Eric Raoult, UMP Deputy of Seine-Saint-Denis (a region located north of Paris), submitted a report on free trade zones in July 2011 to the Minister of the City.
In this report we learn among other things that the survival rate at 5 years of companies operating in free trade zones is 23.3% (for companies of the “first generation”, i.e. companies created after the first series of bills were passed to created free trade zones. Conditions were changed afterwards and companies created after those changed are referred as “second generation”). The free trade zones are called ZFU and we’ll use this terminology in this post.
An analysis of the survival rate of first generation companies operating in ZFUs over the period 1997 to 2002 shows a lower than average urban unit survival rate at 5 years: 23.7% in ZFUs against 28 7% in the surrounding urban area which is a 5 points difference. For companies of the second generation, the gap is smaller: 3.3 points with a survival rate of 39.9% for companies located in the ZFUs against 43.2 for those in the surrounding urban area. After the first five years, there is no further drop in average survival among ZFUs first generation. This finding suggests that companies, once installed ZFU remain there even when the benefits of exemptions are reduced.
Needless to say that 23.3% survival rate is a very low rate (I often take 25% as a benchmark in terms of the rate of survival at 7 years; here we have less than 25% after just 5 years). While across all sectors we showed on this blog that there was a survival rate of 50% after 5 years (according to statistics of the French Institute for Statistics), we observe here that the rate is only half of that in free-trade zones. The surprise is even greater when one considers that these zones have a very special status that softens the competitive conditions and should therefore promote survival.
However for second generation companies the rate rises sharply but remains 10 percentage points below the overall French companies.
Conclusion
Although the figures are far from being promising, one should be careful when killing such initiatives. What we’ve done here was to compare the figures of the ZFUs with figures from other areas. However we think this may not be the right way. What one should do is to show the impact of the bills that were passed to promote free-trade zones and compare the figures obtained to similar areas without free-trade agreements. The results may then look different.
Posted in Entrepreneurship, Marketing, Research.
