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The French SME, a model in perdition?

SMEs have been under way in recent years. Yet they mesh the whole territory and are the backbone of the French economy. As a result, they account for 99.9% of French companies, or nearly 4 million. Of these, 3 million are EPTs; 140,000 are SMEs; 5000 ETIs (1). The national economic fabric therefore has different realities. In any case, SMEs employ 6.3 million employees and account for 43% of the value added produced. Despite this prominent position, many business leaders feel forgotten about economic policies and find less and less place in the picture. The bells are diverging, but it is certain that the situation of the French SME is undergoing an upheaval. Perdition or renewal, the complex factors of this situation make a difficult reading.

The German Mittelstand, a model incompatibility for the French SME

The Mittelstands are the German companies whose ears we have been hearing for a few years. In a simplified way, Mittelstands are the equivalent in France of medium-sized companies, or even ETIs. As in France, they are the ones who carry a large part of the country’s economy. Taking the German model as the ultimate reference, some seem to believe that the French economy should be modelled on our neighbours. However, it is easy to forget significant differences between economic, political, fiscal, managerial, geographical or sectoral differences… A detailed study by Pwc also provides an overview of the factors at play for the transposition of the Mittelstand in France (2).

It must be said that the German model is a dream. In 2017, for example, Germany’s GDP grew by 3.7% compared to 2.8% for French GDP. Their GDP per capita is even 16% higher than that of the French (2). In detail, this difference is justified by complex factors. The most obvious is already the very composition of the landscape of these companies. Thus, Germany bases its economy on an innovative and qualitative industrial sector when the French economy relies more on service.

The differences don’t stop there. On the export side, Germany is one of the world’s largest exporters and is the world’s largest exporter. France is on the other hand in deficit, in 196th position. It should also be noted that even if we try to compare our economic fabrics, their composition is very different. According to Pwc, 3.8% of French companies are SMEs or ETIs, compared to 10.3% on the other side of the Rhine. The latter are two 2.4 times more numerous, for a turnover that follows the trend. 4,491 billion euros for the Mittelstands versus 2,062 billion euros for the French equivalent. (2)

Investment and innovation, from scratch

In addition, the two models have a very different view of digitalization and innovation. The traditional French lag in digital transformation reveals that in 2016, only 2 out of 3 French SMEs have a website compared to 3 out of 4 on average in the EU (European Union).

At the same time, the French SME is more likely to want to be highly innovative. We would therefore opt for disruptive innovations, expensive, cutting with the digital maturity experienced on a daily basis. As a result, 5% of SMEs invest in research and development. They dedicate more than 7 billion euros, or a quarter of the total expenditure of companies for research and development. On the other hand, Germany relies on continuous improvement, specialized know-how and proven quality.

To finance this innovation, French SMEs are relying on their own capital (44% in 2019), on state aid such as JEI or Ready Growth, or on debt. (4)

On the other hand, the Covid-19 crisis disrupts this precarious balance that was hard-won after the 2008 crisis. It should be noted that companies have entered the 2020 crisis more serenely than in 2008. Their debt capacity remained much better, allowing them to take the hit. However, the current situation has greatly lengthened payment times. The EMP and other financial aid have helped to meet working capital requirements but not to keep pace with planned investments. (4)

A question of profitability, prospects for recovery, maintenance of employment… These are all questions that put many investments back to the future to preserve the cash flow. And even when competitiveness lies in innovation and modernization. In this regard, the state has chosen its side. With the recovery plan for the industry, he intends to finance the revival of French industry.

The “companies with a mission”, what to rethink the model of the French SME?

In this context, however, the majority of French SMEs operate on the service (3). So how do we rebuild the industry without leaving out the existing one? To value the most value of companies, beyond their financial result, business leaders are increasingly in favour of creating a new status: the company with a mission (5). In line with the Covenant Act, companies have more than ever a societal responsibility. Which are just asking to be able to express it.

Thus, even though this status does not exist, it is clear that in practice these enterprises already exist and mainly concern SMEs. According to a PROPHIL and HEC study, 15% of executives surveyed believe they meet the criteria of the company on a mission. With the current trend towards social and environmental engagement, this figure could reach 25% in the coming years. This is why 68% of business leaders are calling for the creation of a legal and tax framework for companies with missions.

Are SMEs and “mission” companies the companies of tomorrow? – Souce Institute Via Voice

Thus, in addition to serving financial goals, companies are now integrating CSR as a real force. In addition to the brand’s value internally and externally, it is seen as a competitive advantage in terms of innovation in particular. In this context, 69% of executives believe that this will put sustainable development at the heart of the company’s strategy. It also involves SMEs in responding to the societal challenges of today and tomorrow.

Relatively new considerations in consciences that could finally restore the place of the SME, by reinventing its contours.

Sources

  1. Where to find the key figures for SMEs?, Economy.gov
  2. Turning our SMEs into conquering ETIs: The German Mittelstand as a source of inspiration?, Pwc, study published November 20, 2018
  3. SMEs in France, Businesses in France, Insee
  4. “SMEs have approached the Covid-19 crisis with a strengthened financial structure”,Bank of France, November-December 2020 newsletter
  5. Study “Companies with a mission: tomorrow’s companies?”, PROPHIL and HEC
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