Chapter VII - International Expansion
Cras ingens iterabimus aequo.
(Tomorrow we take our course once more over the mighty seas.)
Strengthened by its increased centralization, its steps to improve productivity and by its financial base, Alcatel Alsthom had the means, by intensifying its efforts from prior years, to accelerate its international development and to take advantage of the opportunities that the new world order opened up during the early 1990’s. Alcatel, in particular, was able to make acquisitions that would strengthen it in a decisive way in Europe, in the United States, in the countries that were abandoning communism (Eastern Europe and the USSR), in the Far East, and in South America.
Alcatel had, on January 1, 1990, slightly modified its original organization to better serve the new markets. It combined its line transmission and switching lines of business to form the Network Systems Group, thereby facilitating integrated proposals for the development of public networks. Its radio transmission, satellite and military businesses were combined to form the Radio Communications, Space and Defense Group. In this way Alcatel emphasized its intention to respond to the new policies aimed at reducing military budgets. The group sought to promote solutions derived from civil products, much less costly and capable of satisfying many army telecommunications needs. The other product groups (Cable and Business Systems, as well as Contracting Services) remained unchanged.
Alcatel’s development in Italy took place through Fiat and the Agnelli group. The telecommunications industry was dominated in that country by Italtel, a STET subsidiary, which was itself a subsidiary of the state-owned IRI. Italtel was particularly dominate in the switching market, where Alcatel’s subsidiary FACE had less than a 20% market share. But the Italian champion in the transmission field was Telettra, a Fiat subsidiary. For several years an Italian solution had been sought to structure the national telecommunications industry in the face of competition from large foreign groups. This was to occur through the merger of Italtel and Telettra. The new entity (already given a name—Telit) would have been dominant in Italy in both switching and transmission, with an excellent technical position in the latter area. Its shortcomings in switching were known but not admitted. Those shortcomings had led Italtel to seek alliances with European companies, such as with CIT in 1984 and 1985, to which I have previously referred.
But finalizing the Telit project was a difficult task. It entailed merging a public company with a smaller but very successful private company. An “Italian-style” solution was found. The capital, after a balancing cash adjustment, was divided between STET and Fiat (48% each) and a bank, Mediobanca (4%), which was controlled by the State but was, in fact, a private company. The management function was to be shared, with Fiat appointing the chairman and STET the president. But this failed to take politics into account. The agreement with STET, though well received by the Christian Democrats, was not well accepted by the Socialist party. The Socialists insisted that the president of Italtel, Mrs. Marisa Bellisario, be part of the senior management team. She had close ties to the party and was very active in the European telecommunications business community, including in France, thanks to her political contacts.
But this was not accepted by Fiat, which terminated the Telit discussions in September 1987, after more than two years of difficult negotiations. Giovanni Agnelli, the chairman, stated that his group "did not fear" going alone and several months later he said that “…when we are dealing with the State, it’s to form an association which will function according to private sector principles. Not the opposite.” Cesare Romiti, the president of Fiat, was more explicit. He said that the Telit project fell apart because of “political interference” and that “Fiat needed alliances but couldn’t accept compromises.”
We had followed these events and understood that it would be difficult for a foreign group to develop in the Italian market, faced with the strength of Italtel and the importance of the public customers. It was nonetheless tempting for Alcatel to ally itself with Telettra. So we tried a “group to group” approach between Agnelli and CGE.
A number of contacts were arranged during 1989, all in secret, as desired by both parties. Then genuine negotiations started in 1990. An agreement in principle was reached in October 1990, which involved several aspects.
First of all, Alcatel would take control of Telettra, which had sales of 1.1 billion ECUs—that is, the equivalent of two thirds of Alcatel's transmission business. Seventy percent of Telettra's sales were in Italy and 30% in its Spanish subsidiary. When combined with Alcatel’s other telecommunications activities in Italy, Alcatel Italia would clearly be N° 2 overall, behind Italtel but the leader in line transmission and microwave, with business activities in military telecommunications as well, whereas FACE was only involved in public switching and Alcatel Dial in business communications. With Telettra, Alcatel acquired excellent technology which would enable the group to become the world leader in the new generation of synchronous transmission. This strengthening of our position in Italy, coming on the heals of the failure of the Telit project, caused some problems with the public customer SIP, the national telecom operator, which, as a first reaction, reduced its orders for telecommunications equipment as well as for cables. But after several months the know-how of the managers of our subsidiaries got us through these difficulties and Alcatel profited completely from the market share contributed by Telettra.
