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					                                       Graduation thesis

              French investments in the Netherlands

Rochelle Billiottet
International Business and languages
Student number: 38750
June 2006

As a French student studying International business and languages this year in the
Netherlands, what better subject could be found than studying French presence in the
Netherlands? A way to find out how much this small country matters to France, is by
looking at the investments that are made in this country. Both countries were the founders
of the European Union and have since then developed and increased their bilateral
exchanges. Known for centuries as a nation of successful traders, the Dutch are
internationally oriented by nature. This small country that sees itself smaller than it really
is, ranks in the top ten most exporting countries worldwide. It always tries to defend its
position among all these other big countries. However this nation has become very
dependent on foreign trade and therefore also on other countries‘ economy. So we can
easily understand why the Netherlands invests in France for instance. But it is not
immediately obvious why French investors choose to invest in the Netherlands. Thus this
is the reason why I undertook this research.
First of all I would like to thank Mr.Ton Veraart, director of Lesire & Partners NL, who gave
me the opportunity to carry out this research. Also special thanks to all those who have
devoted their energy and their time to help me in my research: Mrs.Orianne Gannac from
the French Chamber of Commerce and Industry in the Netherlands, Mr. Jacobs from the
Netherlands Foreign Investment Agency, Mrs Edmee Breure from the French Economic
Mission in the Netherlands, Mr. Hidrio from the French Foreign Investment Agency and
Mrs Sul-Kuijpers, teacher at the Hogeschool Zeeland.


This thesis about French investments in the Netherlands tries to explain why this big
country invests in a small country like the Netherlands and also why the Netherlands is a
privileged location for foreign establishments.
The first chapter is a brief presentation of the company where I led my research.

Chapter 2 is the theoretical part aimed at explaining the most important aspects of foreign
direct investments. This part is based essentially on literature regarding foreign investment
strategies. There are many factors influencing the selection process for investments in a
particular country. In this part we will see why companies invest abroad and the benefits of
foreign direct investments. We will also look into some attractive criteria that make a
country attractive for foreign direct investments.

Chapter 3 presents the Dutch economy and the general trend of foreign direct investments
in the country. The Netherlands has always been an international oriented country and is
an attractive country for foreign direct investments. We will see why it is so attractive, who
invests in the Netherlands and in which fields?

Chapter 4 deals with French foreign direct investments in general. It is interesting to have
first a general look on French investments and find out the other countries that French
investors target. In this chapter we will also look at France‘s foreign trade relationships and
the trend of foreign direct investments in France. France is a big investor abroad however
inward FDI in France is less significant and this might be explained by its old habits of

Chapter 5 is the last part where we will try to answer the question why do French investors
choose for the Netherlands? To answer this question we will look first of all at the Dutch-
French commercial relationship and we will find out that these countries are
complementary in their exchanges especially in the agribusiness, energy and transports.
We will follow the evolution of French investments and their importance in the Netherlands
compared also to the other countries. We will see the sectors that French investors find
attractive in the Netherlands and who are the big French investors. Finally we will find out
that French investors are willing to invest more in the Netherlands, which became one of
the ―priority‖ targets for French foreign direct investments. The research on French
investments in the Netherlands came also with a small survey of French companies that
established affiliates in the Netherlands. The first survey that was carried out was not
successful, however the second survey had better results. The second survey was aimed
at trying to find out if French companies still find the Netherlands an attractive country for

                                         Table of contents

Introduction                                                                                      p7

Chapter 1: Presentation of Lesire & Partners                                                      p9

Chapter 2: General theories on investments                                                        p 11

  1/ What pushes investors to invest in foreign countries rather than in their home p 11

  2/ What are the benefits of foreign direct investments?                                         p 12

  3/ What are the main factors in the decision-making for foreign investments in a p 13
  particular country?

        3.1 Localization theories                                                                 p   13
        3.2 Hypotheses on determinants of FDI                                                     p   15
           3.2.1 Push factors                                                                     p   15
           3.2.2 Pull and stimulus factors                                                        p   16
           3.2.3 Friction factors                                                                 p   17
           3.2.4 Stimulus factors                                                                 p   17
           3.2.5 Stimulus or friction factors                                                     p   18
        3.3 Model of a decision-making process                                                    p   19
        3.4 Factors in the decision-making process                                                p   20

  4/ What makes a country attractive for foreign direct investments?                              p 22

        4.1 Examples of what makes a country have an attractive investment climate                p   22
        4.2 Examples of some countries‘ strategies to attract FDI                                 p   23
        4.3 Europe the most attractive area worldwide for FDI                                     p   24
        4.4 Most attractive countries for FDI                                                     p   24

Chapter 3: Foreign direct investments in the Netherlands                                          p 26

      1/ Presentation of the Dutch economy                                                        p 26

      2/ General trends for FDI in the Netherlands                                                p 26

      3/ The Netherlands an attractive country to invest                                          p 29

               3.1 Ranking of the Netherlands                                                     p 29
               3.2 Reasons to invest in the Netherlands                                           p 29

       4/ Ernst & Young Netherlands attractiveness survey 2005                                    p 33

               4.1 Image of the Netherlands in 2005                                               p   34
               4.2 What do the investors find attractive in the Netherlands?                      p   35
               4.3 Considerations with regard to establishment of activities in the Netherlands   p   36
               4.4 Attractiveness of the Netherlands in the next 3 years                          p   38

             4.5 Favoured measures to boost the attractiveness of the Netherlands   p 38

      5/ Who are the investors in the Netherlands and where do they invest?         P 39

             5.1 Main trading partners                                              p   39
             5.2 Main investors                                                     p   39
             5.3 Sectors                                                            p   40
             5.4 Locations of foreign companies in the Netherlands                  p   42

      6/ Forms of investments                                                       p 42

             6.1 legal forms of investments                                         p 42
             6.2 Attractive forms of investments                                    p 42

      7/ Conclusion                                                                 p 43

Chapter 4: French foreign direct investments                                        p 44

      1/ French trade balance                                                       p 44

             1.1 Trend of French exports and imports                                p 44
             1.2 Products                                                           p 44
             1.3 Countries                                                          p 44

      2/ French foreign direct investments                                          p 45

             2.1 French FDI abroad                                                  p   45
                    2.1.1 Destinations of French FDI                                p   45
                    2.1.2 The five main French investors abroad                     p   46
                    2.1.3 In which industries do the French invest?                 p   46
                    2.1.4 Forms of investments                                      p   46

             2.2 Foreign direct investments in France                               p   46
                    2.2.1 Geographical origin of FDI                                p   48
                    2.2.2 FDI by sectors of activity                                p   48
                    2.2.3 Destination of FDI by host region                         p   50
                    2.2.4 Forms of investments                                      p   50
                    2.2.5 Conclusion                                                p   51

      3/ French protectionism?                                                      p 52

Chapter 5: French foreign direct investments in the Netherlands                     p 53

      1/ French-Dutch commercial relationship                                       p 53

             1.1 Exported products                                                  p 54
             1.2 Imported products                                                  p 54

      2/ French foreign direct investments in the Netherlands                       p 55

             2.1 Trend of French FDI in the Netherlands                             p 55
             2.2 Main destinations for French FDI                                   p 56

               2.3 Number of establishments and employees in the Netherlands coming from   p 57
               foreign companies
               2.4 Sectors                                                                 p 58
               2.5 Constitution of French FDI in the Netherlands                           p 59
               2.6 Dutch investments in France                                             p 60

      3/ French companies that have invested or are looking for investment                 p 61
      opportunities in the Netherlands

      4/ Geographical locations of French companies in the Netherlands                     p 63

      5/ French presence in Dutch companies                                                p 63

      6/ What pushes or attracts French companies to the Netherlands?                      p 64

               6.1 Factors, which push French SMEs to delocalise                           p   64
               6.2 Criteria of attractiveness (pull and stimulus factors)                  p   65
                       6.2.1 Criteria                                                      p   65
                       6.2.2 Attractive sectors for French companies                       p   65
               6.3 Friction factors                                                        p   66

      7/ French action plan for the Netherlands                                            p 67

      8/ Survey of French companies                                                        p 68

               8.1 Survey 1                                                                p 68
               8.2 Survey 2                                                                p 69

Conclusion                                                                                 p 73

Recommendations                                                                            p 74

Bibliography                                                                               p 75

Appendix                                                                                   p 76

      Appendix 1                                                                           p 76

      Appendix 2                                                                           p 77

      Appendix 3                                                                           p 78

      Appendix 4                                                                           p 80

OECD countries‘ traditional role as net providers of foreign direct investments (FDI) to the rest of
the world grew since 2004. Since 2004 most of the money went to developing countries. As in
earlier years, China and a couple of Asian financial centres remain the largest recipients, but FDI
into a range of countries, including Russia, India and much of South America, has also picked up
lately. On top of this, several of the more advanced developing countries are emerging as outward
investors, their national companies establishing subsidiaries in neighbouring countries and
increasingly also on a more global basis.
FDI experts, transnational corporations (TNCs) and investment promotion agencies (IPAs) and the
United Nations' agency predicted FDI would continue to grow over the short and medium term.
The UNCTAD (the United Nations Congress on Trade and Development) surveys find out that
prospects for FDI vary significantly by industry. The outlook for the services sector will continue to
be more positive than for the manufacturing or primary sectors. Industries expected to be at the
forefront of FDI growth are computing/ICT, public utilities, transportation and tourism-related
services in the services sector; electrical and electronic products, machinery and metals in the
manufacturing sector; and mining and petroleum in the primary sector.
In the short term, IPAs expect the US to be by far the most important source of global FDI flows,
followed by the United Kingdom, Germany and China.
More than 50% of experts and TNC respondents expected mergers and acquisitions to be the
primary vehicle for FDI in 2006. In contrast, most IPAs, which are from developing countries,
expected greenfield investment (new investment projects) to be most important. Non-equity
investment, such as through strategic alliances or licensing, is also expected to remain strong.
The UNCTAD indicated that there are a number of reasons to be cautious about FDI growth
prospects in the short and medium term. They believe that protectionism, reduced growth in
industrialized countries, the financial instability of some major economies, global terrorism and the
volatility of petroleum and other raw material prices are major threats.

Foreign direct investment (FDI) is the movement of capital across national frontiers in a manner
that grants the investor control over the acquired asset. Thus it is distinct from portfolio
investments, which may cross borders, but does not offer such control. Firms, which source FDI,
are known as ‗multinational enterprises‘ (MNEs). In this case control is defined as owning 10% or
more of the ordinary shares of an incorporated firm, having 10% or more of the voting power for an
unincorporated firm.
FDI statistics record both the initial investment and all subsequent investments made by the direct
investor, in the form of equity capital, or in the form of loans, or in the form of reinvesting earnings.

Types of FDI:
    Greenfield investment
    Brownfield investment
    Merger and acquisitions
    New forms of partnerships (joint ventures, strategic alliances, licensing and other
      partnership agreements)

    Greenfield investments: direct investment in new facilities or the expansion of existing
     facilities. Greenfield investments are the primary target of a host nation‘s promotional
     efforts because they create new production capacity and jobs, transfer technology and
     know-how, and can lead to linkages to the global marketplace.

    Brownfield investment: Expansions or re-investments in existing foreign affiliates or sites.

    Mergers and acquisitions: occur when a transfer of existing assets from local firms to
     foreign firms takes place, this is the primary type of FDI. Cross-border mergers occur when
     the assets and operation of firms from different countries are combined to establish a new
     legal entity. Cross-border acquisitions occur when the control of assets and operations is
     transferred from a local to a foreign company, with the local company becoming an affiliate
     of the foreign company.

    New forms of investments: joint ventures, strategic alliances, licensing and other
     partnership agreements.

The choice of the form of investment is based on various strategy considerations.
There are two main indicators for foreign direct investments: FDI flows and stocks. FDI stocks refer
to the end of the recording period, flows refer to the recording period.
     FDI Flows: FDI flows are recorded in the Balance of Payments financial account.
Total FDI flows are broken down by kind of instrument used for making the investment:
- Equity capital
comprises equity in branches, all shares in subsidiaries and associates and other contributions
such as the provision of machinery.
- Reinvested earnings
consist of the direct investor‘s share (in proportion to equity participation) of earnings not
distributed by the direct investment enterprise. This recording represents not distributed income as
being earned by the direct investor and reinvested in the direct investment enterprise at the same
- Other FDI capital (loans)
covers the borrowing and lending of funds, including debt securities and trade credits between
direct investors and direct investment enterprises.
     FDI Stocks: FDI stocks are recorded in the International Investment Position.
Similarly than for flows, FDI stocks are broken down by kind of instrument:
- Equity capital and reinvested earnings
- Other FDI capital
is the stock of debts (assets or liabilities) between the direct investors and the direct investment
FDI stocks and flows are related to each other, the level of stock changes according to the flow
changes. If FDI flow rises, so does the stock.

Data in FDI can vary between investment agencies and central banks. Unlike foreign investment
agencies, data of central banks include mergers, acquisitions and other forms of investments for
instance joint ventures.

My research is based on data out of the period 2004-2006 according to the available data that I
could find. Some data could not be more current than 2004 since some studies and researches
need minimum a year to collect all the information and than need time to be analysed.
The research deals with the commercial relationship between France and the Netherlands and
especially with French investments in the Netherlands. This leads to the problem formulation: Why
do the French invest in the Netherlands?

                    Chapter 1: Presentation of Lesire & Partners

My tutor company Ton Veraart gave the assignment. To give a clear picture of the organisation,
where I carried out my research, here below is a diagram of the different components of the

        ToVer                                                        Veraart +
       Holding                                                       Partners

100%                             50%                          100%

                                                                                  Lesire & Partners
   Havenwerk                   Human Forces                 Competence

                                                           30%                        70%

                                                                     Lesire & Partners

The company‘s customers are mostly international oriented. Besides the network is also
represented with partners in:

   -   United Kingdom
   -   Switzerland
   -   Germany
   -   Spain
   -   Italy
   -   Czech republic
   -   Poland

Lesire & Partners is a public company (Plc) created in Waterloo, in 1999. The organisation was
created by Leon and Louisa Lesire, who already had experience in training and consultancy for
more than ten years. The organisation expanded rapidly and the headquarters were transferred to
Brussels. Afterwards two other similar companies were founded in Paris and Amsterdam. A legal
structure was installed with a French SARL ( Société anonyme aux ressources limités) as a
holding with branches in L&P Netherlands and Belgium.
Lesire & Partners is a multidisciplinary team of senior consultants, who work together on an
international and multicultural plan. The company delivers by a systemic approach tailor made
solutions to companies and organizations based on the principle ―no cure, no pay‖. Their objective
is delivering added value to all the stakeholders: companies/organizations and their managers, the
human resources, the shareholders and the external partners. Lesire & partners provide services
such as:
Performance consulting, mentoring the process of change, management training, sales training,
strategy development…
L&P builds tailor made solutions and different pedagogic supports such as video, E-Training, tests,
group exercises...
It collaborates with an international network of privileged business partners for state of out tools
and works with the concept ―product, process, people‖.

                      Chapter 2: General theories on investments
The problem formulation: ―Why do the French invest in the Netherlands?‖ raises several theoretical
questions about foreign direct investment in general. Actually why do investors decide to invest
abroad and how do they select the country? So this leads to the theoretical part of this thesis,
which will be discussed in the following chapter. The theoretical part consists in answering four
main questions about foreign investment decisions:

1. What pushes investors to invest in foreign countries rather than in their home country?
2. What are the main benefits of foreign direct investment?
3. What are the main factors playing in the decision-making process for foreign investment in a
particular country?
4. What makes a country attractive for foreign investment?

1/ What pushes investors to invest in foreign countries rather than in their home country?

The reasons why investors rather invest in a foreign country than in their home country can be for
the following reasons:
            - To widen one‘s market and increase demand for the product. That means acquire
                new customers and increase one‘s market share.
            - To enter a new market in order to improve one‘s customer care. This has been the
                main reason for more than 90% of investments made in sales, marketing and
            - To find new opportunities that complete an insufficient domestic demand.
            - To get rid off an excessive production. That is to say that the home market is
                saturated and one wants to find new demand.
            - To improve one‘s supply procurement
            - To maintain or increase one‘s capital profitability
            - To reduce production costs by relocating to countries where the costs (labour costs)
                are lower.

The reasons why companies invest abroad can also be explained by theories such as the push
and pull factors.

   -   Push factors: variables that give a push to occurrence of foreign direct investment flow from
       a home country.
   -   Pull factors: variables that attract a foreign direct investment flow towards a host country.

The theories of push and pull factors will be explained in further details in the third part of this
chapter, dealing with the decision-making process for foreign investment.

   2/ What are the benefits of foreign investments?

           -   Technology: Multinationals are more Research & Development intensive.
           -   Innovation: Foreign Direct Investments can intensify local market competition,
               creating the stimulus for innovation.
           -   Increased domestic investment: It is estimated that $1 FDI leads to an extra $1
               domestic investment.
           -   Export market access: FDI is more export intensive than domestic investment and
               can lead to local company exports.
           -   Foreign exchange: FDI can be a key source of foreign exchange in countries with
               low savings or access to capital.
           -   Wage premium: Foreign owned companies pay higher wages – a key objective of
               attracting inward investment.
           -   Job creation: FDI creates direct jobs. It also creates indirect jobs. Anecdotal
               evidence suggests 1 manufacturing FDI job creates 3 indirect jobs.
           -   Higher productivity: Productivity in FDI is higher than domestic firms, often by up to
               40%. Outward FDI also raises domestic productivity.
           -   Distributional objectives: Inward investment can act as a catalyst for growth in
               poorer regions as long as they have adequate absorptive capacity.
           -   Catalyst role: FDI can act as a powerful catalyst for supply chain development,
               cluster development, and raising the brand value of a location.

Because of these benefits attracting foreign direct investment has become a central component of
industrial policy in developed and developing countries across the world. Companies make
investment location decisions on the basis of their information pool and understanding of an area‘s
location ―offer‖. Investment promotion is therefore an essential component of attracting inward
investment, and there has been a rapid growth in the number of investment promotion agencies
(IPAs) across the world. Surveys carried out by the UNCTAD(United Nations Conference on Trade
and Development) and Corporate Location magazine estimated that 30 new IPAs were formed
every year in the first half of the 1990s.

