French rue history of missed commercial opportunity in innovation

France’s President Francois Hollande

France’s President Francois Hollande

 

In 1973, Frenchman François Gernelle built the world’s first micro-computer. In the decades after, France looked on as IBM and Apple spawned a multi-trillion dollar industry around it.

French business history is strewn with such examples of missed opportunities. From the internet-precursor Minitel to François Mizzi’s touchscreen patents in the 1980s, France has repeatedly failed to turn ideas and research into money-making global products, leaving others to ride away with the prize.

The European Union’s largest producer of math, science and technology graduates needs to get out of “the death valley between what’s developed in a lab and its future as a successful product or company”, said Louis Gallois, former head of Airbus parent European Aeronautic Defence and Space (EADS), and now France’s competitiveness czar.

Innovations and image
Building on a decade-long effort, president François Hollande’s government is seeking to put in place plans to squeeze more out of the country’s innovations and image. The latest effort to end Europe’s second-largest economy’s recession and reverse record joblessness is a state-commissioned report dubbed “Brand France” that will lay out by the end of June ways to wring more from the nation’s research, patents and other intangible assets.

“France has research labs with Nobel prize winners, strong brands, museums; what it needs is to figure out how to cash in by turning it all into jobs, growth and start-ups,” said Christian Nguyen, managing partner of Marks and Clerk, which advises companies and governments on intellectual property.

The record so far has been far from stellar. Take France’s largest carmaker PSA Peugeot Citroën. Its distinction as the country’s most innovative company – topping the list of patents for the last five years – did little to prevent it from posting a record €5 billion loss last year.

Gernelle’s microprocessor-powered micro-computer, dubbed Micral, wasn’t any different. R2E, where he worked, was taken over by Groupe Bull, which relegated the machine to niche markets. Efforts to elbow into the PC mass-market later failed, making Bull a bit player.

“The French invented the micro-computer, but they didn’t know how to market it,” said Tomasz Michalski, an economics professor at HEC business school near Paris. “France has great assets. It just doesn’t use them efficiently.”

Inventions are encouraged with events such as Concours Lepine, a century-old annual contest held last month in Paris. The fair generated early versions of the flat iron, the ballpoint pen and the artificial heart, alongside gadgets to help do everything from scratch backs to pick up dog poop.

Where France fails is in taking a good idea and building a business around it, said Nguyen.

“Mentalities still need to evolve,” he said. “It’s time to let go of the idea that science for science is better than science for money.”

Efforts have been made over the last decade to get state-backed research entities and industry to work together. Most public labs, universities and engineering schools have structures to manage patents or incubators to help startups.

Still, “to turn an idea into money, you need entrepreneurs and you need investors who’ll put in money to back a new technology and develop it into a product,” said Vincent Bouatou, deputy head of research and technology at Morpho, a unit of aeronautics and defence group Safran.

France’s private equity association Afic last year said a lack of capital to finance SMEs had become an “emergency”. The amount of such capital in 2012 in France was $6.5 billion, less than half the UK, and a fraction of the $126.3 billion in the US.

Investment in France is less attractive because of high labour-related costs and conditions and taxes that are both elevated and constantly shifting, according to a report published yesterday by Ernst & Young.

After speaking out against finance during his election campaign and targeting wealthy taxpayers with a so-called “millionaire tax”, Hollande more recently has attempted to win over the entrepreneurial classes to boost competitiveness. In April, he said he would lower the capital-gains tax to “compensate investment and risk taking” by entrepreneurs.

Gallois’ competitiveness plan includes making funds available to monetise research through bodies like Societes d’acceleration du Transfert de Technologies and Consortiums de Valorisation Thematiques.

Research focus
As France seeks ways out of recession and a 14-year-high unemployment rate, getting more bang for each research buck is among items high up on its list. The “Brand France” report, ordered in January, is partly a brainchild of industry minister Arnaud Montebourg, who last year pushed the “Made in France” campaign, posing before the French flag to promote local products.

More recently, he blocked the sale of “strategic” video site Dailymotion, a Youtube rival, to the US’s Yahoo!

The report seeks to list how France can use its intangible assets – image, history, brands and culture – to boost exports. Licensing patents to companies abroad is one way to increase exports, said Beatrix de Russe, an executive vice president for intellectual property at Technicolor.

The company has 220 people in Paris dissecting gadgets from technology giants like Apple, Samsung Electronics and HTC to spot infringements and strike new licensing deals.

“Licensing is important in our company’s finances – it’s how we pay for more research and continue to innovate,” de Russe said. “What’s less obvious is it’s also important for France. It’s reflected in the trade balance.”

The company, which in 1939 invented the process for colour movies used in The Wizard of Oz, last year had €512 million in licensing revenue. So when France needed someone to head a sovereign fund for licensing patents in 2011, it turned to Jean-Charles Hourcade, a former research and patents chief at Technicolor.

The French public-financed initiative has drawn interest from neighbours Germany, Spain and Italy, as well as the European Commission, Hourcade said. – Bloomberg