Toyota In France

The Political Economy of Foreign Direct Investment

Toyota in France

The French have always been somewhat ambivalent toward foreign direct investment. In the 1960s and 1970s, successive French governments used a mixture of socialist and nationalist rhetoric to spurn foreign investment proposals by companies such as General Motors. These governments took the view that direct investment by foreign multinational enterprises would damage the French economy. Government officials believed strongly in the need for France to build its own indigenous enterprises. They argued that the economic power enjoyed by foreign multinationals gave them the ability to dominate any markets they entered, at the expense of locally grown enterprises. Successive socialist governments in France expressed a desire to control economic activity through extensive planning and the nationalization of private businesses. Letting foreign multinationals into the country was thought to be inconsistent with this goal.

France's policy toward inward foreign direct investment began to change in the early 1980s. Although France's socialist president, Francois Mitterrand, remained suspicious of direct investment by foreign firms, his successive administrations reduced the bureaucratic obstacles to foreign investment and created a more coherent mechanism for luring inward investment. The change in policy reflected the growing realization that inward investment could have substantial benefits for the French economy, including the creation of jobs, the transfer of valuable technology, and the increase of exports that would bolster France's balance-of-payments position. The shift toward a more liberal attitude accelerated under Mitterrand's successor, Gaullist president Jacques Chirac. Chirac, who espouses a free market philosophy with a unique French twist, has made encouraging inward investment a priority. The results have been striking. According to recent UN data, in 1996 France attracted $21 billion in inward investment, coming in fourth behind the United States, China, and the United Kingdom. Between 1991 and 1996, the cumulative total for France stood at $119 billion, forcing the United Kingdom into second place within Europe. Among the foreign companies that have undertaken major investments in France are Toyota, IBM, Motorola, and Federal Express Corp.

One noteworthy inward investment in recent years was Toyota's December 1997 decision to invest $656.8 million in a car plant in France to produce 150,000 vehicles per year. The investment represents the Japanese company's second major commitment to Europe. Toyota already has extensive operations in the United Kingdom. The decision to locate in France was taken despite intense lobbying from British government officials, who wanted Toyota to expand its UK operations. The investment represents a continuation of Toyota's strategy to replace exports from Japan with direct production in important regional markets. This strategy was originally undertaken to reduce European demands for trade barriers to limit the

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