The agreement with Fiat included another aspect in the automobile batteries field. CGE transferred to Fiat its subsidiary CEAC (with sales of 2.6 billion francs), which was merged with Fiat’s similar businesses. In this way we abandoned a line of business which was not a core business for Alcatel.
The agreement would also have applied to Fiat’s rail activities, which were to be contributed to GEC Alsthom and would have increased Alsthom's rail business by one third. But our principal interest in the acquisition lay elsewhere. The subsidiary Ferroviaria had developed and sold the concept of high speed tilting trains. This concept cleverly supplemented the concept of the French TGV. It involved equipping the cars with a pivoted suspension system which slanted them toward the inside of the curves, thus enabling the train to handle smaller radius curves at greater speeds without adding to the discomfort of passengers being pulled by the centrifugal force. For a long time the "French school" of Alsthom and the SNCF swore only by the TGV, a magnificent system but one which required the construction of new and costly tracks to move at high speeds. When the TGV leaves the new track, it can’t travel at a speed greater than that of ordinary trains. However, if it were equipped with the tilting capacity, it would be able (due to its power) to move on ordinary tracks at higher speeds, resulting in appreciable time savings. So in our thinking, it was not a matter of acquiring a technology which competed with the TGV, but rather one which would enhance the TGV.
I must admit that I was unable to sell this vision to GEC Alsthom’s management, who hid their opposition to the tilting technology behind the difficult price discussions and who took the necessary steps to ensure that in the end our English partners would refuse to agree to the acquisition.
Fortunately this didn’t prevent concluding the agreement with Fiat on the other points, but it left wounds. A year later GEC Alsthom changed its mind and wanted to resume negotiations because at the SNCF the tilting concept began to evolve. Fiat refused because in the meantime Ferroviaria had booked some significant orders and the concept of the tilting train began to take. Several years later Alsthom tried to develop its own system and finally bought Ferroviaria in 2000. The management's stubbornness in 1990 caused it to lose money, time, and probably customers.
The agreement with the Fiat group, which took effect on January 1, 1991, was part of a larger scheme. The two groups decided, while recognizing the exclusive fields of business of each, to seek to develop together business activities of mutual interest, such as automobile telecommunications applications (including navigational systems), airplane turbines, publishing, and activities related to research of composite materials and artificial intelligence. The two groups decided to create one common company, on a 50/50 basis, to finance and carry out these activities of mutual interest. To seal their desire to work together on strategic developments, the groups decided to swap holdings at the top stockholder level and to exchange directors. In the months that followed the closing of the agreement, the Fiat group sensed a need to recapitalize. This had the effect of limiting the initial ambitions of the agreement with Alcatel Alsthom. In the end Fiat acquired 2 percent of the capital of Alcatel Alsthom and Alcatel Alsthom made an equivalent investment in Fiat. A director representing each group sat on the other’s board and over time, and with changes in people, the other engagements were forgotten.
But Alcatel had gotten Telettra, though not without difficulty because it was necessary (as with the CEAC transfer) to obtain the approval of the Commission in Brussels. This was to be a test of the doctrine of the Fair Trade Division, which while preaching the opening of national markets in the single European market, tried very hard to verify that in each country no dominate position was created. So it demanded that the Spanish telephone operator Telefonica sell its 10% interest in the Telettra holding company and the 10% which it owned in Telettra’s Spanish subsidiary. We bought those interests but not without some difficult discussions. In spite of the disinvestment by Telefonica, it was very important that we retain the level of sales which we had with Telefonica. The level of those sales was quite high, as our subsidiary Alcatel SESA was already its No. 1 supplier. In our case the European Commission demanded that the telephone operator activities be separated from those of an equipment supplier. But at the same time it had no problem accepting the situation in Italy, where IRI (a public holding company) controlled the principal telephone operator (SIP) and at the same time controlled Italtel, the largest equipment supplier. The art of antitrust, as in war, is in the execution!
