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Unsure de France: Floundering French Firms Turn to Emerging Markets

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With party leaders refusing to address their country's economic problems, French merchants are once again seeking their fortunes across the sea.

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The frontrunners in the upcoming French presidential election shared some unwanted international attention earlier this month, when a cover story in The Economist accused both incumbent Nicholas Sarkozy and Socialist nominee François Hollande of ignoring their country's numerous pressing economic issues, including double-digit unemployment, chart-topping public spending, and rising labor costs.

French voters seem to share the London-based periodical's dissatisfaction with France's current political discourse. The latest general election figures from French pollster CSA show a four-point drop for Sarkozy and a two-point drop for Hollande, falling to 26% and 27% respectively. This marks the first polling period since the start of the race last autumn in which both campaigns saw a simultaneous slide.

Despite these small losses, the two front-runners seem fated for a second-round runoff following the crowded general election on the 22nd. Nominees from three other parties are expected to claim between 10% and 15% of the popular vote respectively, enough to prevent Sarkozy or Hollande from achieving a majority, but too little to overtake either candidate.

Between Sarkozy seeking punitive levies on French firms that relocate to avoid the country's notoriously high income tax and Hollande pledging to further raise the tax rate on income above €1 million ($1.32 million) from 55% to 75%, fiscally conscious French may see little hope for reform in the near future.

Many French firms are finding brighter prospects not just outside France but outside the troubled EU, capitalizing on the emerging markets in China, India, and Latin America, as evidenced by the wave of first-quarter earnings reports.

Cosmetics giant L'Oreal (Euronext: OR) reported strong Q1 growth, fueled chiefly by expansion in Asia and Latin America. Sales in these new areas rose 14.1% from last year's opening quarter, surpassing Western European revenue for the first time in the firm's history.

Carrefour (Euronext: CA), France's fourth-largest corporation, said its revenues increased a modest 1.5% over 2011. Earnings for the hypermarket retailer may have gone negative, however, were it not for its presence in Latin America, where an 8.1% increase in sales balanced out stagnation in the French market, and a revenue drop in the rest of Europe.

Global 500 companies are not the only ones who have tapped the potential of emerging markets while their native France struggles to reorganize its economy. Paris-based Viadeo, a social network for business professionals, has become a legitimate challenger to global industry leader LinkedIn (LNKD) by diligently developing a presence outside traditional European and North American sectors. About 10 million of the company's 45 million users come from China, where local acquisition Tianji.com has dominated the professional networking sphere.

Given the challenges facing France's economy, whichever administration emerges from the current race may find itself in need of that famous French diplomacy if it wishes to convince potential investors that the domestic market is still viable. Otherwise, Europe may be in for some recession déjà vu.
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