The context, both macro and micro-economic, is ideal: it is the perfect time to jump on the digital revolution bandwagon. The future will belong to the leaders who will manage to free themselves from defensive reflexes and will know how to show audacity.
A 6% growth rate in France expected by INSEE: never seen since the oil crisis! A few 18 months will have been enough to absorb the effects of the pandemic, with the help of 240 billion euros of public aid injected into the economy.
After an 8% plunge last year, the objective of returning to pre-crisis GDP levels by the end of 2021 is now within reach.
France is heading back to growth. This prognosis is not just wishful thinking. It is confirmed by the analysis of the main macroeconomic indicators, almost all of which are pointing in the right direction. A flattering situation, as rarely seen in recent history.
Household consumption stabilizes at a high level and employment picks up
Household consumption rebounded in the second quarter, buoyed by the partial employment subsidies. Despite a dip in July (-2.2%), household spending remained at a pre-crisis level of 47 billion euros.
The outlook on the spending side is good, as salaried employment has held up well in the crisis. With an increase of 1.2% between the end of March and the end of June, i.e. 239,500 net new jobs, according to the provisional estimate published yesterday by INSEE, employment has returned to its pre-crisis level more quickly than expected
In addition, the household savings rate has increased considerably in recent months: savings now represent 21.3% of disposable income, a level not seen in France since 1975! This windfall (which is one and a half times greater than the government’s stimulus package since the beginning of the health crisis) could come to irrigate the economy in the coming months.
Cash is plentiful, but what will it be used for?
For their part, managers have not put their foot on the brake at all, with investments up by 2.4% in the second quarter, after +1.1% in the first, to the point of returning to pre-crisis levels this summer.
Certainly, some sectors are still very much affected by the Covid crisis, such as tourism, transport, the hotel industry and events. On the other hand, others have benefited and seen their market literally explode. They are now consolidating these large volumes of activity.
One thing is certain: on a macro-economic level, the situation of companies has rarely been so positive: manufacturing production is recovering (+7.5% in June year-on-year) and demand for industry is strengthening (+2% over a sliding quarter), even though companies are facing increasing supply difficulties.
Another reason to celebrate is that cash shortages have been avoided in the majority of companies that were not in a difficult situation before the crisis: in France as a whole, companies’ cash reserves jumped by 184 billion euros in 2020.
Cash reserves in France are now higher than in the UK or Italy. Public action has also been decisive in this respect, as the €130 billion in state-guaranteed loans (PGE) have benefited 630,000 French companies.
As a result, more treasurers than ever before consider their operating cash flow situation to be “easy”, according to a survey conducted by AFTE since 2005. Once again, this situation must be put into perspective through a sectoral prism. In particular, the manufacturing sector has been favored compared to those sectors hit hard by the crisis.
The crisis and the resulting measures have at least had the merit of restoring – perhaps temporarily – the cash reserves of French companies.
It remains to be seen how this will be used in the future…
Digital transformation has been accelerated at several levels of companies
Another notable phenomenon that appeared during these months of “Covid crisis”: many managers took advantage of the period to accelerate the digital switchover of their company. We have gained 10 years in digitalization both in exchanges with consumers and in working methods.
This transformation has been carried out on several levels:
- customer-supplier relationships, with the use of specialized ERP systems that are collaborative and open to supplier partners, or the adoption of “big data” technologies that enable the collection and analysis of customer data and the development of personalized marketing.
- management methods, with the adoption of telecommuting tools, but also the adoption of the cloud, the dematerialization of data and information processing, and the digitization of business processes
- distribution and marketing methods, which now involve numerous e-commerce contact points: shopping platforms, social media, cell phones, etc.
The track record of companies that have made this shift is clear: 41% of executives believe that the use of digital-focused operating models has been critical to maintaining market share during this pandemic. But 90% of companies have not yet achieved their digital transformation goals.
