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French firms dwarfism (2)

Tuesday 13 March 2012, by Romain Sautard

The French companies « dwarfism » (2)

As we have shown in a previous study, French companies are smaller (in terms of number of employees) than those of other European countries, implying a high unemployment rate.
In order to fill this gap, France has two possibilities: it could either create a higher number of startups or grow the existing companies. This study will mainly focus on the first point, i.e. startups creation. The results, as well as other results observed on existing companies’ growth, show that France is far from filling the existing gap with its neighbors.

Size of French companies at their creation
If we trust INSEE data, France is the most prolific country in terms of business creation. The number or newly created firms by year grew from 180.000 in 2002 to almost 600.000 in 2010. However, if we look to companies created with at least 1 salaried employee, the number is derisory and decreasing recently:

Graph 1: Number of firm birth with and without employee in France

Source: INSEE Première, n° 1221 (jan.2009), 1227 (jan.2010) and 1334 (jan.2011)

Companies created with at least 1 salaried employee are companies on which politicians must focus because those created without salaried employee are often spineless. A recent example of the promotion of such companies is the creation of a new status, the “auto entrepreneur”, that are very small companies not allowed to have salaried employee. This status has been created to lower the number of unemployed people, but 25% of these companies have already died. Moreover, with the exception of some miracle, the 0-employee companies will not become major exporting companies.
A quick observation of the size of new companies created in France and in Germany shows that, in 2008, Germany created much more companies with at least 2 salaried employees than France whereas the number on 1 salaried employee companies created is almost the same in both countries.

The number of firms created with one or more salaried employees is derisory compared to the total number of firms created as observed by the French Administration: 40.000 against 600.000. Moreover, at the opposite of the firms created without salaried employees, there is no increase over the past 10 years (with a decrease to 33.000 in 2009).
In addition to these figures, an in-depth study performed by OECD in 2006 concluded that startups creation rate in France were about half of those observed in Germany and United Kingdom.

Data on firms created with at least one salaried employee show that the existing gap between France and the other European countries in the number of large companies will not be filled soon as France continue to promote mainly small firms creation.
The salvation could come from existing companies if their growth is stronger than growth observed in other European companies. However, a previous study performed on High Growth Firms in France has shown that this kind of companies were twice less numerous than in United Kingdom.