3/ What are the main factors in the decision-making for foreign investments in a particular

At the end of the 19th Century, the famous economist Thomas Jefferson stated that:
‘Merchants have no country. The mere spot they stand on does not constitute so strong an
attachment as that from which they draw their gain’.
Jefferson emphasises the footloose nature of Multinational corporations (MNC). It is this mobility of
investment that provides the possibility to influence the location decision of MNCs.
Most companies consider only a small range of potential investment locations. Many other
countries are not even on their map. So the question is what are the factors influencing the location
of foreign direct investment?

3.1 Location theories

According to studies led by C.J Pen in his book ―Wat beweegt bedrijven‖, there are three groups of
location theories that may be used to study business location issues and analyse the forces that
drive the selection of business locations: (neo)-classical, institutional, and behavioural location

      Neo classical

Weber en Lösch and other neo-classicists state that location choices are made by rational and
well-informed decision makers. The choice occurs in a homogenous space in a situation of perfect
competition. However these assumptions do not reflect the complexity of reality. This means that
this theory is hardly applicable, despite a growing awareness among its adherents that it should
take risks and incomplete information into account. This theory considers just a limited number of
economic variables influencing the decision-making process for foreign investment such as, raw
materials, energy prices, transport distances, availability of the production factors, level of the
consuming market.
Weber‘s studies deal with the location factors. He formulated a theory about location factors based
on: transport costs, labour costs, and urban agglomeration strengths. According to Weber,
entrepreneurs will locate plants in response to three factors of transport, labour availability and
advantages or disadvantages of clustering with other industries, at points of least cost to the firm.
These points are where the weight and distance costs involved in assembling raw materials and
distributing finished products are at a minimum. As far as clustering is concerned according to the
economist Marshall, firms established in the same site can benefit from a large specialised labour
market, an easier access to the necessary inputs for production as well as the possibility to benefit
from technological advantages due to the geographical proximity. However the agglomeration
process can also have a negative impact. Indeed if the agglomeration is strong, competition can be
even harder. In general experts have proven that the number of firms located in the same
particular zone have a positive impact on the localisation of other firms.
Christaller and Hotelling had also location theories based on factors which where more ―market
oriented‖. That is to say that entrepreneurs will base their choice on scale advantages, the level of
de consuming market and profit maximisation.
Lösch is considered as the real founder of the location factors theory based on costs and profits.
He introduced the concept of urban agglomeration advantages. This concept means that it is more
advantageous for companies to be all located in the same urban surroundings with different kind of
Finally the neo-classical theory to explain location choices is especially giving the importance to
―profit-maximizing‖. That is to say that entrepreneurs locate their company where they can make
the highest profits. All in all we can say that these neo-classical models are based on profit

maximisation theories that is to say that investors choose a location only if this location generates
superior profits than the other alternatives. Every location is characterised by values taken by the
localisation factors: intensity of demand in the potential geographical zone, localisation costs, and
concentration of other firms.
This neo-classical theory is based on hypothesis such as rationality and perfect information on
behalf of the decision-makers. It explains the choice of a location by identifying main criteria‘s or
localisation factors. However localisation decisions are not that rational and resulting from an
optimiser calculation. The process is more complicated; indeed many other local characteristics
are able to have an effect on the operational level of the new plant.

      Institutional location theory

Because corporations are steadily becoming more international, institutional location theories
formulated by Harvey and others focus on the investment strategies of multinational and large
national companies. The spatial organisation of the primary process and the actors involved are
the central elements in these theories, while the location problem is moved into the background.
The emphasis is on the network or the region in which the company operates. According to some
researches the probability of establishing a subsidiary somewhere in a country depends on the
national and regional variables.
Despite the attention paid to investment strategies, the corporate decision-making process is
regarded as secondary. The institutional approach emphasizes the importance of the national
policy, labour market and corporate strategy in the location decisions of multinationals and Small
and Medium Enterprises (SMEs). The theory stresses the role of institutions in the choice of the
location. The factors that influence the choice of a location are the quality of the R&D institutions,
science parks, the infrastructure for technology transfers, financial institutions. In this case firms
decide to settle in locations where there is a concentration of all these factors. This results in
―regional collective learning within territorially-localised socio-cultural and institutional

      Behavioural location theory

Pred, Stafford and others based this theory on a more realistic perspective on human beings and
businesses. These theories regard ―the location of factories as a decision-making process‖. The
location problem is analysed by studying corporate decision-making process. The problem is that
behavioural location theories have not focused on the process; instead they have paid a great deal
of attention to the behaviour of the entrepreneur as a subjective decision-maker a concept that is
difficult to operationalise. The theory is widely used in the international literature.
Pred is considered as the founder of the behavioural location theory. He attaches importance to
the decision-making process within the firm. The behavioural theory considers a company as a
more learning, evaluating and processing organism rather than a calculating and rational organism
like in the neo-classical theory. The essential terms in this theory are uncertainty, risk and personal
perceptions. The locational choice is part of a strategic or long-term investment decision that is
complex, uncertain, inherently subjective and conducted by individuals or groups of decision
makers with multiple goals. The process of choosing a new location expose companies to a new
environment that they hardly know and on which they only have imperfect information. The internal
management and organisational structure have a great influence on the choice of a location.
Economists like Cyert and March consider that decision-makers choose a location while limiting
the amount of resources (in time and money) devoted to research of information on the different
geographical locations. That is to say that entrepreneurs favour the geographical areas for which
they can easily find specific and detailed information concerning their business. This information
can come from their other subsidiaries already located in those areas or from other companies

having the same activities or from their local personal network. Thus here comes the
agglomeration effect. Indeed, multinationals have imperfect information on potential foreign sites.
Thus the fact of knowing that other companies are already located there can play a role in the
decision-making process. When companies decide too invest in a foreign country they want to
reduce the risk as much as possible, so the location of other subsidiaries can be seen as a positive
signal. According to the economists Belderbos and Carree, the preference for known locations
changes according to the characteristics of the company. Thus a SME (small and medium
enterprise) is more likely to adopt this attitude since they do not have the same financial means as
big companies so they would like to limit the financial risks as much as possible.

3.2 Hypotheses on determinants of foreign direct investments

Robert L.A.Morsink a Dutch academic, economist and advisor for companies and government
agencies developed a theory, the MOSAIC model (MOdel for Spatial Analysis of Investment
Conditions) in his book ―corporate networking and foreign direct investment‖. This theory was
developed in order to analyse the geographical mosaic of foreign direct investment. Based on his
studies four hypotheses on determinants of foreign direct investment came up:

   -   Push factors: variables that give a push to occurrence of foreign direct investment flow from
       a home country.
   -   Pull factors: variables that attract a foreign direct investment flow towards a host country.
   -   Stimulus factors: variables which are typical for a bilateral relation between a home and a
       host country, and which give a positive impulse to the occurrence of foreign direct
       investment on this bilateral relation.
   -   Friction factors: variables which are also typical for a bilateral relation between a home and
       a host country, but which give a negative impulse to the occurrence of foreign direct
       investment on this bilateral relation.

3.2.1 Push factor

      Knowledge transfer hypothesis

Transnational flows of knowledge may be defined as the transfer and utilisation of different types of
knowledge (marketing and technological knowledge, work practices, managerial techniques, etc…)
between the multinational corporation‘s parent company and its subsidiaries.
It is an important push factor and provides new opportunities for combining them with locational
advantages of host markets. A locational advantage is the extent to which enterprises find it
profitable to locate any part of their production facilities outside the country due to locational
attractions or location specific endowments. This implies a knowledge transfer from the home
country to the host country. Once they gained locational advantages this will lead to new
opportunities that will become foreign direct investments.
If in a specific location the knowledge intensity is high and increasing, this may be an interesting
locational endowment for certain types of economic activity. The economist Pearce has identified a
positive relationship between R & D- intensity and internationalisation, which result in new foreign
direct investment.

3.2.2 Pull and stimulus factors.

      Market potential hypothesis

A particular locational advantage is the attractiveness of the market in the host country or the
demand potential. This is determined by the number of (potential) customers and their level of
income or purchasing power. This constitutes a potential for the (future) market revenues. Hence,
foreign market potential is an important pull factor.
Market potential hypotheses have various links with similar hypotheses described by the
economist, Agarwal who made a survey of determinants of foreign direct investment. Firstly, he
identifies the ―market size hypothesis‖, which states a positive relationship between the size of the
foreign market and foreign direct investment. Secondly, Agarwal mentions the ―output hypothesis‖,
which argues that with growing sales volumes determined by the number of potential customers
and their income, companies are likely to engage in foreign direct investment. Academics such as
Root, Ahmed, and Dunning found statistically significant relation between foreign direct investment
and market demand and market growth.
The demand factor represents the potential demand for a company. The demand variable depends
on the company‘s zone of establishment. Most of the time the GDP indicator helps to measure the
level of demand. The GDP factor refers more to the potential market and the demand access.
Companies favour countries and regions where the potential demand is high.
The higher the rate of economic growth, the greater the investment inflows. Foreign investors could
be attracted by high growth rates, and high growth rates could be the result of foreign investment.

      Labour cost hypothesis

Another locational advantage may be that the host market provides attractive inputs for a
company‘s production process. A company can consider moving production to the host country
and internalising the availability of cheap input provision in its corporate structure. In his product
cycle, the studies of Vernon (International investment and international trade in the production
cycle) indicate the availability of cheap inputs, in particular cheap labour, as an essential
determinant for moving production capacity abroad. Hence, cheap inputs attract foreign direct
investments and can thus be interpreted as a pull factor.
However this does not mean that companies invest only in countries where there is cheap labour a
company may choose for a location with skilled labour, accepting the higher labour costs.

      Return on investment differences hypothesis

Hypothesis based on theories in which the cost of capital determines the allocation of investments.
The differential rate of return hypothesis is based on the traditional theory of investment, in which
the firm seeks profit maximisation.
An investor will engage in foreign direct investment if he expects the return on this investment to be
higher than the return from other modes of internationalisation.
An investment is profitable if its cost is inferior to the revenues that it will generate. The
entrepreneur calculates profitability by comparing the cost of the investment and its expected
revenues and from that he deduces the profit. The expected profitability of the investment is related
to the profits coming from the capital already committed. Thus the entrepreneur will invest where
profitability is high. The rate of return can be considered as a stimulus factor to invest in a
particular country. However, although relevant for investment decisions, it can be considered
questionable if a company builds its foreign direct investment decisions on the net return as a
major determinant. In view of corporate strategies, long term sustainability of market revenues and
efficient production and distribution are likely to be more important.

      Taxation differences hypothesis

A hypothesis that could be related to the return on investment hypothesis. If the level of taxation in
a host country is substantially lower than in the home country, a company may want to invest more
in the host country in order to benefit from a higher after tax return on investment due to lower tax
Various authors have studied the relation between taxation and foreign direct investment. Studies
of Devereux and Freeman identified the after tax cost of capital as a relevant investment
determinant. If the difference in taxation between two countries influences foreign direct investment
considerably, it may be the case that favourable taxation policies in host countries exist. Thus the
taxation differences hypothesis can also be considered as a stimulus factor.

3.2.3 Friction factor

      Cultural differences hypothesis

Another hypothesis, which could influence foreign direct investment decisions, deals with the
existence of cultural differences. In the case of a large cultural difference between the home and
the (potential) host country, an economic interchange may be blocked. Cultural difference is a
friction factor to host market provision.
For the foreign direct investment mode cultural differences could be stronger barrier than for other
modes. This is due to the fact that foreign direct investment is a far-reaching mode of
internationalisation, as in this mode the foreign owner takes full or substantial control on the foreign
entity. If local habits and customs of employees in the host country are very different from those of
the managers from the home country, serious conflicts could arise. This could lead to higher
production and transaction costs.

3.2.4 Stimulus factor

      Trade intensity hypothesis

The trade intensity hypothesis deals with the relationship between foreign direct investment and
trade. Foreign direct investment and trade could be considered as complementary. For instance:
creating a local production facility will incur new trade flows: imports of inputs and semi-finished
products for local assembly and exports of manufactures from the local production unit.
In the scenarios of the economists Vernon and Hakanson and in the model of Buckley and
Casson, the foreign direct investment mode of internationalisation is chosen, when a certain level
of trade is achieved. The decision to switch to the investment mode is based on the intensity of
trade having reached a certain sufficient level in the past.
Trade intensity can be considered as a stimulus factor since the better the trade relationships are
between the home and the host country the more the home country will be intended to make
further investments in the host country. Trade intensity may also be considered as an indication of
the level of trade liberalisation or economic integration between any two countries. One may
expect a positive impulse to mutual trade when trade barriers are removed. Further, one may
expect high trade intensity when integration processes have reached higher stages of economic

3.2.5 Stimulus or friction factor

      Exchange rate hypothesis

Economists have theorised on the relation between foreign direct investment and currency
fluctuations. One of these economists, Aliber, postulated a relation between foreign direct
investment patterns and the relative strength of currencies. Firms from strong currency countries
are more likely to invest abroad than those from weak currency countries due to lower costs for
borrowing and more favourable capitalisation of foreign earnings.
The view of Aliber advocate clearly that exchange rate fluctuations matter, but that their impact
depends on many circumstances. Fluctuations influence the internalisation question via an impact
on foreign revenues and costs. Also, the value of invested capital can be harmed when currencies
depreciate. On the other hand, exchange rate movements can create opportunities to purchase
foreign assets at cheap price. This depends on the direction in which the exchange rate moves and
which risks exist for the future development of this rate.
Therefore, the relation between possible investment actions in view of the direction of exchange
rate movements is assessed here.

Table: Home country firms investment actions in view of exchange rate movements towards third

Home country Host    country Bilateral      Home country firms‘ Effect on FDI flow from
currency     currency        exchange rate* view on host        home to host country
stable              stable               stable                single currency area   no major effect
stable              appreciating         increasing            expensive host         friction
Stable              depreciating         decreasing            attractive host        stimulus
appreciating        stable               decreasing            attractive host        stimulus
appreciating        appreciating         indeterminate         indeterminate          indeterminate
Appreciating        depreciating         decreasing            attractive host        stimulus
depreciating        stable               increasing            expensive host         friction
depreciating        appreciating         increasing            expensive host         friction
Depreciating        depreciating         indeterminate         indeterminate          indeterminate
   *a home country‘s currency per unit of the host country‘s currency.

This table identifies possible foreign direct investment actions companies may take when the
exchange rate between home and host country currencies changes. Three situations can occur.
First, the bilateral exchange rate remains stable, which implies no major impact on foreign direct
investment decisions. For instance in the European single currency area, the fluctuation of
exchange rates have no major effect on FDI flows from home to host country. Second, the bilateral
exchange rate increases. This makes the host country expensive for the home country investors.
This causes a friction to invest in the host country. Third, the bilateral exchange rate decreases.
The host country becomes more attractive for home country investors. The bilateral exchange rate
changes cause a stimulus to invest abroad. If the development of the bilateral exchange rate is
indeterminate, any of the three situations may arise.
However the volatility of exchange rate has to be taken into account. Although the movement of
the exchange rate may then be favourable for foreign direct investments, the uncertainty of its
future value may block the actual investment.

      Transport cost hypothesis

Transportation costs are important component of transaction costs in economic geography. Other
transaction costs could relate to costs of coordination and communication and costs to transfer
funds (foreign exchange transaction costs). As a foreign direct investment flow can be seen as a
transaction, transport costs are a relevant determinant. Therefore, a transport cost hypothesis, in
which transport costs are a friction factor, puts forward a negative relation between foreign direct
investment and transportation cost.
A qualification needs to be made regarding the relation between trade and foreign direct
investment. In the case of trade from the home country to the host market, goods will have to be
transported physically. Distance thus incurs transportation costs, which are highly relevant for the
price of the product on the host market. The physical distance may even have stimulated the
choice for the foreign direct investment mode.

      Unemployment rate hypothesis

Another variable that can be taken into account is the unemployment rate. High level of
unemployment can be seen as unattractive for a company since it shows some rigidity in the
labour market. However a high level of unemployment can also be considered as a positive thing if
companies see it as an existing available work force.

      Political risk hypothesis

Several researchers have tested the influence of political stability or, conversely, political risk, on
foreign direct investment flows. Early survey studies of the foreign investment decision process
indicated that political instability was one of the main factors in the decisions of investors not to
invest in a particular country. Researchers, Basi and Aharoni led interviews and surveys of
executives in multinational corporations and concluded from their research that, after market size
and growth, political instability was the dominant influence on investment flows. In a study
conducted by Root and Ahmed, political stability was one of the variables that were found to be
statistically significant. The hypothesis is that the more politically stable the country, the greater the
inflows of foreign direct investment.

3.3 A model of a decision-making process

Theories about strategic localisation show that there are several geographical levels during the
decision process: First the company selects a wide geographical zone, then a country, afterwards
a region, then a city and finally all this leads to the final site for the establishment of a production
unit. The process leading to the choice of a location for investments may have what we call a
hierarchal structure.
In a hierarchal structured model, we suppose that the company hesitates at first between several
countries, once the company has chosen a country it will choose the region where he wants to
establish. Variables such as demand, labour costs, unemployment rate have great influence on a
choice of a location. However these influences do not work at the same geographical level.
The demand factor has a positive impact on the choice of a location on a regional level. The
market potential changes according to the different regions within a country. The higher the market
potential is the more companies are likely to establish in this region. Once the companies have
chosen the region where they want to establish their subsidiary, they will try to gain as much share
as possible from the whole potential demand of the host region.

The labour cost factor has a significant influence on the national level. That is to say that the level
of wages is an important factor influencing the localisation strategy between different countries.

3.4 Factors in the decision-making process

There are many factors that can influence the decision-making for foreign investments in a
particular country. We can divide these factors in several categories:

Economic factors:

    -   Macroeconomic stability
    -   High and long term economic growth
    -   Stable labour force
    -   Availability and labour costs
    -   Easy and restricted access to markets
    -   Market demand and supply
    -   Level of disposable income
    -   Stability of currency
    -   Exchange rates
    -   Market competition
    -   Inflation rate
    -   Balance of payments conditions (export/import)
    -   Market growth
    -   Attractiveness of the different industrial sectors
    -   GNP trends
    -   Interest rates
    -   Unemployment rate
    -   Return on investment rate

Political factors:

    -   Political stability and risk
    -   Policies governing the formation of business as well as its operations
    -   Macroeconomic policies
    -   The supply-side ―product development policies‖
    -   The inward investment policies
    -   The specific regional policies
    -   Stability of economic policies
    -   Taxation policy
    -   Social welfare policies
    -   Government spending on research

Socio-cultural factors:

    -   Levels of education
    -   Lifestyle changes
    -   Social mobility
    -   Cultural norms and social structures
    -   General acceptance and quality of life for the expatriate employees
    -   Labour skills and education

Legal factors:

    -   Foreign trade regulations
    -   Environmental protection laws
    -   Employment law
    -   Health and safety laws

Infrastructure factors:

    -   Infrastructure quality and costs ( transportation, proper utilities,       support services,
        telecommunications, internet)
    -   Technological infrastructure ( R&D, patents, university-based clusters, graduates)

Production factors:

    -   Availability of affordable land and proper buildings for the manufacturing plant
    -   Availability of raw products and natural resources, required in the manufacturing process.

