You might not realize it, but France’s economy has grown so diversified and sophisticated—and tech-focused—that it’s quietly become one of the biggest recipients of foreign investment in Europe and globally.

In 2022, France recorded its highest-ever number of foreign direct investment projects—1,725, which are expected to create 58,810 permanent, full-time jobs over the next three years, according to a report from Business France, an agency supporting international development of the French economy. In 2019, according to an annual survey from consultants at EY, France overtook Britain and Germany as the top FDI destination in Europe for the first time.

As global technology investors, my firm is keenly interested in France’s evolution into a European innovation hub. Earlier this year, we announced our latest French software investment: AdaCore SAS*, a maker of mission-critical software-programming tools for large customers in industries including aerospace and defense, autos, heavy transport, and medical devices, among others. The company was founded in France but now has dual headquarters in Paris and New York. Over the years, we’ve also backed French software companies including Neolane*, which makes marketing software and was acquired by Adobe; Dataiku*, which focuses on data and AI; and Shippeo*, which sells critical logistics software. Our private-equity companies have made 10 acquisitions in France over the years.

Here are a few reasons why we’re so optimistic about France, and some thoughts about how the country can become an even more hospitable place for foreign capital in the coming years, particularly in technology.

Leaders are creating a more business-friendly climate.

France has a long history of protecting workers’ rights; in many ways, it’s central to the national identity. Indeed, a recent proposal by the government to lower the worker retirement age by two years resulted in a firestorm of large (and highly televised) protests.

Outsiders digesting all the negative media coverage could be forgiven for thinking that France is a lost cause in terms of business climate: It’s too hard to set up shop, hire and fire employees and navigate the government bureaucracy.

But that’s not been our experience. France has in recent years taken many steps to simplify business laws and regulation. These include new digital and paperless measures for submitting government documents; simplifying tasks like incorporating a company or dismissing an employee; and enacting a EUR 20 billion tax-credit program for environmentally friendly investments. To entice foreign investors, non-French companies now have access to many of the same subsidies available to local firms, including those related to R&D, vocational training and job creation.

The country’s tech sector is growing and extremely robust.

While Silicon Valley continues its global leadership in high-tech—and Stanford-educated, U.K. Prime Minister Rishi Sunak stumps for more tech dollars for Britain—France is more than holding its own. The French tech sector grew by six percent in 2022, meaning it was the only one of the large tech economies in Europe to expand.

What’s more, France has a notable and growing cloud-software sector, particularly of companies offering technology for specialized industries, like manufacturing, healthcare, property management and transportation. New government regulations pushing business digitization are fueling growth at many of these firms. Other French software companies are now gaining global notoriety: They include AI company Mistral, which won an investment earlier this year from tech giant Microsoft, and business-planning software company Pigment, which recently raised a $145 million funding round led by a major U.S. investor.

Workers are productive, and the education system is robust.

The standard French workweek may only be 35 hours, and labor laws are complex. But in our experience, French workers are extremely well-educated, technical and productive. One of the technology companies in our portfolio, TechSoft 3D, which makes 3D tools for software developers, has had operations in France for 13 years, “and we don’t hesitate for a second to add more people there,” the company’s CEO Ron Fritz told me recently. According to Ron, his French employees are just as talented and productive as his engineers based in the U.S.

What’s more, in Lyon, where TechSoft 3D maintains a hub, “this is a cool job,” he notes. Because there are fewer high-tech companies there than in the San Francisco Bay Area, his company stands out. Despite France’s well-known social safety net, and relatively high taxes, TechSoft’s costs per employee are significantly lower in France than in California, Ron says.

Of course, operating a business in France also means that management must work with elected works councils, which wield significant power over company operations and worker claims—especially in companies with more than 50 employees. If an investor wants to buy a company in France, things are even more complicated: Each employee needs to be notified of the offer via a hand-delivered letter and given an opportunity to counter the offer. While these rules add cost and time to closing investments, in most cases, we’ve found they don’t change the outcome of proposed deals.

What’s to come

In many ways, Europe’s markets are dealing with marked uncertainty these days: the ongoing war in Ukraine, a related energy crisis, continuing inflation and high interest rates, the continuing fallout from Brexit and sluggish growth. France is obviously not immune from these trends. But the government of President Emmanuel Macron, though its policies and actions, is sending very clear signals that France will continue creating an environment where global investors can allocate capital—and I’m excited about continuing to back more innovative technology players in the country.