I remembered that experience with the European Commission when I was led by chance to speak about Europe on April 4, 1992 on RTL (Radio Télévision Luxembourg). That Saturday Maurice Denuzière, who knew how much I had appreciated the saga he had written on French colonization in Louisiana, was the guest of honor of the 1:00 pm news program at which he would present Helvétie, the first novel of a new series involving a bourgeois family from Vevey during the period that Bonaparte was crossing the Alps by way of Lausanne and the Grand-Saint-Bernard pass on his march towards his Italian campaign. Maurice Denuzière had the right to invite two guests to the program. He chose a Swiss (a manager of the group Sandoz) and a Frenchman—me. I was in the Paris studios while he and his Swiss friend were at Montreux. The program was two-way. But before giving the floor to Maurice Denuzière, the RTL host, Jean-Pierre Tison, asked me what I thought of the recent nomination of Pierre Bérégovoy to Matignon (which had just happened) and whether I shared the generally favorable opinion of the business community. I responded cautiously that I didn’t expect a major change with respect to economic policies. I indicated that those policies are made at both the rue de Rivoli and at Bercy and that Mr. Bérégovoy had had every opportunity to leave his mark. The national debt was increasing and France was distinguishing itself in Europe by the high level of its social charges, of which the rate, as a percentage of GDP, exceeded France's neighbors by several points. And I added that despite the neither-nor principle with respect to nationalizations, the state had continued to extend its control over the economy. At that point Maurice Denuzière interrupted: “That’s interesting—what you just said. At least you speak frankly." It's true. I was never spontaneously diplomatic.
We then moved on to Helvétie. The Swiss guest asked me if, in my opinion, the Swiss had an interest in joining the European Union, a question which was the subject of a lively debate in view of the vote to be taken soon. I responded by saying: “You put me in an awkward position. It is always difficult to take sides on political problems of another country, especially concerning such an important question,” But I added, allowing myself to do so because of my deep Savoyard connections which made me close to our neighbors in Vaud and Valais, that I urged my Swiss friends to think hard about Europe was, and about what it would become once the Maastricht Treaty entered into effect. For us, businesses of the Common Market, “it’s a confrontation becoming more and more difficult with a new administration which has already taken up all of the bad habits of a bureaucracy. In other words, we are disturbed about the drift of the European organization towards bureaucracy and it’s in this sense that the adherence to the European Union must be weighed by a country like yours…. One must look at things head on, not just as an economic problem. There is potentially a very important political problem.” I did not go into Europe’s political paralysis, which was already predictable at a time when the European Union was still made up of only twelve countries.
Next, we talked about the new novel, Helvétie, rich in historical content, and we concluded by asking ourselves whether the history, organization, and government of the Swiss Confederation could help, even inspire, the political construction of Europe.
This improvised debate, lasting almost an hour, seemed to have interested the listeners. The RTL reporters told me that that day they had received a lot more calls than usual from listeners for the mid-day Saturday news program.
After the 1987 acquisitions and restructuring and divestitures that followed, Alcatel’s presence in the United States in 1990 was significant but needed to be enlarged and centralized. Total sales were $500 million from three business units: Alcatel North America with $260 million of sales in telecommunications cables (whose home office was located in Hickory, North Carolina); Alcatel Network Systems with $160 million of sales in transmission equipment (headquartered in Raleigh, North Carolina); and Alcatel Friden with $80 million in sales in postal franking equipment (Hyward, California). Alcatel’s share in the American market was 12%, 4%, and 10% respectively for those companies.
Alcatel’s strategy for the North American market was easy to formulate. Alcatel had to have operations there because the North American market remained the largest and most innovative in the world. But it was the domestic market of powerful competitors like AT&T and Northern Telecom which had, for decades, built solid technical and sometimes financial relationships with the telecom operators. Moreover, this market had its own particular technical norms which made access difficult for European and Japanese companies. On the other hand, it didn’t help prepare our North American competitors to operate outside of their traditional market. Europeans and the Japanese had for a long time, and at great expense, attempted to penetrate the North American market, with little success
Alcatel was no different. I have indicated how Alcatel had finally decided to stop selling the E10 Five switch and ITT had stopped production of its S12. But Ericsson and Siemens did no better. Alcatel also decided to withdraw from the private switch market and from the manufacture of telephone sets because of the impossibility of having production costs which were competitive with the Far East. Alcatel eventually sold Friden, which was profitable but weak in the face of its competitor, a leader which had over 50% of the market.