Other factors:

    -   Geographical location for logistic reasons
    -   Support available from the investment promotion agencies (IPA) and other agencies
    -   Networks
    -   Presence of qualified suppliers or business partners.
    -   FDI history of the host country and presence of other multinational investors
    -   Services to enterprises
    -   Access to credit
    -   Access to short and long term funding
    -   Predictable and liberalized framework for investments
    -   Investments incentives and benefits

    Investors will take into account the factors mentioned above before making a foreign
    investment decision. However we can say that there are principal motivating factors in the
    location decision that are different according to the type of enterprise. The principal motivating
    factors in the location decision of particular groups of investors could be summarised as

Export-oriented enterprises:

    " access to market
    " cost of labour
    " export incentives

   " realistic exchange rate
   " availability of proper buildings for the manufacturing plant

Local market-oriented enterprises:

   " market size and growth
   " protection from imports
   " competition
   " rate of return on investment

Multinational Corporations:

   " globalisation considerations
   " access to end-user markets
   " political risk and government attitudes
   " stability of economic policies
   " infrastructure quality
   " FDI history of host country and presence of other multinational investors

Small and Medium size enterprises:

   " investment incentives
   " stability of economic policies
   " barriers to entry
   " market supply and demand
   " access to credit

Other examples :

The research of geographical proximity with the market and the company‘s customers mostly
concerns companies in the service sector.
The willingness to reduce the financial costs for the opening of a new factory. Here the company
looks for advantages and tax incentives. This concerns especially manufacturing companies.
The willingness to have access to localised knowledge and specific resources. This concerns
companies, which look for localised innovation activities.

4/ What makes a country attractive for foreign direct investment?

4.1 Examples of what makes a country have an attractive investment climate:

   -   Political stability and risk
   -   Macroeconomic stability
   -   High and long term economic growth
   -   Investments incentives and benefits
   -   Predictable and liberalized framework for investments
   -   Policies governing the formation of business as well as its operations
   -   Stable labour force with properly structured labour conditions and costs
   -   Access to short and long term funding
   -   Availability of affordable land and buildings

   -   Proper utilities and transport infrastructure and support services
   -   Easy and unrestricted access to markets
   -   Level of market demand
   -   Production factors: the availability of raw products and natural resources required in the
       manufacturing process
   -   General acceptance and quality of life for the expatiate employees
   -   Cultural norms and social structures
   -   Level of disposable income
   -   Stability of currency

4.2 Examples of some countries’ strategies to attract foreign direct investments:

Ireland‘s International Financial Services Centre (IFSC) offers new offices, reduced 10 per cent
corporate tax and other tax benefits, a recruitment service and an expatriate support package for
headquarters projects.

The French techno poles (example: Sophia anti-polis) offer high quality sites and properties in
specialist industrial parks and locations offering a very high quality of life to attract skilled R&D
people, training grants and an expatriate support package. The sites are supplied by the private
sector. To support high-tech clustering, techno poles have on-site research facilities and links to
research establishments and universities. Techno poles were set up to attract R&D investment in
specific sectors, such as multi-media, food technology and electronics.

Singapore‘s life science strategy aims to encourage companies to move into higher value-added
manufacturing, increase and commercialise R&D and build up value adding
partners. To achieve these objectives the Singapore Economic Development Board (SEDB) has
set aside 250 acres of land as a ―Pharma Zone‖. A catalyst initiative
to develop a cluster of local and foreign pharmaceutical and biotechnology companies — and a
Technopreneur Centre has been developed to support Small and Medium Enterprises. These
initiatives are integrated with the activities of other government
departments, and there is a wide range of incentives tailored for manufacturing, R&D, new start-
ups, and for developing links with research institutes.

USA ( New York)
New York‘s ―new economy‖ strategy is designed to attract ―new economy‖ information technology
and e-business companies. Integral to this strategy is a cluster-based, catalyst initiative called 55
Broad Street. This initiative has been developed to stimulate and
attract high value-added, ―new economy‖ activities. The block, designed for the new economy,
includes dedicated broadband satellite telecommunication facilities. It is now
home to hundreds of small businesses. The occupants pay below market rents, and benefit from
tax concessions and cheap utility bills.

Canada (Quebec)
Quebec‘s ―new economy‖ strategy aims at developing higher value-added activities in Quebec, and
in particular at developing Montreal into a new economy hub. Central
to this strategy is developing high value clusters around Montreal‘s strong universities and high-
technology industries and attracting R&D through very generous tax credits. To support the
clustering of ―new economy‖ businesses, a catalyst project was announced in Montreal called E-
Commerce Place, based on the success of 55 Broad Street. This is a dedicated 275,000 square
meter campus, targeted at e-commerce businesses.

4.3 Europe the most attractive area worldwide for foreign direct investment

According to Ernst & Young‘s ―European attractiveness survey 2005‖, the European Union is the
most attractive trading ground for investors. The European Union countries account for half of the
world‘s inward foreign direct investment (FDI) flows. With 450 million consumers it is the largest
internal market in the world in terms of trading opportunities. The enlargement of the EU presents
huge opportunities to investors. Each member state offers foreign investors advantages and
facilities (tax treatment, geographical location, incentives, quality of infrastructures, skilled
Western Europe remains the most attractive economic zone for 63 % of investors. Central and
Eastern Europe are increasingly viewed as ‗low cost‖ competitor for China. 31 % of international
investment is directed towards central and Eastern Europe, more than France, Germany, Spain
and Belgium combined. Poland and Hungary are challenging the traditional supremacy of
Germany, United-Kingdom and France due to their competitiveness in terms of labour costs.
Business leaders remain sceptical regarding an improvement in the attractiveness of Europe over
the next 3 years. So investors would like to see an easing of regulatory and fiscal policies to
encourage investment in Europe.

4.4 Most attractive countries for foreign direct investment

China and India lead, followed by the United States, as the countries for which FDI prospects are
brightest. In India, where FDI flows have been low, location experts expect a major surge. For
many developed countries, especially in Europe, which have traditionally been among the largest
FDI recipients, prospects appear less bright than for certain developing countries such as Thailand,
Malaysia, Singapore and the Republic of Korea. Poland and the Czech Republic also make the list
of the most frequently mentioned countries with favourable FDI prospects, as they are expected to
benefit from accession to the European Union. Mexico is the only Latin American country on this
For each region, experts ranked the countries they considered the top FDI locations in
In the developed world, the United States was the top expected location for FDI, followed by the
United Kingdom. Canada and France tied for third place.
In Africa, South Africa, Angola and Tanzania occupy the top three spots. South Africa is perceived
as the most attractive location, while Angola and Tanzania are tied in second place. These two
least developed economies have bright prospects in natural resource extraction industries, in
Angola‘s case particularly the petroleum industry.
In Asia and the Pacific, China and India are the most attractive destinations for FDI in the near
future, with Thailand in third place.
In Latin America, the traditional magnets for FDI inflows – Mexico, Brazil and Chile – are expected
by experts to continue to play that role, at least in the short term.
In Central and Eastern Europe, Poland and the Czech Republic occupy first and second place,
while Russia and Romania share third place.

According to the UNCTAD (United Nation Conference on trade and Development) here is the
global ranking for the most attractive countries for 2004-2005:

   1.   China
   2.   India
   3.   United-States
   4.   Thailand
   5.   Poland and the Czech Republic
   6.   …
   7.   Mexico and Malaysia
   8.   …
   9.   United Kingdom, Singapore and the Republic of Korea

These countries are ranked on criteria such as financial structure, economic environment and
quality of labour. According to the UNCTAD‘s report on global investment prospects assessment
here are the most attractive business locations for FDI for 2005-2006:

   1. China
   2. United States
   3. India
   4. Brazil
   5. Russia
   6. United Kingdom
   7. Germany
   8. Poland
   9. Singapore
   10. Ukraine

             Chapter 3 : Foreign direct investments in the Netherlands

1/ Presentation of the Dutch economy

After having passed through a major crisis since 2001, the Dutch economy had a slow recovery in
2004. In 2005 the economic situation of the Netherlands still has not improved. However according
to the CPB (Centraal planbureau) the economy saw robust growth in the first quarter of 2006. The
gross domestic product (GDP) was up by 2.9 percent on the year before, that is to say the highest
level since 2000.
The pillars of the economy are foreign trade, industries of high technology and the services. The
Netherlands is known for centuries as a nation of successful traders, internationally oriented by
nature. Its economy is very dependent on foreign trade. More than half of the gross domestic
product (GDP) is generated by the international trade, in particular by the Dutch imports and
exports of food, chemicals and machines. In this last sector, the computers and the components of
computers are the leading products. A substantial part of the imported goods, for example the
computers, are intended for third countries. They are re-exported without to having to go through
the transformation process, or through a tiny transformation. It is one of the aspects, which
characterizes the activity of distribution of the Netherlands. The Netherlands import mainly
machines, equipment, hydrocarbons (oil and natural gas) and vehicles.
In the agricultural sector, the principal cultures are the cereals, the potatoes and the horticulture.
The breeding is also an important sector. The Netherlands has important natural gas resources.
The principal industrial sectors are the agro alimentary, chemistry and petrochemistry. Printing
works, the edition, pharmacy and the medical equipment are also important sectors.
The services are dominating and provide 70% of the country‘s GDP. The first three buyers of the
Netherlands are Germany, Belgium and the United Kingdom. The first three suppliers are
Germany, Belgium and the United States.
The Netherlands is in the top ten most exporting countries in the world. For a country of such a
modest geographical dimension with only 16 million inhabitants, the performance is exceptional.
One of the characteristics of the Dutch economy is its openness to the world that attracts foreign

2/ General trends for foreign direct investments in the Netherlands

Previous studies on foreign direct investment have shown that the process of economic integration
in Europe has had a significant positive impact on FDI flows. In particular, the Single
European Act and the ongoing eastern enlargement of the EU have commonly been cited as
important factors influencing the source and destination of FDI. Prior to the mid-1980s, European
FDI was largely dominated by investments made by US companies. These flows were
concentrated in the economies of Belgium, France, Germany, Italy, Netherlands and UK, which
together gained about 90 per cent of total inward FDI. It is estimated that the stock of world FDI
located in the EU grew from 31 per cent in 1985 to 41 per cent in 1998. At the same time, the
relative importance of US investment diminished, with a decline in total share from 28 per cent to
10 per cent between 1984 and 1996. Foreign direct investments in the Netherlands grew strongly
between 1985 and 2002.

In 2004, Foreign Direct Investments(FDI) decreased considerably, it was a real collapse compared
to the year 2003 with a negative flow (flows of FDI in the Netherlands passed from 18,9 billion
euros in 2003 to -1,5 billion in 2004). The Netherlands traditionally attracts a great number of
foreign investors but the attractiveness worsened since 2000 because of high corporation taxes

and a rise in labour costs. Thus, the IMD (International Institute for Development Management)
relegated the Netherlands to the 15th place whereas they occupied the 4th place in 2003. In 2004
the Netherlands have invested more abroad than foreign investors in the Netherlands.

                                  FDI flows in the Netherlands            (in millions of euro)








                 1995      1996      1997     1998      1999      2000     2001      2002      2003     2004      2005

According to their latest figures from CPB expect a substantial investment increase for 2005. Dutch
producers expect a 13 percent investment rise over 2004. In both 2004 and 2003, industrial
investments had fallen from the previous year. The two most improving sectors are oil and
chemicals, with forecasters predicting investment increases of 55 and 20 percent, respectively.
These figures represent significant rebounds from the preceding years.
Entrepreneurs in the food, beverages and tobacco industry are the only ones expecting a dip in
investment in 2005 – probably around 2 percent.
 Public utilities (including energy companies) and extraction (oil, gas) likewise have positive
expectations about investments for 2005. The entrepreneurs in public utility supply expect a 19
percent investment increase. Dutch entrepreneurs in extraction (oil,gas) are contemplating a 57
percent growth rate.
Industrial entrepreneurs became more positive during 2005 about investments in 2006. In the
spring of 2005 they forecast a 17 percent dip in investments. The fact that the entrepreneurs
became more positive fits in with the rise in producer confidence that started in August 2005.

According to the annual figures from the Netherlands Foreign Investment agency (NFIA), a
department of the Ministry of Economic Affairs, the number of foreign companies investing in the
Netherlands has grown considerably over the past year. The NFIA was involved in 112 new
investment projects by foreign companies in 2005, the highest number ever. This concerns so-
called ―footloose‖1 projects, for which the Netherlands is in competition with other countries, and
does not include takeovers or joint ventures. As a result these projects entailed the creation of
3121 jobs and the amount of investment represents 506 million Euros.

   ―Footloose investment projects‖: The term ―footloose‖ means having no attachments or ties; free to do as one pleases. Generally,
footloose plants result from short-term direct investment that is not rooted in the local economy through supply or demand linkages.
Footloose investments are multinational companies that have no commitment either to the countries in which they are based or to those
in which they invest. However this does not mean that multinationals remain less longer than the local companies or that they are more
―fickle‖ than local employees. Recent research suggests, in fact that they tend to stick around longer than local firms not because they
are foreign but merely because they tend to be bigger and more efficient than average. Multinationals last longer because of their
greater average productivity, their heavier use of capital and their larger size. They are attractive for the host economies since they
transfer technology, know-how and productivity.


                                       102         2004

                                      Number of
Investments                            projects



                 of jobs

3/ The Netherlands an attractive country to invest

3.1 Ranking of the Netherlands

The Netherlands ranks fifth in the fifth annual AT Kearney/ Foreign Policy magazine Globalisation
Index 2005. Singapore heads the latest ranking, followed by Ireland, Switzerland and the United
States. The A.T. Kearney/Foreign Policy magazine Globalisation Index ranks 62 countries
representing 85 percent of the world's population, based on 12 variables grouped in four
categories: economic integration, personal contact, technological connectivity, and political
engagement. The Netherlands ranks 5th, 11th, 8th and 4th corresponding to these four categories.
In addition, the Netherlands seems also to be gaining some ground in several top-ranking lists
indicating the relative attractiveness of investment climates. In the World Economic Forum‘s
Growth Competitiveness Index for 2005, the Netherlands moved up one place to 11th. And in
IMD‘s World Competitiveness Ranking for 2005 the Netherlands climbed from the 15th to the 13th
spot. Furthermore, the Netherlands continues to rank high in the Economist Intelligence Unit‘s
global business environment ranking; at present it is ranked fourth for 2006-2010, after Denmark,
Canada and the US. Finland, Singapore, Switzerland, UK, Hong Kong and Ireland are the
remaining six of the top 10 on this list.
According to the UNCTAD investment brief 2005, large Transnational Corporations (TNC) ranked
the Netherlands in the top 10 of the most favoured host country for doing business. In the
percentage of top 100 TNC, with a foreign affiliate in the location, the Netherlands score with 95%.
A location intensity index, which measures the share of top 100 TNCs that have at least one
foreign affiliate in a host location, as many as 95 % of non-Dutch top TNCs were present in the

3.2 Reasons to invest in the Netherlands

      Strategic location in Europe

The Netherlands provides a strategic location to serve and service markets within the European
Union as well as central and Eastern Europe, the Middle East and Africa. The central geographical
position of the Netherlands combined with a good accessibility and excellent infrastructure are only
some of the reasons why numerous European, American and Asian companies have established
their facilities in the Netherlands. It is a real gateway to Europe. Given its position it is particularly
suited for so-called value-added logistics (VAL) activities, distribution hub and manufacturing
service operations, after-sales services. It is also well suited for streamline customizing of products
to European demands.

      International business environment

The Netherlands, long Europe's trading crossroads, is an obvious choice to locate a pan-European
operation, whether it is a European headquarters, a Shared Services Center, a Customer Care
Center, a distribution and logistics operation, or an R&D facility. An international outlook and
openness to foreign investment is firmly engrained in the Dutch culture, and this has yielded a
wealth of world-class business partners who know how to deal with global business challenges in
today's economy.

      Superior logistics and technology infrastructure

The Netherlands has long been considered the ideal site in which to base pan-European logistics
operations. Among the factors contributing to this enviable reputation are the country's central
location in Western Europe, advanced infrastructure (physical and digital), highly developed
logistics service sector. The Netherlands is located in the centre of the main Western European
markets of Germany, France and the United Kingdom. Access to commercial and industrial centres
in this region such as London, Paris, Brussels, Frankfurt and Hamburg, along with Germany's Ruhr
Valley, is easy - all within a few hours' drive.
Two of the Netherlands' greatest assets are its world-renowned entry points: Amsterdam Airport
Schiphol, that is recognised as one of the major business hubs in Europe and the Port of
Rotterdam, which is still ranked as the world‘s largest seaport. Added to these are the country's flat
countryside and latticework of river connections that are overlaid with a dense infrastructure of
ultramodern and well-maintained roads, railways, inland waterways, pipelines, airports and
seaports. The Netherlands is also classified as one of the most "wired" countries in the world, a
dynamic force in electronic commerce, communications and outsourcing. More than a decade of
investment in high-speed Internet, cable and digital communication systems and the rapid adoption
of state-of-the-art computer and mobile phone technology has created an ideal base for companies
seeking to take advantage of the modern technology. This telecommunications network makes the
Netherlands also an informational gateway.