The benefits of digitalization are numerous:
- lower production costs, which creates growth potential
- better process fluidity
- maximization of customer opportunities
- quality of digital experiences for customers, employees and business partners
- increased security against cybercrime
- …
However, the digital transition concerns above all large companies and SMEs, while SMEs and VSEs still feel little concerned. Digitalization is the issue cited last among the priorities of the leaders of companies with 10 to 249 employees.
Giant funds raised to finance the development of technology companies
In this context of digitalization of the economy, the explosion of “French Tech” is anything but anecdotal. French startups have never raised as much money as they did in the first half of 2021: 4.5 billion euros!
We seem to be well on our way to reaching the €10 billion mark this year, compared to €5.4 billion in 2020. This would put France in second place in Europe, behind the UK and ahead of Germany.
Today, although the majority of venture capital fundraising is around €50 million, the amounts can reach peaks. On August 5, the French startup Dataïku, which specializes in data analysis using artificial intelligence, raised $400 million, bringing its valuation to $4.6 billion. Examples like these three startups are multiplying:
- Sorare: $680M raised
- ContentSquare: €408 million raised
- Back Market: €276 million raised
- Shift Technology: €183 million raised
The French “unicorns”, these startups valued at more than one billion euros, are now approaching twenty. There were only five in 2018.
Behind the scenes, it is a real battle that investment funds are waging to unearth future unicorns. And the funds raised for venture capital are on the rise all over the world.
In this race to the top, behemoths are appearing, such as the €1.6 billion fund launched by the French investment company Eurazeo last July, which is currently the largest European growth fund (excluding the UK). Its investment targets: “Technology leaders in some of the most promising sectors of SaaS, digital health, fintechs or even online marketplaces.”
It is reassuring to note that while the traditional economy is experiencing particularly favorable conditions, the French succession is assured thanks to:
- technology companies capable of making an impact on international markets
- a massive influx of available funds to propel them
Business leaders remain surprisingly wait-and-see and budgets are very conservative
Let’s be clear. Taken together, these macro and micro trends represent an exceptional alignment of the planets in modern economic history.
Yet, in this unprecedented context, the discourse of business leaders remains strangely wait-and-see. Setting the tone, Medef President Geoffroy Roux de Bézieux explained at the end of August that he remained “cautiously optimistic” in the face of stronger than expected recovery figures. This restraint is reflected in the confidence barometer of business leaders: it remains high, but lost 3 points in August
The companies’ 2022 prudential budgets confirm this mixed mood. The recovery effect is weakly reflected in the first iterations of 2022 budgets. More worrying: according to a recent survey, 58% of French entrepreneurs think they will have to review their long-term priorities, and 39% plan to reduce their costs and overhead.
The case of payroll budgets is the most significant. The “recruitment” item is decreasing in the forecasted budgets. There is therefore a contradictory injunction, with on the one hand the conviction that it is necessary to internalize again, and on the other hand a very real tendency not to recruit additional talent, and to resort to subcontracting, partnerships, and temporary staffing.
All this does not augur well for euphoric growth. Far from it.
This is not the time for a wait-and-see attitude, but rather the best time to accelerate
In other words, in the midst of the digital revolution, and while their situation is experiencing an unprecedented upturn in recent history, our industrial flagships continue to run their businesses defensively, as good fathers of the family.
It will be argued that growth is not eternal, that there are more and more supply difficulties, that the cost of raw materials is rising, risking to drag entire industries into a domino effect. That inflation is threatening.
We say that there will always be areas of uncertainty, but one thing is certain: such a favorable context, such windows of opportunity, do not come along every day.
In times like these, we believe in creating a budget of confidence, not caution. Adopt an “intrapreneur”, unicorn mindset. Take calculated risks, step outside the box.
We believe that this is the best time to accelerate. To invest with strength in disruptive projects related to :
- innovation
- supply chain transformation
- the shift to the digital economy
- and instilling a new corporate culture
No company will escape the transformation to an interconnected world with new technologies, new uses, new products, new systems and organizations.
Our economies are accelerating like never before. And if France finds itself in this favorable context today, this is also the case for other countries. In this speed race, everyone is getting ready to act. But only the most daring will win.
It is time to conquer. Not tomorrow, now!