On the other hand, Alcatel decided to concentrate its efforts on entering the North American market whenever there was a new technology which Alcatel mastered elsewhere in the world and which rendered competition more evenly balanced between the traditional suppliers and the newcomers.
In the public networks area, the technical niche which could open the U.S. switching market was wide band switching with the new ATM norm, but this would certainly take several years. In transmission Alcatel Network Systems concentrated on the part of the network close to the subscriber (access). But in digital transmission, the appearance of a new standard (Sonet), while different from its international counterpart SDH (synchronous digital hierarchy), offered an opportunity. Alcatel mastered that technology in France and Germany, and the acquisition of Telettra had just reinforced its know-how in that domain in a decisive way.
To develop this line of business in the United States, Alcatel would have to acquire a company which would bring with it not so much technical capabilities, but commercial introductions to the telecom operators. Several possibilities were considered and ultimately Alcatel decided to acquire (for $625 million) as of July 12, 1991 (the final agreement was reached on August 28, 1991), the Network Transmission Systems division of Rockwell International Corporation. Rockwell had decided to get out of telecommunications and concentrate on aeronautics.
Based in Dallas, Texas, that division was one of the principal suppliers of the American voice, data and image transmission equipment market. Of its total sales, 75% were in line transmission and 25% in microwave. It had a market share of 11% in the United States. Its line transmission business, focused on the transport segment, was a good complement to Alcatel, whose U.S. presence was essentially in access. The Rockwell division employed 3,500 people in three Texas factories and one in Mexico, located near its northern border to benefit from the low cost of Mexican labor. This acquisition was merged with Alcatel Network Systems and the headquarters of the merged company were established in Dallas.
With that acquisition Alcatel became the second supplier on the American market of transmission equipment with a 15% market share, but was far behind the N° 1 AT&T, which had more than 50%. Alcatel’s total sales for a full year in the United States would border on a billion dollars.
After the acquisitions of Telettra and the Rockwell division, Alcatel became the largest manufacturer of transmission equipment with 19% of the world market. It was the world leader in line transmission (18% market share, ahead of AT&T whose market share was 16%) and transmission by microwave (30% share of the market, ahead of the Japanese company NEC, which had 25%).
In telecommunications cable, Alcatel North American was the second largest producer with a 20% market share for copper cable, and the third for fiber optic cable with 8%.
Alcatel decided to develop its presence in fiber optic cable, a new technology for which demand was very strong. But prices were very low on the American market, about half the prices in Europe. In Europe Alcatel Cable possessed an excellent technology for the manufacture of both optical fibers and fiber optic cables. So we built an entirely new factory in Claremont, North Carolina, for the manufacture of fibers and cables under the best production cost conditions. Rapidly that factory became, along with the new facility constructed in Douvrin in northern France, the most productive and the most profitable of the group in the world, with annual production capacity of 250,000 miles of cable—that is, more than would be necessary to link the earth to the moon.
Alcatel considered other acquisition possibilities in the United States but did not pursue them. Those efforts aren’t worth mentioning, except for DSC. DSC was a regular supplier to Sprint. Sprint hoped that Alcatel would acquire DSC and was ready to guarantee us orders. However, we declined because of the financial situation of the company and the fact that its technology would add nothing to Alcatel. As will be seen, some years later Alcatel would again become interested in the company.