      Highly educated & flexible workforce

The Netherlands features one of the most highly educated, flexible and motivated workforces in
Europe. The Dutch educational institutions are world renowned for their advanced programs in
studies of agriculture, geography, city planning, economy and engineering.
The use of flexible contracts and temporary labour are very popular in the Netherlands. Many
employers prefer flexible contracts, because these contracts allow them to manage changes in
workload more easily and increase responsiveness to peak times. The flexibility includes:

           o   stand-by-contracts
           o   minimum/maximum contracts, in which a minimum and maximum number of
               working hours per week are agreed upon
           o   temporary workers, which can be hired for a maximum period of one year. Hiring
               persons for longer periods can be done trough secondment
           o   labour pools, in which several organizations participate and share the same

      Multilingualism

In Europe, with its many different languages, an effective distribution system requires the use of at
least three or four major languages. Communication in these languages is a practical necessity
when arranging the flow of goods with customers or specific operators. This is also of vital
importance when complying with many regulations about the use of particular languages in official
documents, such as customs forms, certificates of origin, or transport documents. On average,
Dutch employees have higher multilingual capabilities than most employees do in surrounding

      Quality of life

The Netherlands is proud to have a high standard of living. The costs of living, housing, education
and cultural activities are lower than in most Western-European countries.

      Politics & Government

The Netherlands has a constitutional monarchy and maintains one of the most stable political and
social environments in the world. The bottom line for business has been a longstanding and strong
commitment from the government to maintain and promote a strong private sector. It has always
taken into account the importance of the international business community. Foreign- based
corporations operate with the assurance that government policies affecting them will remain
generally consistent and predictable yet flexible when it comes to their business needs and

      Industrial climate

Although more than two-thirds of Dutch GDP is fuelled by the service sector (whose high quality
has undoubtedly played a part in foreign companies' decision to invest in the country), the
Netherlands has made a name for itself in industry by developing strong clusters in technology-
related industries such as biotechnology, fine chemicals, food, pharmaceuticals, electronics,
telematics, computer products, medical technology, new materials and printing. Five of the world's
leading multinationals (Philips, Unilever, Royal Dutch/Shell Group, DSM and Akzo Nobel) were
founded in this country. The high development of the industrial sector means there are ample
possibilities for subcontracting and it ensures the supply of semi-manufactured goods and
components in various fields.
The Dutch industry has reacted swiftly to technological advances. The information and
communications technology now accounts for nearly 20% of the total GDP growth. Biotechnology
plays a prominent role in the traditional sectors such as agro-food and chemicals.
The Dutch government has announced that it is making information and communications
technology (ICT) a top priority in the continuous campaign to support industry overall. The stated
goal is to have the Netherlands become the electronic business centre of Europe, and Holland is
well on its way to realizing this vision. Concepts like 'just-in-time' delivery and 'built-to-order‘ are
now common in Dutch industry and are crucial for success in the assembly and distribution of
continually changing IT products.

      Research & Development

Innovation requires bright minds. And funding. And businesses that are heavily involved in R&D
also need to be in environments that value their work. In the Netherlands, world-class universities,
supportive government authorities, venture capital and a dynamic business community collaborate
to ensure that companies have the knowledge and resources to turn innovation into bottom-line
results. With initiatives like GigaPort (advanced experimental network for next generation internet
development) and research hubs such as the Telematics Institute, the Netherlands is on the cutting
edge of research and development (R&D) efforts in the information and communications
technology sector. Dutch R&D activities in the natural and engineering sciences rank among the
most productive and influential in the world as well.

      Life sciences industry

The Life sciences industry is a growth market in Europe. This is especially notable in the fields of
human and veterinary healthcare, food and agricultural products, and fine chemicals. The
Netherlands' prominence in life sciences is attributed to the country's well-developed R&D
infrastructure, clinical research and regulatory atmosphere, access to the world's life sciences
markets, and the official support for the life sciences industry as a whole. The Netherlands is also
forging ahead in a relatively new market for life sciences, namely environmental biotechnology.

      Chemicals

The chemical industry, contributing about 18% to total industrial output, is the second biggest
industrial sector in the Netherlands. The Dutch chemical industry represents well over 10% of the
production of all base chemicals within the European Union. An advanced technical infrastructure,
ranging from chemical company clusters and excellent road, air, rail and waterway connections to
an efficient underground pipeline system and modern logistic facilities for chemical storage and
distribution, makes the Netherlands a popular location for chemical companies. Equally important,
the country is fortunate in having an abundant supply of natural gas and vacuum salt (industrial

      Taxation system

The Dutch government has created a competitive tax regime that stimulates entrepreneurship and
foreign investment in the Netherlands. While corporate tax rates are in line with its European
neighbours, there are numerous features that make it attractive for foreign companies to locate
operations in the Netherlands. In comparison with other (EU) countries, the Netherlands is known
for its very competitive "tax climate" resulting from its far-reaching tax treaty network, its system of
bonded warehouses, and the possibility to conclude so-called advance tax rulings, whereby a
company's future tax liability is laid down. There is also a special tax regime for expatriates (30%
ruling), which provides a substantial income tax exemption for a period up to 120 months. As
reimbursement of the extra costs involved in living abroad, employers are allowed to grant
expatriate managers a tax-free allowance of 30% of their total gross salary (taxable income + 30%
allowance).Taxation is a significant factor for international groups in the choice of locations in
which to establish them. The Dutch tax authorities are aware of this and therefore seek to be as
open and accessible as possible.

      Lower operational costs

In comparison with surrounding countries, operational costs are often low in the Netherlands
compared to surrounding countries.

      European headquarters

In response to major developments in the global economy, the Netherlands has become a magnet
for European headquarters for foreign-owned companies. It is a politically neutral and economically
stable location with an investment friendly business climate, an excellent physical and
telecommunications infrastructure, a supportive tax regime, as well as a well-educated and
multilingual labour force.

      Shared services centres

Cost savings of up to 40% are not unusual with Netherlands-based SSCs – which is exactly why
so many world-class companies have set up operations here, from Nike and Sun Microsystems to
Unilever and Yamaha. They have discovered a combination of efficiencies in the Netherlands
unmatched elsewhere in Europe.

      Marketing & Sales

Europe is an attractive and lucrative market for any fast-growing, ambitious international business.
The Netherlands has been able to attract numerous international marketing and sales offices for
foreign-owned companies, for many of the same reasons it attracts Shared Services Centres and
European headquarters.

      Customer care

For years, the Netherlands has been helping companies find the right combination of people, (third
party) expertise, and technology to bring consistently high-quality service to their customers. The
Dutch telecom system offers extremely competitive utility and phone tariffs, and the multilingual
population makes it a preferred location for global activities.

To resume here are the most important points that appeal foreign companies to invest in the

      The Netherlands is an internationally oriented economy, with a comfortable regulatory
       climate and well-managed macroeconomic scene.
      The Netherlands has a stable and effective political system.
      The Netherlands has pro-business government policies, as evidenced by accommodative
       taxation and customs procedures (e.g. deferment system for Value Added Tax [VAT] and
       customs bonded warehousing).
      The Netherlands has a sophisticated financial sector.
      The Netherlands‘ labour force is productive, flexible and multilingual.

Here are some comments of foreign companies‘ executives on the Dutch attractiveness:
"It is a great advantage that so many Dutch people are multilingual. It was their language skill,
combined with a business culture similar to that of the United States, that sealed the decision for
NCR to open the new facility here." Mr. Nico Hendriksen, Managing Director of the logistics centre
of NCR.
"One of the things I am particularly pleased with is the regulatory practices of the Dutch
government. The approach to regulatory matters in Holland is very transparent - it's fair, it's a
system that works, and ultimately, it's one that does a very effective job of protecting the
environment." Mr. Morris Gelb, Executive Vice President and Chief Operating Officer, Lyondell
Chemical Company.

4 / Ernst & Young Netherlands Attractiveness Survey 2005

Ernst & Young undertook a survey in order to find out what will be the new landscape of foreign
direct investment projects in the Netherlands in 2005? This survey evaluates, on a year-by-year
basis, the position of the Netherlands in attracting FDI projects and the perception international
executives have of the Dutch investment climate. The companies interviewed were from different

nationalities (North America, Western Europe, Asia…) and from different sizes and industry

4.1 Image of the Netherlands in 2005: evaluation by international decision-makers

44% of the executives interviewed indicated that today, the Netherlands implements an interesting
attractiveness policy towards international investors, 34% indicated a contrary view, while 22%
expressed no opinion on the subject.
The 2005 survey showed that 20% of international decision-makers indicated that the
attractiveness of the Netherlands has improved. However the majority of the executives are
sceptical about the attractiveness of the Netherlands: 27% indicated that the attractiveness of the
Netherlands has deteriorated. 47% indicated that it has neither improved nor deteriorated, while
6% had no opinion.
The general scepticism mainly concerns the availability of sites, cost of land and labour, flexibility
of labour legislation, and (financial) support measures: about 17% of the respondents regard these
factors as not all attractive in the Netherlands.
International companies already established in the Netherlands are generally more satisfied about
the attractiveness of the Netherlands than companies operating outside the Netherlands.
Given the intensifying competition from other countries, the executives surveyed are becoming
more critical of established investment markets in general versus emerging markets in Central and
Eastern Europe, China and India.
Bench-marking these results against the European attractiveness survey, where 37% of the
interviewed decision-makers expressed the view that Europe‘s attractiveness had improved and
17% indicated that it had deteriorated (45% and 14% respectively in the 2004 European survey),
shows that the Netherlands scores worse than the European average in terms of the perception
executives have of an improving or deteriorating investment climate.

Executives’ perception of the Netherlands in 2004

                    6%     4%
                                                        Significantly improved

                                                        Fairly improved

                                                        Fairly deteriorated

    47%                                    21%          deteriorated
                                                        Neither improved, nor
                                                        Can't say

4.2 What do the investors find attractive in the Netherlands?

37% of the executives interviewed regard the Netherlands as the most attractive destination for a
warehouse/logistics centre. The growing interest in the Netherlands as an investment location for
European headquarters as displayed in the European Investment Monitor 2005 is
confirmed by the results of the survey: 25% of the executives interviewed regard the
Netherlands has the most attractive destination for their European headquarters. Of all countries
mentioned in the survey, the Netherlands is most often chosen as the preferred location for
European headquarters, administrative/accounting back offices, warehouse/logistics centres, and
call centres.

                     Attractiveness of the Netherlands for specific company units

                          Design centre          4%
                 Factory/production unit               9%
                             Call centre                    12%
                   Research centre/R&D                            16%
                 European headquarters                                         25%
 Adm inistrative, accounting back office
           Warehouse/logistics centre                                                        37%

The developments in FDI investment in the Netherlands over 2004 showed an increasing interest
in investments in headquarters, at the cost of sales & marketing activities.

Market share of foreign investment by function

            35                                                                                     2000
            20                                                                                     2002
            15                                                                                     2003
            10                                                                                     2004
                   Headquarters      Logistics   Manufacturing    Research &    Sales &
                                                                 Development   Marketing

63-83% of the respondents regard the Dutch social climate, infrastructure, labour and management
skills, and this country‘s clear and stable political and legal climate as very or fairly attractive.
65% of the executives surveyed consider activities that include high technologies and telecom to
be the most promising for the Netherlands, followed by banking, finance and insurance (43%).
Asian companies unanimously regard the Dutch transport and logistics infrastructure as attractive.
The Dutch social climate, the country‘s local management skills, and its European mind-set are
especially attractive to North American companies, whereas Western European companies
attribute the highest importance to the Dutch labour skills level.

There are, however, other specific selection criteria that are considered fairly weak and are, thus,
responsible for the general scepticism among international executives. Examples are availability of
sites, cost of land and labour, flexibility of labour legislation, and (financial) support measures.
About 17% of the respondents regard these factors as not at all attractive.
Barriers to investment in the Netherlands are mainly identified by Western European
companies. They represent the majority of foreign companies that regard these factors
as little or not at all attractive. North American companies are the ones most sceptical
about an increase in potential productivity in the Netherlands, whereas 52% of the
companies already established in the Netherlands consider this an attractive feature of
the Netherlands.

4.3 Considerations with regard to establishment of activities in the Netherlands

The 2005 survey shows that of all 103 companies interviewed, only a small share (18%) consider
the establishment or development of activities in the Netherlands. It is striking that these answers
are all given by companies that are already established in the Netherlands. This implies that it
would mainly concern expansions of existing companies, as opposed to the settlement of new
companies. In addition, 55% of companies that were interviewed for the European Attractiveness
Survey indicated that they consider investing in Europe. The score of the Netherlands is thus well
below the European score. The majority (78%) of the companies will certainly or most probably not
establish or develop activities in the Netherlands (against 42% in Europe). This share includes
91% of the interviewed companies that are currently not located in the Netherlands.
This suggests that the Netherlands should aim at improving the country‘s image among
international companies that do not (yet) have activities established in the country.

Share of companies that consider investment in the Netherlands
                         4% 4%

                                                                        Yes, certainly
                                                                        Yes, probably
                                                                        Probably not
                                                                        Certaimly not
                                                                        Can't say
           53%                             25%

Rationale for relocation of Dutch activities

34% of the 71 companies in the survey that are established in the Netherlands will or might
consider relocating (part of) their activities, whereas 62% will (probably) not relocate (part of)
their activities. These results are similar to the European attractiveness survey.

                        Relocation outside the Netherlands


                                                                  Yes, certainly
                                                                  Yes, probably
                                               17%                Probably not
               51%                                                Certainly not
                                                                  Can't say

In the eyes of foreign investors, the centre of gravity for investments in Europe has moved
eastwards. This perception, even if it does not precisely reflect the reality of investment choices, is
already a sign of the individual attractiveness of these countries. Cost savings drive relocation to
emerging markets in Central and Eastern Europe, China and India.
For 46% of the 24 companies that indicated to consider relocation, Central and Eastern Europe
seem to be the top destinations for off shoring plans (as indicated by 45% of companies originating
from the US and 42% of companies originating from Western Europe). In this region, Hungary and
the Czech Republic are most often mentioned. Central and Eastern Europe are thus ahead of
Western Europe (21%), where Germany, France and the UK seem to be the most preferred
countries. China and India were indicated by 17% and 8% of the companies, respectively.

To conclude this survey shows us that the Netherlands lots its position in the top ten of European
countries with the largest number of foreign direct investment projects. In 2004, the market share
of the Netherlands in European FDI projects decreased by as much as 37% compared to 2003.
Neighbouring countries such as the United Kingdom, Germany and Belgium obtain much higher
market shares and therefore rank higher.
The Netherlands threatens to lose its current position compared to other upcoming countries. 34 %
of the 71 interviewed companies in the Netherlands indicated that they will certainly or probably
relocate their activities from the Netherlands.
The results of the Netherlands Attractiveness Survey 2005 show that 27% of the respondents
expect that the attractiveness of the Netherlands will improve in the next three years. For Europe
this figure is 50%. However, 11% of the respondents expect that the attractiveness of the

 Netherlands will deteriorate (against 20% in Europe) and one out of two respondents (54%)
 expects no changes in the attractiveness (against 28% in Europe).

 4.4 Attractiveness of the Netherlands in the next three years

                      Attractiveness of the Netherlands in the next three years

                                                       23%           Fairl improvement

                                                                     Fairl deterioration

                54%                                                  Significant
                                                                     Neither improvement,
                                                 3%                  nor deterioration

 One in four executives thinks that the attractiveness of the Netherlands will improve in the next
 three years (against one in two in Europe).

 This survey showed that the attractiveness of the Netherlands as a location for investment is
 declining. In order to acquire information on how to improve the attractiveness of the Netherlands,
 international decision-makers were asked to mention three measures that the Dutch government
 should take to improve the Netherlands‘ attractiveness as a place to establish or develop activities
 for their company. A reduction in taxation and more flexible labour regulations are by far the most
 preferred measures; they are both mentioned by 35% of 77 companies.

 4.5 Favoured measures to boost the attractiveness of the Netherlands

  Guarantee economic, social and political stability

 Lobbying advertise abroad about the Netherlands

                  Increase public aid and subsidies

                Simplify administrative procedures

Improve accessibility of the main economic centres

                    Develop training and education

                               Reduce labour costs

        Implement more flexible labour regulations

                                   Reduce taxation

According to Mr. Jacobs, deputy director marketing from the Netherlands Foreign Investment
Agency, 2005 has been a great year and the number of foreign projects has increased. The
number of foreign companies investing in the Netherlands has grown considerably over the past
(See Chapter 3, 2/General trends of FDI in the Netherlands).
The NFIA declared that the Dutch government intends to make further liberalisations, reduce taxes
by 6% to 7% by 2007 and proposes a lot of other fiscal advantages in order to promote the
Netherlands‘ attractiveness for foreign direct investment.
Foreign direct investments represents 80 billions of euros per year:
- 90% of it comes from Dutch companies in the Netherlands
- 8% from foreign companies established in the Netherlands
- 2% from Foreign companies coming into the Netherlands.

The Dutch government also intends to make further political liberalisations and deregulations in
activities such as, post, energy, telecommunications, transports in order to attract more foreign
direct investments.

5/ Who are the investors in the Netherlands and where do they invest?

5.1 Main trading partners

The main trading partners of the Netherlands in 2004

     Main buyers                 Main suppliers
       Germany                      Germany
        Belgium                      Belgium
    United Kingdom                United States
        France                        China
          Italy                  United Kingdom

5.2 Main investors

 The biggest investors in 2005

                       million euro
The USA                         294
Japan                           122
United-Kingdom                   16
Germany                          15
South-Korea                      11

The USA remains the biggest foreign investor in the Netherlands. North-American companies
continue to represent the greater part of the projects (60 on the 112). American companies created
most of the new jobs. On the 2,085 jobs that the Americans created 500 were created in Arnhem
alone with the establishment of a call-centre from the American company Sitel.

       The number of projects originating from Asia rose from 36 in 2004 to 42 in 2005. The increase of
       the number of projects from Asia is entirely due to the number of projects from China, which has
       more than doubled in the last year from 5 in 2004 to 11 in 2005.
       After the US, investors from China created the most of the new jobs. From the 3,121 new jobs
       created 325 came from Chinese companies. The two main Chinese companies that established
       recently in the Netherlands are Haier, a domestic appliances manufacturer in Eindhoven and
       Huawei, a telecom company in Amsterdam. The other new jobs were created by investors from
       Korea (178), Japan (158) and Taiwan (149).
       According to the other countries the Netherlands is a competitive country and especially attractive
       for the establishment of headquarters, logistic activities, marketing, research and development.
       The Netherlands is also well known for their flexibility and their knowledge in foreign languages.
       All those studies underline the importance of foreign companies in the Netherlands. That
       importance extends further than the fact that the more than 5,300 foreign ventures in the
       Netherlands account for almost 550,000 jobs. The research has also shown these foreign
       companies on average: grow faster and shrink less quickly than the Dutch companies, are
       relatively well represented in innovative sectors, export more, provide more added value per
       employee, which translates into higher profits, higher salaries and higher spending impact.

