France’s industrial policy after the Aventis-Sanofi merger

It took until the terrorist attacks in Madrid for French Prime Minsiter Raffarin to finally speak out on the battle for Aventis between French/German Sanofi and the Switzerland based Novartis. Raffarin said that in this age of terrorism France must make sure that it always has access to vaccines against bio-terrorism and that therefore he could not support a bid for Aventis from a Swiss company. You may wonder why he did not speak out earlier or under what circumstance a Swiss based company would refuse supply of such vaccines to France. Since then, his statements have been contradicted and subsequently again re-affirmed by a number of his ministers. The contradictions are justified by the government, clarifying that some of the comments that made were ‘legal’ and others ‘political’ (for those who understand the difference). Finally, Aventis management and Novartis gave in to the political pressures and Sanofi could acquire Aventis.

The real rationale for preferring a French solution is that by keeping Aventis ‘French’, the French government hopes to maintain its interference in the running of a private company. The government believes that an Aventis based in France is more likely to keep its research base and employment in France. These are respectable objectives to have for the government. The reality is that the management of Aventis is not responsible to the government but to its shareholders, of who only 20% are French. The management will locate its Research and Development activities in the place where it will get the best results for its shareholders, which means, of course, the location where it has the best chances of developing useful medicines quickly and cheaply. It is for this reason that British pharmaceutical companies have located much of their R&D activity to the United States. They did not need to be acquired by Americans for them to decide that they have an interest to invest in the United States.

The confusing way in which the French government has communicated its position has severely damaged France’s attractiveness as a place to invest in. If the rules are not clear and change frequently, what basis is there for foreigners to invest? Which sectors are considered strategic by the French government? Energy? Transport? Engineering? What does it mean to consider a sector of private enterprise strategic to the national interest? If the French government does not consider it strategic enough to carry out the activity itself (in other words; nationalise the company), then it is not clear what influence it expects to have over a company it does not own. This poor explanation of what is the national interest is important since foreign investment is a crucial driver in re-launching economic growth and creating jobs. If you’re an American or Asian multinational looking to expand and recruit staff in Europe, you will be forgiven for investing outside France.

If France is really interested in keeping these research based jobs, it should not deter foreign investors with this mistaken and nationalist industrial policy. In stead it should increase France’s attraction as a place to invest, through a skilled labour force, labour market flexibility and clear rules. These are the criteria used by companies when deciding to invest, regardless of their country of origin.

These arguments apply to France as well as to the whole of Europe. There is no point in creating national or European champions without the conditions present for these European companies to be successful against their global competitors.