Our United States activities led me to travel often to New York, Hickory and Dallas. On July 18, 1991, in order to respond to a pressing request from Alcatel Bell and its chairman John Goossens, I made a stop-over on my trip to New York. The Belgian subsidiary was trying to penetrate the English market of telecom operators, where Alcatel was, in fact, absent. Its marketing campaign included the organization of an “Alcatel Polo Day” at the Royal Country of Berkshire Polo Club, a typically British social function. I gave the opening address. During the luncheon the polo rules were presented by Major R.I. Ferguson, and then the invited guests took their places very formally in the Royal Box or other grandstands. I was assigned the task of awarding the trophy to the captain of the winning team and John Goossens would award the prizes to the players, the umpires, the referee and the emcee, as well as the “Rosette” which went to the best horse. Prince Charles’ team was the winner and I therefore had the honor of awarding to his Royal Highness the Alcatel trophy. Prince Charles also received the check for charity which he donated to the University Hospital Queen’s Medical Centre where he had been cared for. The ceremony ended with a reception where the invitees could talk with Prince Charles and the other notable guests. That very enjoyable (and original for us) day added to our conversations on the plane that later took us—Gilles Dupuy d’Angeac and me—to the United States. On the other hand, I’m not sure it opened up a lot of markets for Alcatel Bell.
Unlike its acquisitions in Western Europe and the United States, which strengthened the group on the technical level as well as on the commercial level, other transactions undertaken by Alcatel at that time were aimed at conquering new markets, usually in exchange for making an investment and transferring technology.
The most typical involved East Germany. Alcatel SEL, for understandable national reasons, reinforced by the Saxon origins of its chairman, Gerhard Zeidler, was always greatly interested in developing a technical and commercial relationship with the German Democratic Republic (DDR). Thus, even before the opening of the East German border, Alcatel SEL delivered (in 1989) the first System 12, for use in connection with the Leipzig Trade Fair. The political opening up, followed by reunification, would create for West German companies a gigantic and lucrative market at their doorstep.
In telecommunications Alcatel SEL outstripped its competitors and so was able to capture more than half of this new market, whereas in West Germany, its market share was no greater than a third.
The extremely old and antiquated state of public equipment that it was necessary to rebuild was surprising because East Germany was viewed in the communist world as the most industrialized country. In telecommunications, for example, with a population one quarter the size of West Germany’s, the DDR had a very modest network with only 5 percent as many lines as in Western Germany, 10 percent of the number of telephone sets, 13% of telex equipment, and only one facsimile machine for every 1,000. Moreover, this network relied totally on obsolete technologies. The state of the railway network and of the electricity network were also pathetic, with energy production based on coal, which is very polluting.
But in order to sell in East German the Bonn authorities required the Western companies to take responsibility for rebuilding the industrial infrastructure of the new Länder. The authorities were aware of the pathetic performance of the gigantic Kombinats that the communist regime had created. Under these exceptional circumstances we were going to see what traditional German consensus really meant: The total collusion of public authorities with the industrial groups. The Eastern companies to be taken over were, without much friction, “divided up” among the West German companies, often on the basis of ties that existed before WWII. Public loans were rapidly made available—government agencies in the West took over their Eastern counterparts, establishing the same methods for market entry and the same legal rules.
These extremely favorable conditions permitted Germany to integrate the new Länder within astonishingly short time frames—in particular, by eliminating in just a few years the 40 years that East Germany had fallen behind in its basic public equipment. But that was at a very costly price for the GNP, financed by taxes and borrowings, which would bring with it high interest rates, a strong mark, and secondarily (because the French authorities decided to keep the franc strong) very high interest rates on the franc, which aggravated the recession in France.
In its fields of business Alcatel SEL participated fully at this national undertaking. It was the first West German company to conclude an agreement in East Germany. On March 8, 1990 (before the reunification) SEL signed the contract with Veb Kombinat Nachrichtenelektronik of Berlin which created RFT, a company jointly held at 50% each. RFT essentially had three sites: A switching manufacturing plant in Arnstadt; a transmission manufacturing facility in Rochlitz; and a technical center in Berlin. The following year Alcatel SEL took 100% control of RFT, effective January 1, 1991. During its first year RFT had sales of 250 million ECUs.
That was the result of an amazing feat for which credit must go to the German system taken as a whole—great motivation on the part of SEL’s management, the size and speed of the investments made by SEL (50 million ECUs), the placing of orders without delay by the public sector customers, and the availability and flexibility of RFT’s employees.