       5.3 Sectors

       Most projects have originated from the IT sector (21). There are also other projects from the
       chemical, medical equipment and instruments, electronic components and telecommunication
       fields. The Netherlands scores well in the field of life sciences and there was a particular increase
       in the number of projects in the field of biomedical research.
       The Dutch investment climate remains attractive especially for the establishment of European head
       offices and distribution centres. European head offices supplied more than a quarter of the number
       of new jobs (820). The highest investment (almost 200 million) was registered for more capital-
       intensive production and assembly facilities. Moreover, there was an increase in the number of
       R&D establishments from 4 in 2004 to 6 in 2005, particularly in the fields of biomedical research,
       pharmaceuticals, chemicals and telecom.

Number of
              0       Chemical     Medical equipment       Electronic      Telecommunication   Biomedical
                                                          components                             research

                                                       Type of companies

According to the Ernst & Young survey the main drivers for their investment decisions are an
increase in market share in existing markets (67%), cost savings (22%), and the search for new
markets (22%).

The sectors in the Netherlands that are expected to be most attractive in the next three years are
transport, high-tech equipment, and banking, finance and insurance. If we cluster the sectors into
broader sectors, we see that all activities that include high technologies and telecom are
considered to be the most promising for the Netherlands (65% of the executives surveyed).
Services (headed by banking, finance and insurance) are considered a growth sector by 43% of
the respondents. A relatively high share of respondents (36%) indicated that they could not say
which sector would be most attractive in the Netherlands in the coming years.
The sectors, which executives expect will be the most affected by relocations in the coming years,
are mass consumption goods/food and textile industry, heavy industry, and car industry.

                    Most attractive sectors in the Netherlands for the coming years

                          Real estate/construction
                                    Heavy industry     1%
                        Pharmaceutical industries
                                       Car industry
                             Media and publishing
Mass consumption goods, food and textile industrty
                               Chemical industries
                               Tourism and leisure
                                   Mass marketing
                      Telecommunication services
                                    B to B services                              16%
                         High-technology services
                   Banking, finance and insurance                                       18%
                              High-tech equipment
              Transport (trains, aircraft and space)                                             22%

5.4 Locations of the foreign companies

According to the NFIA a third of the projects (37) are in the province of North Holland, followed by
South Holland (21), Limburg (13), North Brabant (11) and Gelderland (9). North Holland was also
the biggest recipient of new jobs (752), followed by Gelderland (587) and Limburg (523). The
highest amount was invested in South Holland (140 million Euros), followed by Limburg (120
million Euros) and Groningen (116 million Euros). Additionally, Zeeland, which only had one project
in 2004, had 4 projects in 2005, with 97 new jobs and an investment of almost 60 million Euros.
The province of Zeeland is for example, the location (Sluiskil) of the production facilities of Alpha
Calcit Füllstoff GmbH, a Germany chemical company.
Most of the foreign companies are located in the ―Randstad‖ region formed by Amsterdam,
Rotterdam, Utrecht and The Hague where about 75% of the population are concentrated there.
The West-Holland region has an exceptionally strong presence of companies and research
institutes in the sectors of Oil & Gas, Life Sciences, IT & Telecom and Aerospace & Composites.
This region is an attractive location for many types of activities in various industry sectors; for
example, European HQ, Call & Contact centres or Marketing & Sales offices.

6/ Forms of investments

6.1 Legal forms of investments

For foreign investors the most important types of entities include a private limited liability company
(Besloten Vennootschap or BV), and a public limited liability company (Naamloze Vennootschap or
NV), both forms of legal persons.
As of 8 October 2004, it is also possible to incorporate a European company (SE) within the
European community. Business activities within the Netherlands can also be conducted in a
branch. A branch is a long-lasting business operation that is owned by a foreign entity that resides
outside the Netherlands.
A special way for a foreign company to carry out activities in the Netherlands or in Europe with the
Netherlands as its base, is the formation of a joint venture with a Dutch party. Another possibility is
to merge with or acquire a Dutch company. A joint venture can take the form of a partnership or a
According to the Ernst & Young survey 2005, the most common form of foreign direct investment
planned in the Netherlands as indicated by the 18 companies that consider (further) investment in
the Netherlands is expansion at existing locations (39%), followed by the creation of new
subsidiaries (28%), and the purchase of companies or plants (17%).

6.2 Attractive forms of investment

When we compare greenfield investments with acquisitions & mergers and alliances (for instance
joint venture) we can notice that there are different relative advantages in terms of costs, speed,
flexibility and control. Greenfield investments are the most basic and safest expansion form
allowing better control. Mergers & Acquisitions (M&As) are unilaterally controlled and can be set up
faster than greenfield investments. However costs and flexibility are disadvantages. As for
alliances, by cooperating with other partners, companies can achieve synergies and competitive
advantages. However strategic alliances seem to be more advantageous in theory than in practice.
Few Alliances are reported to satisfy all of their partners over long time period.
We can have a closer look to the different advantages and disadvantages between Greenfield
investments and M&As:

Greenfield investment: direct investment in new facilities or the expansion of existing facilities.
Greenfield investments are the primary target of a host nation‘s promotional efforts because they
create new production capacity and jobs, transfer technology and know-how, and can lead to
linkages to the global marketplace. It contributes to capital accumulation in the nearer term by
establishing new plants, while M&A can contribute in the longer term. An example of a downside of
greenfield investment is that profits from production do not feed back into the local economy, but
instead to the multinational's home economy. This is juxtaposed to local industry where profits from
manufacturing, research, and design feed back into the domestic economy and help to grow it
faster. Greenfield investments increase competition in the host country by adding new entrants into
markets, while initially M&As may decrease competition or at best may not alter market structure.

        Mergers and Acquisitions: occur when a transfer of existing assets from local firms to
foreign firms takes place, this is the primary type of FDI. M&A represents the fastest possible route
to growth. Thanks to M&A economies of scale, increase in capabilities are possible. Besides it
facilitates also the transfer of knowledge, technologies or systems. It can contribute to capital
accumulation in the longer term. M&As are undertaken for the purpose of restructuring that often
incurs layoffs but many contribute to employment gains in the longer term. Indeed, in the long run,
new foreign owners may expand their business in the host country. Successful restructurings can
create new employment opportunities.
M&As and greenfield investments can enhance efficiency in the host country through technology
transfer, industrial restructuring and enhancing competition. For example, according to one study
of foreign take-overs of British firms, foreign acquisitions raised productivity (output per employee)
as well as real wages, mainly due to higher investment per employee by the new foreign owners.

In the Netherlands tax incentives such as Advanced Tax Rulings (ATR), in combination with
Advanced Pricing Agreements (APA), are guarantees given by local tax inspectors with regard to
long-term tax commitments for a particular acquisition or green field operation. So in a financial
perspective both forms of investments are attractive if the investor seeks tax advantages.
All forms have complementary strengths that can be expected to vary in different situations.
Overall, long-term corporate growth is therefore likely to benefit the most from suitable
combinations of several different types of expansion forms rather than resorting to only one of
7/ Conclusion

According to an investigation carried out by the Dutch Chambers of Commerce, the companies are
more optimistic over year 2006 than over the year 2005. The confidence of the producers went up
in 2005 (index of 2.25) after having recorded an index of 0 on the whole year of 2004. The majority
of the asked companies expect an increase in their sales turnover in 2006.
According to the Dutch Office of Statistics (CBS), the economic growth rose in the third quarter of
2005 and announced a 2.5% economic growth for the whole year 2006.
Investments have also gained dynamism during the third semester 2005, + 6.6% compared to the
same period in 2004.
The growth of exports has contributed to the optimism of the companies and the recovery of the
Dutch economy.
The Netherlands is well known for its open economy. It is in favour of international trade without
national and/or regional barriers and it welcomes foreign investments. One feature of the Dutch
legislation is that the Dutch company law does not make a difference between Dutch nationals and
foreigners. Additionally, companies created under foreign law are free to operate in the
Netherlands. For instance, they can be party to a contract, they can participate in partnerships and
they can establish a Dutch legal entity. Also, it should be noted that there are usually no objections
to the employment of skilled foreign managers or specialist staff in the Netherlands.

                     Chapter 4 : French foreign direct investment
1/ French Trade Balance

1.1 Trend of French exports / imports

In January 2006 the French trade debit balance amounted to- 2.367 billion euros, according to the
French financial department. In 2005 it amounted to -22.7 billion euros, so there has been a great
improvement. However the deficit reduction is limited the purchase of energy is still increasing.
This year exports reached an amount of 31.765 billion euros. Industrial exports have been growing
since October 2005. In the beginning of 2006 sales in professional equipment such as the
aeronautic industry have significantly increased. Sales in the car industry have recovered their
level of the first semester 2005. Finally exports in the agro industry have also improved since two
Exports are increasing mainly towards developing countries, especially to America and Asia.
However the improvement of exports towards the European Union countries is more moderated.

Imports have amounted this year 34.132 billion euros. Energy purchases are steadily increasing.
Imports of intermediate goods and consumer goods have tended to decrease a little however
remaining on a high level. The imports in the car industry remain stable.
Purchases with the European Union have not varied. Imports are increasing from the developing
countries (Asia and America), especially for energy goods and great consumption products.

1.2 Products

In the civil industry, this year there is a slow down in exports of consumer goods, especially
pharmaceutical products. Imports of textile and clothing from Asian countries have increased. Car
exports have stabilised a little, however deliveries towards France‘s partners continue to decrease.
Car imports are on the increase also. Exports of professional equipment increased significantly,
especially thanks to the aeronautic industry. Imports of electric and electronic equipment are
increasing from Asia en the United kingdom.
The purchase of hydrocarbons such as petroleum and gas are increasing as well as the price. The
increasing purchase of energy products is the main cause of the trade balance deficit.
Exports in the agribusiness have well improved regarding products such as: corn, seeds, fruits,
cheese and mineral water. Imports of agricultural products tended to slightly decrease.
(See appendix 2)

1.3 Countries

France makes two thirds of its foreign trade with the European Union partners.
France is the second exporting country in Europe behind Germany. French exports account for
13% of exports of the EU (27,3% for Germany and 11,9% for the United Kingdom). On the other
hand, France is the third importer behind Germany and the United Kingdom. It is the first European
partner of Africa. France is also a dominating European partner in the Middle East. There it
accounts for 16% of European exports and 15% of the imports.
French exports towards the European Union are slowly progressing and imports are stable. Since
2005 exports towards the United-Kingdom, Germany, Italy and Greece are growing. France
imports energy, intermediate and equipment goods are mainly imported from countries like the
United Kingdom, Italy, Germany and Benelux (Belgium, the Netherlands and Luxembourg).
Exchanges with the new European members are growing, especially with Poland and the Czech

Exchanges with America are very dynamic. Exports towards the United-States have reached their
highest level since 2002. The products exchanged are mainly aeronautic equipment, chemical
products and petroleum.
In Africa, France imports hydrocarbons (natural gas and oil) mainly from Algeria, Angola, Libya and
Nigeria. However energy purchases from these countries have slightly decreased this year
compared to 2005.

(See appendix 3 and 4)

2/ French Foreign direct investments

2.1 French FDI abroad

In December 2005, French foreign direct investment amounted 79.7 billion euros compared to
2004 when French foreign direct investment reached 38.5 billion euros as a result it is the highest
amount since July 2001. So French FDI doubled however the balance of the French current
account showed a deficit of 33.692 billion of euros. French FDI reached 79.7 billion euros whereas
FDI coming into France amounts 38.3 billion euros.

                                 French FDI flows abroad




                 1997    1998   1999   2000   2001   2002    2003   2004    2005

2.1.1 Destinations of French FDI

1. Europe
3. Emerging countries

After a slow start in the process of internationalisation, the French MNCs still concentrate their
foreign direct investment in Europe. They are all mainly established in border countries (United
kingdom, Belgium, Germany, Italy, Spain). In these host countries, investors favour the region of
the capital and the most industrialised regions. French companies mainly establish in cities like
Madrid, Brussels and London but also in the eastern region of Spain, the Lombardi region in Italy
and the southeast of United-Kingdom. These regions are highly industrialised. There are two main
zones, which host most of the French investments. The first zone corresponds to the ―hearth of
Europe‖, which consists of the south of London, Belgium, the Netherlands and the western part of
Germany. The second zone corresponds to the Northern part of Portugal and Spain.

The five main destinations of French foreign direct investments in 2004:

   1.   United states
   2.   UK
   3.   Belgium
   4.   Netherlands
   5.   Germany
   6.   Canada.

2.1.2 The five main French investors abroad

   1.   Alcatel
   2.   Sanofi Aventis
   3.   AXA
   4.   BNP Parisbas
   5.   Carrefour

2.1.3 The industries in which French companies invest

   -    machinery and transportation equipment
   -    chemical
   -    pharmaceutical
   -    iron and steel
   -    agricultural
   -    textiles and clothing

2.1.4 Forms of investments

The main French investments are made in forms of mergers and acquisitions. The purchases
made by Lafrage, SUEZ and Saint-Gobain contributed a lot to the increase of French FDI in 2005.

2.2 FDI in France

According to the IFA (invest in France agency) the figures show that more investments were made
in France than in 2004: the number of projects increased by 12.4%. This record level of 664
projects has helped maintain the employment content of inward investment: 33,296 jobs in 2005 as
compared to 33,247 in 2004. With 40 billion euros FDI in 2005 (source: Banque de France),
France comes in fourth, behind Great Britain, China and the United States for the main recipients
of FDI. Since 2002, France has positioned itself around the third rank after the United States and

           Annual inward investments by number of projects 1993-2005

700                                                                                                        650

600                                                                563    558            547

500                                               445        447                  438

400                                350      362

          270             264
300               240



          1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

                  Annual inward investments by employment 1993-2005

35000                                                         31726
                                                     29411                                              29578 30146
30000                                                                                          27335
25000                               22814                                             22861
20000             17122
           1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

2.2.1 Geographical origin of FDI

As in previous years, the most important sources for investment in France were Western Europe
(58.6% of jobs created) and North America (30.6%). The United States remained the most
important country, ahead of Germany, these two countries together accounting for half of all jobs
created (29% for the US, 20.1 % for Germany). Asian investment remained modest,
representing 7.7% of jobs created in 2005 as against 9.2% the previous year. Japan was still the
most important Asian country, responsible for 1,500 jobs created (4.8%), while China retained its
second place with 2 % of jobs created.

Most important source countries for investment in France in 2004 and 2005

                                              in       % in
   Countries          2004      2005
                                          number       2005
                                          of jobs
United-States        8248        8756       508        29,0%
Germany              4814        6055      1241        20,1%
United-Kingdom       1795        2598       803        8,6%
Sweden               4015        2247      -1768       7,5%
Japan                1597        1438       -159       4,8%
Belgium              1029        1391       362        4,6%
Netherlands          931         1153       222        3,8%
Italy                1085        1015        -70       3,4%
Spain                1282        1084       -198       3,6%
Switzerland          763         715         -48       2,4%
China                752         582        -170       1,9%
Canada               1300        466        -834       1,5%
Denmark              302         433        131        1,4%
Turkey                12         415        403        1,4%
Others               1653        1798       145        6,0%
Total               295778      30146      +568        100%

Source: IFA report 2005

2.2.2 FDI by sectors of activity

In 2005, the trend of growth in the share of services is reinforced thanks in particular to
substantial projects in distribution/logistics and retail outlet sectors. Its share has increased from
less than 15% in 1993 to 37.5% in 2005, as a result in particular of strong growth in high-skill
sectors (software, consultancy and engineering, telecom operators and ISPs) and the increasing
outsourcing of services by industrial firms.
There has been a marked growth in high-tech industries, under which one includes
pharmaceuticals, biotechnology, electronic components and aerospace equipment. In 2005
these four sectors together represented 10.0% of jobs created, as against only 3.9% in 1993.
The automotive and electrical and electronic equipment sectors continue to play an important
role, accounting for 19.2% of total jobs created, showing very little change since 2004 (19.6%).

                                        Job creation by sector in 2005

                                      Biotechnology         150
                       Telecom s operators and ISPs                 535
                              Consum er electronics                 545
                                              Energy                556
                    Pharm aceuticals and cosm etics                     597
                             Electronic com ponents                      667
                               Textile and garm ents                     673
                  Chem icals and plastic processing                            802
             Machinery and m echanical engineering                                   1059
                        Food, agriculture and fishing                                   1295
                    Metals, m etallurgy and recycling                                       1359
              Consultancy and operational business                                           1465
                Aerospace, naval and rail equipm ent                                           1606
Glass, w ood, paper, publishing,m ining and ceram ics                                              1677
                     Furniture and hom e appliances                                                        2069
    Electrical engineering IT and m edical technology                                                             2325
                Transport, storage and construction                                                               2399
            Other com m ercial and financial services                                                                           3122
              Autom obile m anufacture & equipm ent                                                                                    3461
                           Softw are and IT services                                                                                          3784

                                                        0         500         1000      1500        2000      2500       3000     3500        4000

       Most important sectors that attract FDI in France

   -    Aerospace
   -    Agribusiness
   -    Automotive
   -    Biotechnology
   -    Logistics
   -    Chemicals
   -    Telecommunications

2.2.3 Destination of FDI by host region

The most important host regions, the Ile-de-France and Rhône-Alpes, strengthened their
position, accounting for 40.8% of jobs created as against 31.8% in 2004. The Rhône-Alpes
region became an important investment region thanks to the creation of a R & D centre by the
Dutch group Philips, the American group Motorola and the French group STMicroelectronics.

          Regions          Number of jobs
Ile-de-France                  8590
Rhône-Alpes                    3694
Nord-Pas-de-Calais             3089
Midi-Pyrénées                  2517
Lorraine                       1979
Provence-Alpes-Côte-d‘Azur     1800
Alsace                         1770
Aquitaine                      949
Centre                         919
Pays-de-la-Loire               795

2.2.4 Forms of investments

The share of jobs represented by new job creation increased strongly in 2005. Business creation
in fact accounted for 36.3% of total jobs created (as against 32.2% in 2004), while business
extension remained preponderant, accounting for 45.4% of jobs created, as compared to 23.3%
on average in 1993-1994. The preponderance of extensions certainly reflects the loyalty of
foreign companies already established in France, who are willing to reinvest in the country when
they restructure or they expand their European activities.
As far as takeovers are concerned the share represented by the takeover of companies
in difficulty has declined sharply since the previous year (15% of jobs created as compared to
25.5% in 2004). According to a study by Thomson Financial, 421 French firms were taken over
by foreign companies in 2005, for a total of 37 billion euros. Over five years, almost 1,900
French companies have been acquired in this way.

