Lyon learns how to play second fiddle

Rhone river in central Lyon
Image caption Lyon offers great quality of life, but the two-hour train ride from the capital proved too far for many firms

Being a provincial town in a country dominated by one massive urban metropolis is not much fun.

The capital gets an unfair share of the attention - and of the investment money - while you are at constant risk of withering in its shadow.

France is a case in point.

Paris and its satellite towns have over 11 million people, while the next biggest city of Lyon can muster only 1.7 million.

And while Lyon's Rhone-Alpes region boasts an income per person of about 30,000 euros ($44,000, £27,000) - the highest outside Paris - the capital's region of Ile-de-France is still streets ahead at 47,000 euros.

What is a second city to do?

Out in the cold

The answer, it seems, is not to compete at all - at least not head-on - says Jacques de Chilly, director of the Lyon regional development agency, Aderly.

Set up in 1974, Mr de Chilly says the agency's original strategy was to convince firms to relocate their headquarters from Paris.

The city offered an obvious cost advantage - both in terms of square metrage and payroll - as well as a great quality of life, with less commuting and some of the best restaurants in France.

But it wasn't enough.

"Companies wanted to stay close to the ministries, the media and the big financial institutions," explains Mr de Chilly.

This was something Lyon had no hope of offering, leaving it out in the cold.

The plan was not a total flop.

Aderly coaxed firms into transferring some head office functions to Lyon - but only the more administrative, less politically sensitive ones, like finance and human resources.

A change of strategy was clearly needed.

"In the last five to seven years, we decided to focus on sectors in which we have critical mass," says Mr de Chilly.

These, he says, are "life science" - also known as bio-technology - and "clean tech" such as recycling and renewable energies.

Together these industries account for about 50% of investment into the region.

'Under one roof'

The reasons these sectors do well is down to the quirks of Lyon's long industrial history.

Image caption The city is one of only four places in the world where the most dangerous diseases can be studied

According to a potted narrative often trotted out by its current mayor, Gerard Collomb, the story began in the 16th Century, when Lyon became pre-eminent in the Europe's nascent silk industry.

Having manufactured the cloth, the textile merchants also needed to dye it.

From this simple beginning, over the next three centuries, the Rhone valley became the heartland for the French chemicals industry - of which "clean tech" is a more recent offshoot.

With the advent of modern medicine in the nineteenth century, the industry expanded into pharmaceuticals - best exemplified by the enormous conglomerate, Rhone Poulenc, which was set up in 1928.

Next, the work of Louis Pasteur in developing the vaccine opened the way into virology.

One of Pasteur's students founded an institute in Lyon that germinated the city's modern-day life sciences industry.

The institute itself has since been subsumed within Sanofi Pasteur, the world's biggest vaccine manufacturer.

And the firm has thrived thanks to Lyon's specialisation in its industry, according to Sanofi Pasteur spokesman Alain Bernal.

For example, he says Lyon is one of only four cities in the world that hosts a P4 laboratory - the highest bio-hazard category - enabling research into the most dangerous diseases, such as ebola.

The town is also home to one of the world's top biotechnology schools, helping to bring together academics with researchers and industry people.

"You need a lot of complementary expertise under one roof," says Mr Bernal.

Image caption Lyon is dependent on the goodwill of the national government for the future ownership of its airport

His firm funds a foundation at the university, offering students industry experience, while Sanofi Pasteur gets to cream off the best talent.

Lobbying Paris

Having found its niche, Lyon does not compete with Paris these days.

Rather, it competes with other biotech clusters worldwide such as Boston or Stockholm, and nearby European cities like Geneva and Milan, says Mr de Chilly.

Indeed, the city has learned to milk its relationship with Paris, by positioning itself as a French national champion.

Under the "Lyon Biopole" banner, the city's biotech cluster has attracted millions of euros in research funding from the French government.

The National Research Agency is due to announce a big strategic investment in the health industry in June, which Lyon's lobbyists hope will be their planned new research institute.

But the apparent success of the city's strategy belies some unsolved problems.

The town is still dependent on the goodwill of the national government in other ways, such as infrastructure - for example, the city's airport, which is set to be sold off by Paris.

High end jobs

Moreover, the town's chosen industrial sectors are not ones that lend themselves to mass job creation.

Image caption Greenfield investments typically created a small number of high skill jobs

"The average new investment creates 20-40 jobs," says M. de Chilly. "But they are very intensive with respect to the strengths brought to the city."

All the same, the positions they create - research and development posts or high-end service jobs - are typically too specific and high-skilled for the bulk of local workers.

Unemployment is the region is 8.6% - admittedly below the national average - but high enough to be a policy concern.

Yet big semi-skilled job-creating investments - such as in manufacturing - are hard to come by, and not just in Lyon.

The last big job-creating investment by a foreign firm in France was by Toyota in 1998, says Mr de Chilly.

Since then, the car industry and other manufacturers seem more interested in lower-cost EU countries, such as Slovakia.

Mr de Chilly is hopeful this will change, and points to a logistics centre recently set up by the US pharmaceuticals group Baxter.

Labour costs are rising in Eastern Europe, he says, making France more attractive.

And with companies increasingly concerned about the environment - not to mention fuel costs - he claims they are keener to invest in production facilities close to the end consumer market.

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