strong French telecommunication equipment manufacturers and telecom operators also have been playing also a positive role after they changed their views about the Internet in 1997. 23 TABLE 24 Contribution to the Manufacturing Trade Balance, 1999 (As a percentage of manufacturing trade) High-technology Medium-high-technologyMedium-low-technology Low-technology United States 5.0 0.4 -0.9 -4.5 United Kingdom 2.4 1.0 0.6 -4.2 Sweden 1.7 -2.2 -0.7 1.1 Japan 0.7 14.4 -0.8 -14.3 Denmark 0.5 -3.1 -0.9 3.6 France 0.4 1.6 -0.6 -1.6 Belgium-Luxembourg -1.2 -0.1 1.1 0.2 Finland -1.5 -7.2 0.8 7.8 Netherlands -1.6 -0.9 0.8 1.8 Germany -2.6 7.4 -0.5 -4.6 Spain -4.0 0.6 2.4 1.1 Italy -4.2 -0.1 0.5 3.8 Source: OECD, STAN database, May 2001. TABLE 25 Share of ICT Value Added in Business Sector Value Added, 1999 ICT Manufacturing ICT Services Finland 6.9 6.3 Sweden 3.1 8.4 United Kingdom 2.5 8.2 United States 2.8 7.7 France 2 1.7 8.1 Netherlands 2, 3 1.8 6.7 Denmark 1.5 6.6 Japan 1, 5 4.3 3.8 Spain 1, 2, 4 0.9 7.1 Belgium 4 1.0 6.3 Italy 1.3 5.8 Germany 1, 3 1.6 5.4 1 1998. 2 Postal services included with telecommunications services. 3 ICT wholesale (5150) and rental of ICT goods (7123) are not available. 4 ICT wholesale (5150) is not available. 5 Includes only part of computer related activities (72). Source: OECD estimates, based on national sources; STAN and National Accounts databases, June 2001. 24 TABLE 26 Business R&D Expenditure by Selected ICT Manufacturing Industries, 1999 1 R&D in ICT/GDP R&D in ICT in millions of current PPP dollars, 1999 1 Spain 0.06 130 Italy 0.13 1,789 Denmark (1998) 0.14 185 United Kingdom 0.16 2,215 Belgium (2000) 0.25 669 Germany 0.29 5,743 France (1998) 0.30 3 851 Netherlands (1998) 0.31 1,203 United States 0.50 46,638 Japan 0.71 22,260 Sweden 0.85 5,925 Finland 1.08 1,273 1 1999 or latest available year. Source: OECD, ANBERD database, May 2001. TABLE 27 IP Revenues Flows as a Percentage of GDP 1999 or Latest Available Year Payments Receipts Belgium 1.71 2.05 Switzerland (1998) 0.51 1.14 Denmark 0.61 0.95 Germany 0.77 0.59 United Kingdom (1998) 0.22 0.43 United States 0.14 0.40 Italy 0.36 0.29 Japan 0.08 0.19 France (1998) 0.22 0.18 Finland 0.05 0.08 Spain (1998) 0.18 0.03 Source: OECD, TBP database, April 2001. The number of persons employed in the information and communications technology sector has been rising at a sustained rate since 1998: 3.8% in 1998, 3.4% in 1999, and 3.7% in 2000. Today, the information and communications technology sector employs an aggregate workforce of nearly 3 million. The information and communications technology sector is currently growing by 13% a year. The gap in growth rates between the information and communications technology sector and the rest of the economy has widened, at 9.5 points today, versus 4.4 points in 1996. Since 1996, the sector has accounted for 20% of France 9s total economic growth (Table 28). 25 TABLE 28 Growth of the Information and Communications Technology Sector and Overall Economic Growth in France (annual growth rates) 1996 1997 1998 1999 2000 2001 IT Industries 5.6 10.8 11.6 10.5 13.5 13.8 Non-IT Industries 2.4 2.8 2.3 3.4 2.7 Whole Industry 1.2 2.8 3.3 2.8 4.0 3.5 1.0 Source: Ministère de l'Économie, des Finances et de l'Industrie, 2001, http://www.minefi.gouv.fr/ Recent adjustments in the telecommunications and Internet sectors should not overshadow their ability to innovate and their potential for further expansion. Demand for engineers and experts in the information and communications technology sector has been steady. Human Resources As most European countries, France invest significantly less in education than the U.S. (Tables 29, 30). This explains why the share of the population with a university degree is significantly higher in the U.S. than in most OECD countries (Table 29). In that respect, France seems to rank a little bit below the average for developed countries. This is partly due to the specificity of the French education system. The level of the upper- secondary education system is generally considered quite high in France. Until the 1970s, university degrees were not a prerequisite to go on the job market. The university system had small capacities and it was not developed sufficiently rapidly when the need for higher education led an increasing share of the population to enter universities. While the pace of evolution was too slow, France made a huge effort in favor of education since the 1980s.. This led to important results. In the younger generation, 60% of each age class received an upper secondary degree of education; and 18.5% of the 25-34 years have a university degree. The French situation shows contrasts. On the one hand, the relatively poor level of education of the population (as compared to most other developed countries) is probably one