          Job creation in 2005 by type of investment projects

                                                          Business creation

2.3 Conclusion

French foreign direct investments slightly decreased from 79.7 billion euros in 2005 to 77.7
billion euros in January 2006. In 2006 foreign direct investment in France increased to 42.3
billion euros. As a result the French investments gained stability and the deficit in the trade
balance was reduced. However there is still a huge difference between FDI coming into France
and FDI going outwards the country. The question that might rise here is, what are the causes of
this difference? Could one of the reasons be the famous French protectionism?

             France invests more abroad than Foreigners do in France

100                                                                            FDI in France
                                                                               French FDI abroad
   2000          2001        2002         2003        2004           2005

3/ French protectionism?

Economic protectionism is not something new in France. However when we look at the
figures we can question ourselves if it is still true ? According to the INSEE ( National Bureau
for statistics and economic research) one out of seven Frenchmen works in his country for a
foreign company. This makes French economy opener than the ones in the Netherlands,
Germany and the United- Kingdom. Between 1993 and 2003, foreign companies have
doubled their share in job opportunities to 1.9 million people. Foreign companies have
doubled their foreign direct investments last year from 19.6 billion euros in 2004 to 38.3
billion euros in 2005. Thus France is far away from being a protectionist economy according
to these figures. Nevertheless since the increase of the number of foreign companies in
France is also mainly done in the form of acquisitions of French companies it entails a certain
patriotic reaction. All the successive French governments from left or right wing have always
adopted a protectionist policy against hostile takeovers. De current Villepin government is
focused on protecting French companies against these hostile takeovers. We can see a
great demonstration of the French protectionism with the SUEZ case. The French
government agreed to the merger of SUEZ and Gaz de France when it became obvious that
the Italian energy company, ENEL was preparing a hostile take overbid on Suez. Another
good example of French economic protectionism is the famous ―red list‖ of a few French
companies that could be the prey of a hostile takeover and therefore should be protected.
For instance here are ten companies in alphabetic order that were last year on the list:
Arcelor, Carrrefour, Casino, Danone, Saint-Gobain, Société générale, Suez, Thomson,
Vivendi Universal.
According to an interview that Henri de Castries, director of Axa made for a newspaper,
France must accept to look to the world and be open. He also declared that by protecting all
these sectors it is only making them weaker. According to Daniel Bouton, director of Société
Générale, it is proved that it became now a necessity for companies to form big European
groups. Protectionism is an archaic way of looking to the world.

      Chapter 5: French foreign direct investments in the Netherlands
1/ French – Dutch commercial relationship

France and the Netherlands are the Founding Countries of the European Union and maintain
a long date of friendly relationship and confidence, which were reinforced in 2002 with further
co-operation within Europe and on the international scene. The objectives were to work more
often together and understand each other better. To achieve this the two countries will
develop common political initiatives on specific subjects and develop the co-operation within
the European Union. Besides they will intensify the exchanges between the two societies.
Integration grows between the two economies, in the form of commercial and with the
emergence of technological and industrial partnerships, in particular in the aerospace, the
agriculture sectors and in transports (Air France/KLM).
The cultural, technical and scientific relations are developing within the framework of an
agreement of November 1946. The network was restructured around the ―Alliance Française‖
(36 centres) and the French Institute of the Netherlands gathering the institutes of
Amsterdam (the ―Maison Descartes‖), of The Hague and Groningen. A House of France was
opened at the University of Utrecht.
Most of the French research organizations signed agreements with their Dutch counterparts
(CNRS, INRA, IFREMER, INSERM, ANVAR), which envisage exchanges of researchers and
the implementation of joint projects.
The ministers of foreign affairs of both countries reinforced the bilateral relationships with
The Hague in April 2005 : a declaration on common prospects.

The bilateral deficit of France with the Netherlands was reduced in 2004. The bilateral
economic and commercial relations between France and the Netherlands became more
favourably for France than last year. Although the trade balance remains negative, it has
improved with 0,36 billion euros to reach -0,78 billion euros over the first six months of 2004.
The negative tendency recorded since 2001 with a deficit record of -2,7 billion euros over the
first six months, was rectified with an increase in exports (0,2%) and a reduction in imports
(- 4,5%).
The slight reduction in the trade deficit of France with the Netherlands continued in 2005.
This evolution results from the combined effect of a more significant rise of French exports to
the Netherlands (+5,2% compared to 2004) and a slower increase in imports (+2,1%).
The French-Dutch trade balance posts a deficit of 724 € million, while in the same period last
year, the deficit reached 910 € million euros. The French cover rate improved consequently
and rose in the first half of 2005 to 90,7% against 85,5% last year.
The French-Dutch exchanges reached 14,75 billion euros in the first half of 2005, including
7,75 billion euros for the French imports and 7 billion euros for exports towards the
According to the French customs the Netherlands are France‘s seventh supplier and
France is the Netherlands‘ fifth supplier and fourth customer.
France and the Netherlands are respectively the first and fifth agricultural producer in
Europe, and second and third world exporters.

1.1 Exported products

      Main French exports to the Netherlands in 2005:

1. Crude oil
2. Vehicles
3. Refined oil products
4. Electric equipment
5. Wheat and cereals
6. Telecommunication equipment
7. Pharmaceutical products

French exports to the Netherlands have increased by 5,2% compared to the first half of
2004, that is to say a total value of almost 7 billion euros (accounting for 4% of the total
French exports).
However, the growth of French imports (+5,7%) is below the average growth of the Dutch
purchases abroad (+8,6%). The Netherlands is the seventh customer of France after
Germany (25,3 billion euros, accounting for 14,6% of the total of French exports), Spain
(18,5 billion euros, 10,7%), Italy (16,4 billion euros, 9,5%), the United Kingdom (15,4 billion
euros, 8,9%), Belgium (13,2 billion euros, 7,7%) and the United States (12,1 billion euros,
French exports show a strong orientation towards the industrial sector, which carries out 70%
of French exports in the first half of 2005.
Inside the industrial sector, French exports are distributed namely between intermediate
goods (+5,8%) and professional equipment goods (+4,2%). The reduction of French exports
to the Netherlands in the agricultural sector (- 8,4%) and in the car industry (- 4,5%) was
compensated by the big rise of exports of intermediate goods, of energy products (34,8%)
and consumer goods (+5,1%).
The sales of the products in the car industry dropped considerably in the first half of 2005 (-
4,5%), which is explained in particular by the fact that sales of particular vehicles dropped
considerably since 2003 in the Netherlands. French exports amounted to 543,6 million euros
and accounted for 7,7% of the total of French exports towards the Netherlands.

    Main French Exporting regions to the Netherlands :
   1. Alsace
   2. Ile-de-France
   3. Haute-Normandie
   4. Nord-Pas-de-Calais
   5. Rhônes-Alpes

These regions represent 53% of the total French exports to the Netherlands.

1.2 Imported products

    Main French imports from the Netherlands in 2005 :
   1. Office automation
   2. Natural gas and industrial gas
   3. Electric equipment
   4. Crude oil
   5. Telecommunication equipment
   6. Organic chemical products
   7. Pharmaceutical products

The French imports increased by almost 163 million euros in the first half of 2005 and rose to
7,75 billion euros, that is to say an increase of +2,1% compared to the first half of 2004 (-
4,5%). Near 85% of this evolution is due to the progression of the energy purchases, which
passed from 315 million euros to 454 million euros (+44,3%), which is probably due to the
significant increase of the oil prices.
The French imports have increased thanks to the purchases from products related to the
automobile sector (+14,6%), but also from energy products (+44,3%) and intermediate goods
(+4,4%). In volume and balance, the intermediate goods, which account for 37,6% of the
total of the French imports coming from the Netherlands in the first half of 2005, remain the
main import (2,9 billion euros, that is to say an increase of 4,4%), and the second deficit (-
657,8 million euros).
See appendix 1

Finally we can notice that France and the Netherlands are complementary in their
exchanges, especially in the agribusiness, energy, transports and manufactured products.
This can explain the great commercial relationship that these two countries have enjoyed for
so many years. As a result it explains also the mutual interest that France and the
Netherlands have for each other, facilitating also foreign direct investments between the two

2/ French foreign direct investments in the Netherlands

2.1 Trend of French foreign direct investments in the Netherlands

The majority of French foreign investments in the Netherlands are made by take-overs
according to the French Chamber of Commerce in the Netherlands. Most of the French
investments made in the Netherlands are done by companies, which are already present in
the country.
According to the UNCTAD investment brief 2005, the Netherlands ranked fifth in the top 10
of the most favoured host country for doing business.
In January 2004, according to the French Central Bank, the Netherlands is the fourth host
country for French investments with 56,4 billion euros (against 45,5 billion euros in 2003),
that is to say 9,9% of the total stock of French foreign direct investments (8,1% in 2003).
According to the Nederlandsche Bank, in 2004 France is the seventh investor in the
Netherlands in terms of stocks (16,8 billion euros). According to the Nederlandsche Bank in
2005 France invested 25,2 billion euros in terms of stock becoming the sixth investor in the

              Fre nch FDI stocks in the Ne the rlandsmillions of euro)

              1997 1998 1999 2000 2001 2002 2003 2004 2005

According to the French Central Bank, in terms of flow, the French FDI flows towards the
Netherlands amounted to 5,8 billion euros (9,5 billion euros in 2003), i.e. 15,2% of total
French outward flows. In terms of flows the Netherlands is the sixth host country for French
FDI flows (4th in 2003 and 14th in 2002).
There is an increase in the French FDI thanks to several take-overs by French companies
such as: Orange, Ernst & Young and Seagram.

2.2 Main destinations for French foreign direct investments

                             January 2003              January 2004
                    Amount (Bn euros) Share (%) Amount (Bn euros) Share (%)
1   United-States          134.0          24.0       122.6          21.5
2 United-Kingdom            79.0          14.1        84.5          14.8
3      Belgium              84.3          15.1        70.7          12.4
4    Netherlands            45.5           8.1        56.4           9.9
5     Germany               35.4           6.3        41.4           7.3
6      Canada               22.0           3.9        23.5           4.1
Source : Banque de France, May 2005

We can notice that among the main countries receiving French FDI stocks, the Netherlands
posted the biggest rise over the year 2003. Thus French investors are increasingly becoming
more interested in the Netherlands. According to the figures of the Nederlandsche Bank, if
we compare foreign investments made between 2004 and 2005, we can observe that France
almost doubled its investments in the Netherlands, posting the biggest rise over the year
2004 with +49.4%. In 2005 France invested 25,2 billion euros in the Netherlands in terms of

                      Year 2004        Year 2005
      Countries      Amount in        Amount in      Evolution in %
                   Millions of euro Millions of euro
1    United States      68.208           70.817           +3,8
2   United Kingdom      60.998           57.209           -6,2
3      Germany          49.459           49.432          -0,05
4       Belgium         39.295           42.159           +6,8
5    Luxembourg         22.257           26.561          +19,3
6       France          16.846           25.201          +49,4

The number of foreign subsidiaries continues to grow in the Netherlands. There are 5.305
foreign subsidiaries present in the Netherlands including 30% coming from the United States,
19% of Germany, 13% of the United Kingdom and 6% of France. France occupies the fourth
place in terms of jobs created behind the United States, Germany and the United Kingdom,
but in front of Japan and Belgium. French investors privilege sectors like metallurgical and
chemical industry, transport and the agro alimentary. A study carried out by the Ministry of
Economic affairs, showed that France is largely represented by the multinationals. Nearly
320 French subsidiaries were present in the Netherlands in 2004, employing 62.168 people.

The Economic mission (ME) of The Hague carried out an investigation in autumn 2005
registered the economic data out of 401 French headquarters and secondary establishments
in the Netherlands for the year 2004. According to the definition retained by the DGTPE
(Directorate-General of Treasury and economic policy), the ―French establishments‖
correspond to companies based abroad held by a French concern owning 10% or greater of

the ordinary shares of an incorporated firm, having 10% or more of the voting power for an
unincorporated firm and it includes also their local subsidiaries. This includes operations,
branches and representative offices of French companies. On the other hand, a French
physical person having created his own company in the Netherlands does not form part of it.

The Netherlands is the fourth host country for French companies. In the same way, France
places itself as the fourth foreign investor in the Netherlands. This significant French
presence in the Netherlands for Foreign Direct Investments (FDI) is largely confirmed in a
reciprocal way. The bilateral bonds result from the integration between these two countries,
founders of the European Union.

2.3 Number of establishments and employees in the Netherlands coming from foreign

   Whereas Europe is by far the first continent investing in the Netherlands (57% of the
   establishments), France ranks as the fourth country investing in the Netherlands:

                          Number of
                                                Number of jobs            Medium size
                                                           Share     Number of employees/
                    Number       Share (%)     Number
                                                            (%)             plant
1 United-States       1 600          30        178 561       33              112
2 Germany              982           19        69 489        13              71
3 United-              707           13        93 703        17              133
4 France               320            6        62 168        11                194
5 Japan                312            6        25 512         5                82

Source : Stec Groep 2004

The French presence is weak in number of establishments but large in size. There are 320
French subsidiaries employing 62.168. It is interesting to note that the French
establishments, just like Danish companies, very large (nearly 200 employees on average)
compared to the average size of all the foreign establishments in the Netherlands. This is
explained by the presence of large French multinationals.
The share of the French establishments accounts for only 10% of the total number of the
European establishments, whereas the number of employment generated by the French
establishments accounts for 19% of the total number of employment resulting from European
establishments in the Netherlands.
According to the results of the investigation carried out by ME of The Hague in 2005, the
French establishments in the Netherlands employed in 2004 143.024 people, that is to say
about 2% of the Dutch working population.
Among this employment coming from French FDI, we could count 191 expatriates. This
figure is probably lower than reality, but it expresses the fact that the management and the
development of the French activities in the Netherlands are very largely carried out by
buildings. That translated a certain managing proximity between the two countries.
Moreover, the International Volunteers in Companies (VIE:volontaires internationaux en
entreprise) have a significantly present in the Netherlands. In November 2005, they were
thus thirty young French expatriates in the Netherlands. It is interesting to note that it is
especially the automobile sector, which is by far the biggest user of IVC since the three main
French brands of the sector, Citroen, Peugeot and Renault, gather a third of these IVC.

2.4 Sectors

According the French Central Bank showed that four activities concentrate 85,1% of the
French direct investments stocks in the Netherlands in stockholders' equity:
   - Holdings (40,2%)
   - Trade (21,7%)
   - Insurances (13%)
   - Banking (10,2%)

According to the data published by the Dutch Central Bank: 67,7% of the total French
investments in the Netherlands was carried out in the field of the services (11,4 billion euros).

              Main sectors where France invested in the Netherlands in
              10%                                            40%                   Trade


     Holdings
The holdings occupy the second place of French investments abroad (40,2%), behind
Switzerland (49,3%). The French Central Bank observed the delocalisation of holdings to
countries offering advantageous taxations like the Netherlands, Belgium or Luxembourg.
These financial holdings hold the majority in the companies of the group so that the profits
carried out by the subsidiaries and repatriates can benefit from privileged tax rates.
The French companies belonging to an international group can thus constitute special
reserves going up to 80% of the qualified financial income (primarily interests and royalties);
moreover, the capital gains drawn from substantial participations (5% or more of the capital)
in Dutch or other foreign companies, are exonerated from corporation tax. These devices
attracted the presence of headquarters of French multinational firms such as EADS, Thales,
Renault-Nissan, Elf, etc...
French direct investments in the Netherlands for stockholders' equity in holdings rose at the
beginning of 2004 with 22,67 billion euros. This amount is equivalent to 10,67% French
investments abroad in the holding sector, the second destination behind Belgium.

     Trade
Trade is practised by companies like Orange for the mobile telephone industry, Etam for the
sales of clothing, Total in fuel and services sales, Primagaz in gas distribution of butane, or
Laurus (Casino group) through its Konmar supermarkets, Edah and Super de Boer.
In the trade sector, French FDI in the Netherlands amounted to 12,24euros, that is 32,99% of
the total French FDI in the trade sector. That made the Netherlands the first destination for
French FDI in this sector.

     Insurance
Insurances activities also developed quickly in the Netherlands these last years with the
presence of the European leader AXA, and companies like Mondial Assistance, in the field of
assistance for companies and of insurance travels.

     Banking
French banks in the Netherlands, such as Calyon, BNP Paribas, Société Générale, Dexia,
etc, focus on the allocating of credit facilities to investment companies, according to the
principle of free provision of services to allow the banks to widen their customers.
On the level of the financial intermediation sector, French direct investments in the
Netherlands amount to 13,08 billion euros. That is equivalent to 10,71% of the Total French
FDI in the sector of financial intermediation, that is to say the fourth destination behind the
United States, The United Kingdom and Canada.

     Other sectors
French investors invest also in sectors such as : logistics, chemistry, metallurgy, transport
and agro alimentary.
With 27 establishments, France is the fifth investor in the Netherlands in the manufacturing
sector. That accounts for only 5% of the FDI in this sector in the Netherlands, behind The
United States (29% in terms of number of establishments), Germany (20%), The United
Kingdom (13%), and Japan (6%).

2.5 Constitution of the French FDI in the Netherlands

French FDI (stocks) in the Netherlands on January 1, 2004, amounted to 56,4 billion euros.
French FDI in the Netherlands represent for more than 70% of invested stockholders' equity,
far in front of loans made by French establishments amounting to 28,7% and the investments
made in the real estate sector.

