A new wave of knowledge-based investment is causing both business creation and rising insolvencies. After a lost decade, corporate investment is on the rise in France (+3.8% on average in volume in 2017-18) as new technologies drive automation and change production processes across sectors. Information & communication now account for half of investment growth. This new wave of knowledge-based investment is affecting mainly agrifood, retail, accommodation & catering, transportation and other services, a subset of sectors where we observe both increased business creation (+15% in 2018) and rising insolvencies (+6.6%).

What does this mean for companies?  They will need sounder financial ratios to deal with a higher rotation of capital. Gross investment of French companies reached a record high level in 2018 (21.4% of the value added, +3pp from 15 years ago), while their net investment value remained muted. This is because the pace of capital depreciation reached a record high level in 2018 – 18.9% of the value added – with knowledge-based information technology being at the top with 30% (against 15% for machinery).  Sound financial ratios will be key in the near future as debt-laden companies won’t be able to frequently renew their capital and therefore won’t be able to withstand strong pressures from competition.

Companies will also increasingly compete for skilled workers. We see a clear decoupling in job creation and growth of salaries between knowledge-based sectors (digital, machinery and engineering) and traditional job-intensive sectors (administrative work, financial industry, distribution and retail). The most striking point is the diverging trend between the retail sector (for the first time in negative territory since 1993, with -2.5k of jobs lost in 2018) and the out-performing ICT sector (jobs related to a tech function made up half of employment creation in 2018 or 70k of new jobs). At the same time, highly qualified workers are likely to be increasingly scarce even in a context of high unemployment, requiring companies to develop hoarding strategies.

Companies will consider the case of relocating production in France. A paradoxical impact of the current innovation wave in France is that it has triggered more trade growth in goods (+4.8% in 2018) and lower trade growth in services (+1.7% in 2018), in contrast to trends observed globally. It seems that the new wave of automation and the increasing degree of digitalization of the logistic function are favoring a relocation of the investment function.