of the inhibitors to an intensive use of ITs by the population. On the other hand, it seems that the efforts made by the country to modernize significantly broke these barriers recently. The younger generations are better educated and more technology literate than the older ones. 26 TABLE 29 Human Resources Distribution of the population aged 25-64 by level of educational attainment, 1999 Expenditure per student on public and private Below upper secondary education Upper secondary education Non-university tertiary education University level education 1 institutions, 1998 (PPP dollars) All tertiary level 2 United States 13 51 8 27 18,493.1 Switzerland 3 18 58 9 15 16,563.3 Sweden 23 48 16 13 13,223.5 Total OECD 6 36 40 11 14 11,463.6 Netherlands 35 42 2 20 10,756.5 Japan 19 49 13 18 9,870.6 Denmark 20 53 20 7 9,562.0 Germany 5 19 53 15 13 9 466.0 United Kingdom 4 18 57 8 17 9,421.9 Belgium 4 43 31 14 12 7,784.3 Finland 28 40 17 14 7,327.0 France 38 40 10 11 7,004.8 Italy 3 56 30 4 9 6,294.9 Spain 65 14 6 15 5,037.8 1 Tertiary type A and advanced research programs (ISCED 5A and 6). 2 Data refer to total tertiary education (ISCED 5A, 5B and 6). 3 Expenditures per student include public institutions only. 4 Expenditures per student include public and government-dependent private institutions only. 5 Expenditures per student data refer to 1997. 6 Average of the available countries. Source: OECD, Education database, May 2001. TABLE 30 Investment in Knowledge as Percentage of GDP, 1998 R&D Software Higher educationAverage annual growth rate 1991-98 5 Italy 1.02 0.48 0.59 -0.61 Spain 0.90 0.46 0.83 4.34 EU 4 1.81 1.03 0.73 3.07 Belgium 1.87 1.39 0.42 United Kingdom 1.83 1.34 0.78 3.57 France 2.19 1.16 0.76 2.96 Germany 2.31 1.17 0.68 2.15 Netherlands 1.95 1.66 0.65 3.76 Denmark 1.92 1.52 1.12 5.89 OECD 3 2.23 1.21 1.25 3.41 Japan 3.01 1.09 0.60 2.65 Finland 2.89 1.17 1.10 6.78 United States 1 2.60 1.51 1.94 3.85 Sweden 3.80 1.90 0.85 7.58 1 Education data includes post-secondary non-tertiary education (ISCED 4). 2 Average annual growth rate refers to 1992-98. 3 OECD total refers to the available countries and the average annual growth rate excludes, Belgium, Czech Republic, Korea, Mexico, and Switzerland. 4 Average annual growth rate excludes Belgium. 5 1995 US$ using purchasing power parities. Source: OECD, National Accounts database; Education database; MSTI database and International Data Corporation, March 2001. 27 TABLE 31 High-skilled IT Workers 1 and High-skilled Workers 2 in the EU and the US (Average Annual Employment Growth 41995-99) High-skilled workers High-skilled IT-related workers 1999 Share of high-skilled IT workers in total occupations Netherlands 4.90 10.99 3.16 Sweden 3 3.17 3.96 2.82 United States 2.92 4.97 2.40 Finland 3 9.44 48.87 2.29 Denmark 3.55 10.03 2.18 United Kingdom 2.47 11.86 2.04 Belgium 3.21 10.89 1.85 France 1.13 4.74 1.70 EU-14 4 2.81 8.83 1.65 Germany 1.64 7.66 1.51 Spain 6.34 14.71 1.13 Italy 5.80 7.14 1.08 1 High-skill IT-related occupations are defined here as ISCO-88 classes 213, 312 and 313, while computer workers refer only to the sum of the first two classes, see box. 2 High-skill occupations refer to ISCO-88 classes 1, 2 and 3. 3 1997 instead of 1995. 4 1995 estimated. Source : OECD, based on the Eurostat Labor Force Survey and the U.S. Current Population Survey, May 2001. Infrastructure Transportation Infrastructure France benefits from an excellent transportation infrastructure that is both efficient and pervasive. Due to the dense web of existing road infrastructure, and the continuing lobby efforts of the truck and the automaker industry, the road is the privilege means to move individuals and freight (Tables 32, 33). But France also benefits from a quite efficient railroad system (which is heavily subsidized by the government). For a long time, it inhibited the development of air transportation, but the French capabilities developed over for the last 20 years with the development of medium and long distance travel, with the increased wealth of the population, and with the rise of competition that bring prices down. France benefits from a competitive national carrier (Air France), but its main competitive advantage is the capacity of Charles-de- Gaule Airport near Paris. It is one of the main airports in Europe (with London, Amsterdam, and Frankfurt) but it benefits from larger extension capacities. As a result, the Paris airport is the European hub of many passenger and freight carriers. The French transportation infrastructure can be considered as a driver for e-commerce. The dense web of railroad and road, together with the existence of many efficient transportation and logistics management companies, support delivery problems linked to on-line sales.

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