                        Constitution of French FDI in the
                              Netherlands in 2004

        29%                                                    Equity capital


                                                               Real estate
                                                   70%         investments

2.6 Dutch investments in France

The bilateral bonds are marked by an important reciprocal presence concerning foreign
direct investments. According to the Central Bank of the Netherlands, France is the seventh
investor in the Netherlands, and the Netherlands is the sixth investor in France in terms of
stocks. In 2005 the Netherlands has invested 30.338 million euros in terms of stock in
France, compared to 28.420 million euros in 2004. In terms of flows the Netherlands ranks
fifth behind the United States, Germany, Italy and United Kingdom, with flows amounting 911
million euros in 2005. ( See also Chapter 4, 2.2.1 Geographical origin of FDI).
The vigour of the Dutch economy in the past few years has triggered a fresh rise in foreign
investment by Dutch companies, a trend particularly evident in France. Statistics compiled by
the Invest in France Agency show that the number of Dutch investments in France has risen.
There has been an increase of Dutch investments in greenfield investments. Previously,
projects tended to be extensions of existing operations.
The focus of Dutch investments outside the Netherlands has shifted to the service sector,
which accounted for 52% of the total in 1998 compared with 38% in 1988. This trend is
visible in France, with major beneficiaries including software and engineering. The
Netherlands invests mostly in logistics, electronic sector.
Dutch direct investments occupies a very important role in certain industrial branches in
France, especially in these sectors:

   -    Chemistry: Akzo Nobel
   -    Energy and petrochemistry: Shell
   -    Electronic: Philips (in 2005 there were 50 Philips centres in France employing 2,000
        people for Philips Semiconductors in France 1,500 in R&D.‖)
   -    Agro alimentary: Unilever

As well as medium-size businesses such as Brink, Boal and Bosal. The ABN-Amro Bank is
the first foreign bank in France. Nearly 350 companies with Dutch capital are present in
France, employing more than 40.000 people.
If we look at the geographical repartition of Dutch investments in France, the French regions
that have attracted most of Dutch FDI are, Rhône-Alpes, Haute-Normandie and PACA
(provence alpes et côte d‘azur). See also chapter 4, 2.2.3 destination of FDI by host region.

                      Dutch FDI stocks in France millions of euro)
               1997   1998   1999   2000   2001   2002   2003    2004   2005

                        Dutch FDI flows in France millions of euro)

               1997    1998     1999    2000    2001     2002    2003     2004    2005

3/ Which French companies have invested or are looking for investment opportunities
in the Netherlands

Large French companies are present in the Netherlands since long years like Air Liquide,
Total Fina Elf for gas and refining, Cap Gemini in the data-processing sector or Thales for
the radars. We have assisted, for a few years, to lots of evolutions from one sector to
- certain disengagement in the banking field.
- compensated by the arrival in recent force of new industrial groups and services:
For instance Suez (composed of SITA, Electrabel, GTI and Axima…), France
- The four greatest French groups present in the Netherlands are active fields like air
transport (Air France-KLM), trade (Laurus/Casino), information technology services (Athos
Origin International) and the data processing services (Cap Gemini).
- Concerning real industrial activities, several large French companies are distinguished:
Total Fina Elf (second oil company in the Netherlands), Alcan (aluminium), Thales (military
electronics), Isover ( Saint-Gobain group), Elf-Atochem (chemical branch of the Total group)
and Air Liquide.
- Other big investors in the Netherlands:
Danone, L'Oreal, Norbert dentressangle (logistic) and Bel group (sells French cheese

     Air France / KLM
Air France / KLM is based in Amstelveen. The alliance between these two air transport giants
operated in 2004 as a result it became the first world group in terms turnover (19,08 billion
euros). In 2004 the group employed 30.056 people in Netherlands. This alliance allowed
gathering together two significant ―hubs‖: Roissy Charles De Gaulle and Amsterdam
Schiphol. Air France / KLM made showed excellent results this year. Revenues went up to
10% to 21.4 billion euros and made 936 million euros operating profits.

     Laurus
 Laurus (distribution) is based in s‘Hertogenbosch and the second operator for supermarkets
in the Netherlands. In 2004 it employed 25.440 people reached a turnover of 3,498 billion
euros through its 724 stores in the whole country. Laurus said in January it planned to sell
Edah and Konmar, because of the pressure from the supermarket price war and a lacklustre

     Atos Origin
Atos Origin is an international information technology services company and is based in
Utrecht. It was created by the merger of the French Atos with Origin, a Dutch subsidiary of
the giant Philips. In 2004 it employed 8 471 people in the Netherlands.

     Cap Gemini
Cap Gemini (IT) based in Utrecht, is specialized in consulting and data processing services
for companies. Its activity covers the Benelux and employed 4 764 in 2004.

    Saint-Gobain
Saint-Gobain (glass and construction) employed 3.547 workers in 2004.

    Sodexho
Sodexho (catering) employed 3.028 workers in 2004.

     Sita
Sita (waste treatment) employed 2.763 workers in 2004.

    Accor
Accor (hotel trade) employed 2 700 workers in 2004

    Thales
Thales Nederland (systems of defence) employed 2 417 workers in 2004.

     Peugeot
The automobile market in the Netherlands has faced difficulties for a few years. The Dutch
automobile market lost more than 25% of its volume since the beginning of 2000. It is an
extremely comptetive market. It is characterized by heavy taxation and by a great need for
innovation. French brands, and especially Peugeot made lots of progress these last years.
On the market of private vehicles, in 2004 and in 2005, Peugeot occupies the third place and
attaches great importance to innovation. It also launched many produced: the new 307 and
407 in 2005, the 107 at the beginning of year 2006. The new 207, which was a success will
be marketed in the Netherlands at the beginning of May 2006.

Data on new French projects are difficult to find. The NFIA recorded the last French project in
1998 see table of other FR projects. This can be explained by the fact that companies do not
go through the NFIA anymore since they already have distributors or go implant them without
the help of the NFIA. Here are a few examples of new French projects in the Netherlands for

    Devoteam
With the acquisition of Topficie in October 2005, Devoteam reinforces its position in the
Netherlands. Created in 1997 and based in Amsterdam, Topficie is a data-processing
company. With 60 employees, Topficie recorded a turnover of 4,8 million euros in 2004.
Thanks to this acquisition, the Devoteam group already present on the Dutch market will
consolidate and reinforce its position by reaching a critical size and thus obtaining a greater
recognition in the field of finance.

    Lowendal Group
Lowendal Group is a French consultancy group. The company already present in Spain, in
the United Kingdom, in Italy and in the United States, prepares the opening of two new

subsidiaries in 2006, one in Germany, the other in the Netherlands, indicates its founder and
chair directory, Pierre Lasry.

     Gaz de France
On 19 January 2006, Gaz de France has announced that it is bringing four gas fields on
stream in the Dutch North Sea, through its subsidiary, GDF Production Nederland BV
(ProNed). The fields are located North of Terschelling. The Total investment in the project is
over €300 million, of which €164 million for Gaz de France. This operation enables Gaz de
France to double its production capacity in the Netherlands on a medium-term, where it is
already present through its subsidiary ProNed, one of the top four Dutch producers, acquired
in 2000.

     France Télécom
France Télécom invested more than 3 billion euros in its ADSL network between 2005 and
2007. The company has invested in networks in Spain, the Netherlands, in Poland and in
the United-Kingdom. It launched new Internet services at competitive prices. The new Live
box was marketed in Spain (February 2005), in Poland (December 2005), in the Netherlands
(March 2005) and the United-Kingdom (July 2004).

4/ Geographical locations of French companies in the Netherlands

Main locations of French companies in the Netherlands :

   1. Amsterdam (31)
   2. Rotterdam (20)
   3. Den Bosch (13)
   4. Utrecht (12)
   5. Breda, Den Haag (10)
   6. Amstelveen, Eindhoven (6)
   7. Schiphol (5)
   8. Nieuwegein, Oosterhout, Rijswijk, Weesp (4)
   9. Almere, Etten, Hoofddorp, Huizen, Tilburg, Veenendaal, Zoetermeer (3)
   10. Amersfoort, Barneveld, Boxtel, Bussum, Diemen, Dordrecht, Drunen, Harderwijk,
      Maastricht, Ridderkerk, Vlaardingen, Voorburg, Woerden, Zaandam, Zwolle (2)

French companies are mainly located in the ―Randstad‖ formed by Amsterdam, Rotterdam,
Utrecht and The Hague, where about 75% of the Dutch population are concentrated and also
where most of other French companies are located.

5/ French presence in Dutch companies

Almost half of the directors from the 25 biggest Dutch listed companies are foreigners.
Belgian, Englishmen and Frenchmen, are more and more the directors that manage Dutch
companies. Six years ago only one out of the Dutch companies was managed by a foreigner,
nowadays there are twelve. The last years there is a trend that a lot of foreigners are
welcomed in top positions in Dutch companies. Out of twelve companies, there are as many
or more foreigners on boards of directors. Here are some few examples of Frenchmen in top
positions in Dutch companies:

   o ASML: manufacturer of advanced technology systems for the semi-conductor
     CEO : Mr. Eric Meurice
   o Fortis Bank: A Dutch-Belgian financial services provider engaged in banking and

       Member of the executive board: Mr Jacques Manardo
   o   Shell: Group of energy and petrochemicals companies.
       Member of the board of directors: Mrs Christine Morin-Postel
   o   Impress Group: Can makers, metal packaging solutions.
       Formed by the merger of the metal packaging business formely owned by Pechiney
       and Schalbach-Lubeca (Germany).
       CEO : Mrs. Dominique Damon
   o   KLM / Air France
       Director & CFO: Frédéric Gagey
   o   Unilever: international manufacturer of leading brands in foods, home care and
       personal care.
       Chief executive: Patrick Cescau
   o   Wolters-Kluwer: international group of specialized press and publishing. A
       multimedia domestic company.
       Member of the executive board: Jean-Marc M. Détailleur

6/ What pushes or attracts French companies to the Netherlands?

6.1 Factors that push French SME to delocalise

According to a study led by KPMG in 2004, the true delocalisation exists but they are not
representative of an overall strategy of French SME (small and medium enterprises). They
are not either, the only solution planned to face a lack of competitiveness in their own
territory including two major points the complex social regulation and labour costs with low
added value. The leaders of SME integrate innovation, more and more, in their strategy like
one key factor of competitiveness. In all the fields innovation is not only in the development
of new products but also in the methods of sales, distribution, packaging and design, in the
methods of production and customer care. We are talking here more about innovation
marketing than R&D or fundamental research, pragmatic and operational innovation.

Investments made abroad are mainly (58%) based on a strategy of new markets conquest.
The goal is to find new growth and new outlets for products and services with stronger added
value and it became, less and less, a solution for resolving production costs. These
international investments are more focused on the conquest of new markets, mixing trade,
logistics and productive investments.
The priority in term of strategy is given to consolidation of positions, based on innovation,
commercial presence and cost reduction as well as breaking through new markets.
The French leaders of SME reaffirm the strategic importance of innovation, but denounce a
complex French system, too much oriented towards fundamental research and thus not well
adapted to their needs. SME are looking for more performance, flexibility and satisfying

So if we compare the location strategies of French companies with the location theories
discussed at the beginning, we can find back some similar variables. Indeed, French SMEs
no longer base their strategy on just focussing on costs savings and on low labour costs,
which was one of the most important variables in the neo-classical model. Nowadays they
focus their strategy on innovation. We can find back the importance of innovation in the
institutional theory for instance. The institutional theory gives the importance to the quality of
the R&D institutions and infrastructure for technology transfers, which are the necessary
bases for great innovation. Costs savings are no longer the first priority in their strategy.
Thus, what pushes French companies to localise abroad is innovation, find a better
environment adapted to their needs, find a new market or consolidate their position. As we
said before French SMEs look for innovation in the methods of sales, distribution, and
customer care.

Now the question is does the Netherlands offer what French SMEs are looking for?
We can concur with it if we look back to the elements that make the Netherlands an attractive
country (see Chapter 2, 3.2.), it has great R&D facilities, superior logistics and technology
infrastructure (physical and digital). The Dutch government makes information and
communications technology a top priority. It has a strategic location in Europe and well suited
for so-called value-added logistics activities, distribution hub and manufacturing service
operations, after sales services. As for new developments in marketing and sales, the
Netherlands has already attracted numerous international marketing and sales offices. It
offers great-shared services centres and customer care.

6.2 Criteria of attractiveness (pull and stimulus factors)

6.2.1 Criteria

In the same study carried out by KPMG, French SMEs have several criteria of attractiveness.
So added to the economic dynamism of a geographical area, there are three criteria of
attractiveness that prevail for a project development of an activity: the social factor, the
taxation factor and infrastructure factor. Most of the French SMEs are not satisfied with the
social and taxation environment in their home country. Does the Netherlands satisfy these
requirements? It does if we look to the Netherlands‘ social-political stability, to its favourable
taxation policies and its great infrastructure (see Chapter 3, 3.2).

6.2.2 Attractive sectors for French companies

French groups renewed their interest in new activities such as telecommunications (France
Télécom), collection and processing of urban waste (SITA part of the French SUEZ group),
and electric equipment. Dutch market seems to be suitable to these new needs.
In certain fields the Dutch market can be of a strategic importance for French operators:

      Automobile sector
France can benefit from the absence of Dutch manufacturers and its competitiveness in this
field (vehicles and equipment). France has a 10% share of the Dutch automobile market.
According to figures from Auto Rai, Peugeot ranks first in de top 5 of most sold cars in the
Netherlands with its 307 model and fifth with its 206 model. The Renault Scenic ranks third.
French manufacturers could benefit from the Dutch innovation in this sector. the Dutch
automobile sector is very oriented towards innovation and also created an automotive
technology centre (ATL).

    Agro alimentary
The agro alimentary market is a major market for French exporters, especially for:
   - Cereals
   - Sales of wine
   - Milk and dairy products
France is the third supplier of diary products in the Netherlands, behind Germany and
Belgium. France has almost a monopolistic situation for cheese (brie and camembert).
As for the wine market, the Netherlands produces almost no wine. France remains the first
supplier of wine. The wine market is in expansion and the consumption of wine is growing.

    Consumer goods
There is growing demand in the Netherlands for certain products:
   - Perfumery/Maintenance
   - Furniture and decoration
   - Clothing and textiles
   - Pharmaceutical products

     Chemicals
The Netherlands benefits from a favourable geographical position geographical at the edge
of the North Sea, near large industrial centres and of chemical purchasers. The infrastructure
network is remarkable, in particular the harbour zone of Rotterdam, 1st European port and
3rd world port (in terms of traffic). Moreover, the Dutch ground has important raw material
reserves for chemistry, such as natural gas and salt. The existence of developed
infrastructures favours a climate of innovation. From this point of view, the Dutch chemical
industry benefits also from a well qualified and formed labour. France is the fifth supplier for
chemical products in the Netherlands. The Netherlands has mainly imported French
essential oils and cosmetics, pigments and paintings.

      Other outlets all sectors confused :
   -   Biotechnology
   -   Communications technology
   -   Development and application of new materials
   -   Surface treatment
   -   Environmental technology
   -   Safety and protection
   -   Graphic services.

6.3 Friction factors

There are some friction factors that might explain why the number of French companies is
not that high ( 320 French establishments compared to the US 1600). French companies
neglect the Dutch market because of its reduced size and of the difficulty of imposing itself
and prefer to give the priority to other ―important‖ markets at first sight. French companies
export a lot but do not establish that much in the Netherlands, this can be explained by the
fact that the Netherlands are a close market. The friction factors may be also the labour
costs, establishing a company will raise the production costs, French companies rather
relocate their production operations in developing countries with low labour costs.

Here is an example of a French company that may relocate out of the Netherlands:

The French supermarket concern is a big shareholder of the Dutch Laurus (Edah, Super de
boer and Konmar) and seems willing to disengage itself from its Dutch partner, detaining
45% of the shares. The French company has already put a lot of money in Laurus and lost
also a lot of money. Analysts expect Laurus to be sold. Casino might withdraw itself from the
Netherlands. Casino has reduced its prices for more and more products and Laurus suffered
from the price battle with Albert Heijn.

There was also a certain disengagement of French companies in the banking sector perhaps
due to the competition from the large Dutch banks. Since 1990 the Dutch banking structure is
becoming more and more concentrated. There are four large banks that represent
approximately 90% of the national market.
- ABN AMRO became in 1990 the first Dutch banking group and the eighth European bank -
GROUP ING, is among one of the most important financial institutions in Europe, in the
banking field, insurance and credits, as well for private individuals as for companies. ING
Postbank works especially with private individuals.
- RABOBANK: is especially for rural and agricultural customers. 80% of its results are done
on the domestic market and it controls30% of the local market share.

- BANK FORTIS: is a Dutch-Belgian group, which has approximately 10% of the market
share. It offers a complete range of financial services for private individuals, companies,
investors and the public sector.

7/ French action plan for the Netherlands

On April 22, 2004 France launched a commercial action plan for the Netherlands. This plan
was adopted by the Committee of exports, chaired by the delegated minister of foreign trade.
The Netherlands became one of the 25 priority markets for the French export policy. The
Netherlands fulfilled to the selection criteria for priority markets. These criteria were:
   - The size of the market (significant trade flows). There are indeed significant flows
       between France and the Netherlands. The Netherlands is the 7th supplier and 7th
       buyer of France with exchanges amounting 22 billion euros. France is the
       Netherlands‘ 5th supplier and 4th buyer with exchanges amounting 34 billion euros.
   - The degree of growth. Dutch statistics expect a 2.9 % increase in GDP.
   - The progression margin that must be filled. This is found out by establishing a
       comparison of one‘s presence on this market with one‘s world market share to the
       local market share of the European partners (gains of market share). France‘s market
       share is decreasing since several years.
   - The last criterion consists in analysing by sectors of activity, market to market (finding
       out the beneficial specializations for one‘s company on international markets). France
       could find lots of opportunities in Dutch sectors (see above).

This plan aims to reinforce the French companies‘ presence on the Dutch market and is
based on four priority actions:
    Action 1: Increase the attractiveness of the Dutch market for French companies
    Action 2: Develop the bilateral axis in transports
    Action 3: Agribusiness: reinforce the presence of French operators
    Action 4: Innovating SME: the Dutch market is a test market for innovation

    Action 1: Increase the attractiveness of the Dutch market
   - By developing commercial information. Increase the number of informative meetings
     in French regions on the Dutch market. These meetings are led by experts of the
     economic mission (related to the French embassy in the Netherlands) in collaboration
     with Chambers of commerces.
   - By spreading ―success stories‖
   - By reinforcing and increasing the presence of VIE (International Volunteers in
   - By optimising the resources for trade fairs ―labialised‖ by UBIFRANCE.

      Action 2: Transports
   -   That is to say optimising synergies of the alliance Air France/KLM
   -   Further developments in bilateral projects in air, railway and fluvial transportation
   -   Develop trade and industrial co-operations. Creating French-Dutch strategic groups
   -   Facilitate the establishment of operators, logistics and freight

      Action 3: Agribusiness
   -   Reinforce the presence of French operators by multiplying promotional actions.
   -   Maintain French market share for wine and liqueurs
   -   Increase market share for seasonal fruits, cheese and meat.

    Action 4: Innovating SME
   - The Dutch market is a test market for innovation since innovation is an accelerating
     factor of growth.

   -   The Netherlands have a mature and close market
   -   A strong public engagement in favour of innovating companies
   -   The aim is to attract French innovating SMEs to the Netherlands and also increase
       and develop exports by encouraging partnerships and by facilitating their
       establishments with the creation of a special unit for SMEs at the Economic Mission.

8/ Survey of French companies

8.1 Survey 1

      Method

To select the companies I used the repertory of French companies that established affiliates
in the Netherlands from the French chamber of commerce of Amsterdam. I tried to get in
contact with French executives, who would like to answer to my questions. The goal was to
get as much interviews as possible on the phone. Thus I phoned directly the companies
trying to get a contact.

      Questions

These six ―open‖ questions in French were aimed at founding out what were the factors that
push French companies to establish in the Netherlands:

1. Why have you decided to invest in the Netherlands? What were the contributing factors in
your selection process?

2. Did you hesitate between other countries, if yes which ones?

3. How did you proceed to the selection of the country?

4. Did you already know the Dutch market? Have you already done business in the
Netherlands before establishing there?

5. Do you think the Netherlands remain an attractive country for foreign direct investments?

6. In the future do you think you will remain in the Netherlands or are you planning to relocate
your activities outside the Netherlands?

      The companies

I started by targeting 15 companies from different fields, divided in two groups:

First group consisted of companies in: energy, agri business, production goods, consumer
goods, manufacturing and building industry. Here is a list of the companies that I contacted:
    - Food industry : Bonduelle, Danone, Bongrain, Fromageries Bel,
    - Energy: Air Liquide
    - Chemical : Arkema
    - Cosmetics : Yves Rocher
    - Pharmaceutical : Guerbet, Aventis
    - Construction materials : Saint Gobain
    - Crystal, glass manufacturer : Arc International.

Second group consisted of companies in the service sector such as transports,
telecommunications, tourism, and services to companies:
    - Hotel industry: Accor
    - Insurance: AIG Europe
    - Data processing: Altran
    - Tourism: Pierre & vacances

      Reactions and result

The survey was not a success, I did not manage to get a phone interview with a French
The major problem was that I only had the switchboard numbers of the companies so most
of the calls are filtered at this level. Phone receptionists were not allowed to communicate e-
mail addresses or direct phone numbers. What also happened was when I told the reason of
my call they immediately responded that they were not interested in a survey.
When I managed to get further than the receptionist another problem came up. Since they
were not allowed to connect me directly to a responsible they couldn‘t find an other person
who could answer to my specific questions.
On the 15 companies I only managed to get four contacts (Arkema, Saint Gobain, Arc
International and Bongrain). These companies made it clear that they were not interested in
the survey or simply were not allowed to answer my questions because they were of a
strategic nature.
The interrogated companies were not willing to collaborate to my survey. Most of the time
they were simply not interested. The fact that they were not allowed to answer these
questions showed that they were not ―open‖ on communicating any details concerning the
establishment of their company.
Seeing that this method and these questions failed, I had to find an alternative and another

8.2 Survey 2

      Method

I still used the repertory of French companies. However this time instead of calling the
companies I choose to e-mail them. I also got the member list of the French chamber of
commerce. Thanks to this list I could find names and address my e-mails to these persons.
Besides I managed also to get some contacts at the KLM/Air France event organised by the
French Chamber of commerce. I met those contacts personally and they manifested their
interest in the survey.

      Questions

Seeing that the ―open‖ questions did not work out and that they were considered as part of
the company‘s strategy, I changed the questions and made them more general. This time I
chose to send a multiple choice questionary. The aim of the questions was to find out the
general point of view of French companies on the Netherlands. I inspired my survey from the
Ernst & Young Netherlands attractiveness survey. I send them in French and in Dutch:

   1. The attractiveness of the Netherlands has :
         a. significantly improved
         b. fairly improved

           c.   fairly deteriorated
           d.   significantly deteriorated
           e.   neither improved, nor deteriorated
           f.   can‘t say

   2. Do you consider further investments in the Netherlands ?
         a. yes, certainly
         b. yes, probably
         c. certainly not
         d. probably not
         e. can‘t say

   3. In the future do you consider relocating your activities outside the Netherlands ?
          a. yes, certainly
          b. yes, probably
          c. no, certainly not
          d. no, probably not
          e. can‘t say

      The companies

I selected 50 companies from different activities and divided like in the first survey in two
kinds of groups.
First group consisted of companies having activities in: energy, agribusiness, production
goods, consumer goods, manufacturing and building industry:

   -   Food industry and agribusiness :Delifrance, Danone, Fromageries Bel, France
       Limousin, Louis Dreyfus, Sopexha, Bonduelle
   -   Energy: Air Liquide
   -   Chemical : Arkema, Bostik
   -   Cosmetics : L‘Oreal, Sothys,
   -   Pharmaceutical : Sanofi Aventis
   -   Construction materials : Saint Gobain, Isover, Lafarge
   -   Crystal, glass manufacturer : Arc International.
   -   Car Manufacturer: Citroen, Peugeot, Renault,
   -   Equipment, and other materials: Poujoulat ,Lancer, Neopost Industrie, Piano de
       France, Poclain hydraulics, Legris
   -   Furniture: Roche Bobois, Sanijura
   -   Telecommunications: Alcatel
   -   Transports: Air-France-KLM, Navale Delmas
   -   Wine : Castel Frères, Pernod
   -   Electronics: IGE+XAO, Radiall, Rexel
   -   Collection and waste treatment: Sita
   -   Distribution and communication support: Antalis

Second group consisted of companies in the service sector such as transports,
telecommunications, tourism, and services to companies:
    - Hotel industry and restaurant: Accor, Sodexho
    - Media: TV5
    - Data processing, consultancy: Atos Origin
    - Insurance, financial services and banks: ALD Automotive, AXA, BNP Parisbas, ABN-
       AMRO, AIG Europe
    - Tourism: Frantour

          Reactions and result

On the 50 interrogated companies only 8 responded. Thus it is a very small sample to draw
conclusions of it. However here are the results of the small survey:
The majority of the French companies that were surveyed, are optimistic about the
attractiveness of the Netherlands:
50 % of the French companies interviewed indicated that the attractiveness of the
Netherlands has fairly improved and 37.5 % significantly improved. 12.5 % find it neither
improved, nor deteriorated. Given the small sample (8 respondents) here is the number of
respondents according to the different answers.

           The attractiveness of the Netherlands has:                significantly improved

                                                                     fairly improved
               0                   0
               0                                                     fairly deteriorated
                                                                     significantly deteriorated

                                                                     neither improved, nor
                   4                                                 can't say

50% of the companies interviewed indicated that they certainly consider further investments
in the Netherlands and 25% indicated that they probably would. 25% of them will probably
not make further investments.

                       Do you consider further investments in the Netherlands ?

                               0                                            yes, certainly
                                                                            yes, probably

                                                                            no, certainly not
       0                                             4
                                                                            no, probably not
               2                                                            can't say

50% of the companies surveyed declared that they would probably not relocate their
activities outside the Netherlands and 25% of them will certainly not. 12.5 % will certainly
relocate their activities outside the Netherlands in the future. 12.5 % can‘t say.

                   In the future do you consider relocating your activities outside the
                                             Netherlands ?
                                                                              yes, certainly
                       1               1
                                             0                                yes, probably

                                                                              no, certainly not

                                                                              no, probably not
                                                     2                        can't say


If we compare those results with the Ernst & Young attractiveness survey (see chapter 3, 4.)
French companies have a better opinion on the Netherlands. On the attractiveness of the
Netherlands in the Ernst & Young survey, 68 % of the companies find the attractiveness
neither improved, nor deteriorated (47%) or fairly deteriorated (21%). Whereas in this survey,
87.5% of the French companies find the attractiveness of the Netherlands fairly improved or
significantly improved. In the E&Y survey, 78 % of the companies interviewed indicated that
they will certainly not (53%) or probably not (25%) make further investments in the
Netherlands. Whereas in this survey 75% of the French companies indicated that they will
certainly or probably make further investments in the Netherlands. In the E&Y survey the
majority (51%) will certainly not relocate their activities outside the Netherlands. In the survey
on French companies it is almost similar; of them will probably not (50%) relocate or certainly
not (25%) their activities in the future.
As a result French companies have a positive point of view on the attractiveness of the
Netherlands for foreign investments. And if we look back on the figures (see chapter 5, 2.1
and 2.2), French investments in the Netherlands almost doubled in 2005. We can also
expect further French investments in the coming years with the launching of the French
action plan for the Netherlands ( see chapter 5, 7). Besides the Dutch government plans also
to make the Netherlands more attractive for foreign direct investments by making more
privatisations and tax reductions between 6% and 7% by 2007.


The Netherlands is an attractive land to invest for French companies since these two
countries have enjoyed for years a great commercial relationship. Foreign investors find the
Netherlands attractive because of the country's stable political and macroeconomic climate, a
highly developed financial sector, the presence of a well-educated and productive labour
force, and the high quality of the physical and communications infrastructure. The Economist
Intelligence Unit (EIU) ranks the Netherlands among the world's most internationally oriented
countries, second only to Singapore.
In April 2005 the Dutch and the French governments reinforced the relationship between the
two countries. As a result French companies can benefit from the increasing integration
between the two economies through the growing number of agreements such as
technological and industrial partnerships, in particular in the Aerospace and agriculture
sectors and transports (Air France/ KLM).
Dutch economic growth continues to accelerate in the first half of 2006, experts announced a
2.9 % growth, and the recovery of domestic demand, could create new opportunities for the
French companies. The Dutch government takes actions to restore the purchasing power of
households and which could encourage consumption and investments. However, the
forecasts depend also on external factors like oil prices and world growth. The Dutch
government also announced a 6% to 7% corporate tax reduction by 2007. The Netherlands
is known for its favourable fiscal climate. Precise tax guidance given to foreign investors
provides transparency with regard to long-term tax obligations. Given also its geographical
location and business climate the Netherlands represent a privileged location for French
SMEs. French companies find the Netherlands especially attractive for the establishment of
their headquarters because of the tax advantages that they do not have in their home
country. French companies could find opportunities in sectors such as, logistics, chemical
and pharmaceutical industry, energy (oil, gas), transports, financial services and agro
alimentary. (See chapter 5, 6.2.2 Attractive sectors for French companies). The electronics
industry is also very attractive since it is one of the most innovating sectors in the
Netherlands, as well in the field of the investments, as in the field of the research and the
The beginning of the year 2005 was marked by a strong increase in French exports to the
Netherlands. Nevertheless, even if French exports are increasing, the French performance in
the Netherlands is by far to reach the level of those of the United Kingdom or Germany.
Not enough French SMEs make the effort to go and establish in the Netherlands. The French
companies will be more tempted to approach the large German market (its first trading
partner) or Belgium especially in Brussels because they speak French. French make often
the amalgam between Belgium and the Netherlands although they are two completely
different countries with another culture and Belgians are not much closer to the Dutch than
the French are. Although near France, the Netherlands develops a strong cultural identity,
generating important differences in consuming habits and in business practices in general.
Problems might rise from the cultural differences between France and the Netherlands.
French and Dutch have different ways of making decisions. Dutch are more focused on the
result whereas the French are more focused on the quality. When a decision is taken, unlike
the French, the Dutch consider it as an engagement. In the Dutch language ―franse slag‖ (not
taking something seriously), shows the reputation that French have in the Netherlands. More
than all the other exporters, the French will have to improve their image towards Dutch
companies. The Dutch reproach particularly the French for making too many bad promises
(delay in the deliveries or bad appreciations of the price during the discussion). They also like
precision, the speed of answers and the follow-up.


The purpose of this research was to get a clear picture of the commercial relationship
between France and the Netherlands. This in-depth study will enable Lesire & Partners to
attract potential French clients and show that they feel concerned about this specific Dutch-
French relationship.

This research shows the attractiveness of the Netherlands and the opportunities that it can
offer to French companies and might incite French companies to invest or make further
investments in the Netherlands.



   -   ―Corporate networking and foreign direct investment‖ from Robert L.A Morsink
   -   ―Wat beweegt bedrijven‖ from C.J Pen.
   -   Ernst & Young ―European attractiveness survey 2005‖
   -   ―L‘art du marketing‖ from Philip M. Parker, an article published in Les Echos
   -   ―Competition for investment : best practice in investor targeting‖, APEC-OECD
       seminar 2005 in Korea by Dr. Henry Loewendahl.
   -   ― Transnational corporations, a framework for FDI promotion‖ by Henry Loewendahl
   -   World bank report on investments promotion
   -   ―les déterminants des décisions de localisation‖ thesis from Bernard Sergot
   -   ―Internationalisation et localisation des firmes multinationales: l‘exemple des
       entreprises françaises en Europe » from Jean-louis Mucchielli et Florence Puech.
   -   ―globalisation, compétitivité et délocalisations‖ from Henry Bouchet September 2005
   -   Ernst & Young press release June 2005 on European attractiveness
   -   ―s‘implanter aux Pays-Bas‖ January 2005 report from CIC group Lyonnaise de
       banque. Club LB international
   -   ―plan d‘action Pays-Bas‖ presentation from the Economic mission in Den Haag.
   -   ―25 pays prioritaires pour notre commerce extèrieur‖ from French ministry of foreign
   -   ―Frans patriottisme, Frans protectionisme‖ from the NRC handelsblad March,12 2006.
   -   ―Aantrekelijk landje‖ article from Elsevier February, 18 2006


   - (French chamber of commerce in the Netherlands)
   - (union des chambres de commerce françaises)
   - (French economic mission)
   - (French embassy)
   - (Netherlands foreign investment agency)
   - (organisation for economic co-operation and development
   - (French foreign investment agency)
   - (international ondernemen en samenwerken)
   - (central bureau voor statistiek)
   - (united nations conference on trade and development)
   - (ministerie van economische zaken)
   - (Nederlandsche bank)
   - (French customs)
   - (French statistic bureau)
   - (French foreign affairs)
   - (agence française pour le développement international)
   - (Ernst & Young)

Appendix 1

Bilateral exchanges between France and the Netherlands (in thousands of euro)


                         2004      2005   Variation 04/05
Agricultural products 505 243    463 025       -8,4 %
Agribusiness           710 811   758 352       6,7 %
Consumer goods         821 808   863 728       5,1 %
Automobile industry    569 419   543 654       -4,5 %
Equipment goods       1 503 218 1 566 765      4,2 %
Intermediate goods    2 131 327 2 253 883      5,8 %
Energy products        418 566   564 263       34,8 %
Other products          17 210    12 854      -25,3 %


                         2004      2005   Variation 04/05
Agricultural products 616 938    574 761       -6,8 %
Agribusiness          1 631 905 1 621 320      -0,6 %
Consumer goods         650 660   569 499      -12,5 %
Automobile industry    316 926   363 156       14,6 %
Equipment goods       1 225 320 1 200 328       -2 %
Intermediate goods    2 790 007 2 911 714      4,4 %
Energy products        315 014   454 444       44,3 %
Other products          41 085    55 362       34,7 %

Source CBS 2006

Appendix 2

                 Imports in 2005

      Agricultural products   Consumer goods
      Automobile              Equipment goods
      Intermediate goods      Energy

             Exports in 2005

Appendix 3

French exchanges (in millions of euro) with foreign countries according to the French

                         Year 2005
        Countries           Imports     Exports    Balance
Europe                      271 291     254 739    -16 552
European Union 25           238 521     229 713     -8 808
New entrants                 13 079      13 187      108
Euro zone                   194 660     178 287    -16 373
Germany                      66 528      51 325    -15 203
Spain                        27 673      35 931     8 258
Italy                        33 742      32 335     -1 408
Belgium- Luxembourg          32 920      28 261     -4 659
The Netherlands              16 190      14 562     -1 628
Ireland                      7 236       2 815      -4 421
Outside the Euro zone
The United Kingdom           22 746     31 184      8 439
Denmark                      3 117      2 642       -475
Poland                       3 953       4700        747
Hungary                      2 433      2 325       -107
Czech Republic               3 256      2 617       -639

America                      31 870     34 238      2 367
United States                22 850     25 059      2 209
Canada                       2 000      2 423        423
Brazil                       2 778      2 229       -549
Argentina                     467        608         141

Africa                       18 021     20 176      2 155
Côte d‘Ivoire                 538        555          17
Nigeria                      1 182      1 048        -135
South Africa                 1 036      1 882        846
Algeria                      3 689      4 669        980
Tunisia                      2 769      2 592        -177
Morocco                      2 639      3 019        380
United Arab Emirates          728       2 667       1 939
Saudi Arabia                 3 610      1 653       -1 957
Iran                         2 181      1 882        -299
Israel                        961       1 033         72

   Countries   Imports   Exports   Balance
Asia           52 463    30 868    -21 595
Japan          10 444    5 418      -5 026
China          21 633    8 506     -13 127
Korea          3 672     2 380      -1 292
India          2 138     1 846       -292
Australia      1 052     2 437      1 385
Taiwan         2 447     2 084       -362
Thailand       1 530     1 615        86
Indonesia      1 164      449        -715

Appendix 4

France’s evolution of flows between 2005 and 2006 with its fist ten partners


      Countries    2006 (million of euros) 2006/2005 (%)
Germany                   13 382                0.3
Spain                      9 405                1.8
Italy                      8 582                2.2
United- Kingdom            8 064                2.1
Belgium-Luxembourg         7 192                -0.5
United- States             6 910                6.4
The Netherlands            3 776                0.3
Switzerland                2 741                7.0
China                      2 088               40.5
Poland                     1 847               41.8


      Countries    2006 (million of euros) 2006/2005 (%)
Germany                   17 200                1.8
Italy                      8 978                2.6
Belgium-Luxembourg         8 761                0.3
Spain                      7 088                1.8
United-Kingdom             6 736               17.9
United-States              6 341                7.0
China                      5 751                0.5
The Netherlands            4 369                7.9
Russia                     2 786               22.9
Japan                      2 609                -2.3


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