The situation of RFT’s facilities when SEL took them over was, in fact, disastrous, with more than 6,000 employees but significant absenteeism, outdated equipment and technology, and a cumbersome and unproductive organization. I made it a point to visit these new facilities without delay. The plan that Alcatel SEL had deliberately pursued with respect to the markets of the ex-Communist countries had so many unknowns and uncertainties that it was necessary to take advantage of every possibility to evaluate directly this situation that we, the Westerners, knew practically nothing about.
The trip that we, five Alcatel executives, took on July 25, 26 and 27, 1990 had a profound impression on us. We left from Frankfurt on the road to what was still East Germany. The first stop, several miles beyond the border, was to visit the cable factory in Vacha that Alcatel Kabelmetal had just acquired in following, in its field, the same strategy and with the same vigor as SEL. We were entering another world. Several rundown and wheezing machines conscientiously manufactured outmoded cables. All of the buildings were black, dull, dusty, and largely unoccupied. The equipment in them was clearly abandoned, covered with rust and dust, lined up one after the other on a rather vast terrain abandoned to weeds and bordered by a railroad track, currently in service, upon which I was able to note a waiting locomotive which wasn’t in any better condition than the manufacturing facility. We met the management, who gave us a very friendly welcome but their faces expressed prudence, sadness and passivity.
I gave these managers, like those that I would meet in later stages, a talk that was amiable but without indulgence. Alcatel, the world leader in its specialties, had to attain in all of its operating units the same level of performance with respect to production costs and product quality. Alcatel was prepared to make the investments necessary to equip its new units with the most up-to-date, top quality technical tools, but that would necessitate a massive reduction in the number of employees. I further indicated that it was necessary to prepare to operate the company with one third of the current number of employees.
As we were traveling along the narrow roads of Thuringe where our caravan of black Mercedes did not go unnoticed, we became more and more astonished and ill at ease. We were struck by the old-fashioned charm of the countryside and sleepy villages, but at the same time the misery and lack of any economic meaning was revealed by the public equipment in ruin or the immense barren fields that extended from hillside to hillside and which were punctuated only by large tractors or agricultural equipment in a sad state of repair and sometimes abandoned. It was a perfect example of collective exploitation. After Vacha our journey took us the first day to the Arnstadt factory, where SEL's influence was already evident, then to Leipzig, having passed through such historical cities as Erfurt and Weimar. At Leipzig, though a city which had become well-known because of its rebellion the year before that led to the collapse of the iron curtain and the fall of the regime, the atmosphere seemed to us to be heavy and somber. The next day the impression of collapse and ruin was reinforced as we made our way from Leipzig to Dresden. We made a stop in a dismal spot where the road ran alongside an open air coal mine which supplied an electrical power plant. For over five miles the pollution had transformed nature—the trees that survived were scraggly and everything was covered with a thick gray dust. It was a disturbing landscape of devastation in which, nevertheless, people worked!
We visited the second RFT factory, located at Rochlitz, practically in the center of the area defined by Leipzig, Dresden and Chemnitz. (Karl Marx Stadium had already been renamed). The impression there was as distressful as the day before at Vacha. Rochlitz, a small community of several thousand inhabitants, was totally dependent on the factory. There we discovered a typical organization of a communist economy. In fact, the factory and town were one—the factory produced and distributed electrical energy and water and assured the distribution of food, health care and even vacations, for the whole population.
The factory manufactured archaic transmission products and the dilapidated state of the equipment and buildings was striking. The thermal power station, equipped with a small smokestack, a stock of coal dust stored in the open air, and a furnace and turbine fit only for a museum, adjoined the manufacturing facilities as well as "dormitories" for immigrant workers. Until recently the factory had employed North Vietnamese workers, whose status was closer to forced labor than to that expected from a free collaboration between brethren countries. Their living quarters had to have been taken from a stalag or, who knows, directly reused on site.
We again had, during the lunch hour shared with the executives and other managers, a very instructive meeting. In response to my talk recommending efforts to increase productivity, the personnel manager, Frau Schmidt, a robust and visibly energetic woman, told me that she saw no difficulty in reducing the number of employees by one half or two-thirds—if we would give her the staff level desired, she would take care of it within a few weeks! I had been surprised by the same type of response in our Shanghai company where one of our Chinese managers promised to be able to modify the staffing levels between Friday evening and Monday morning. It is true that, at the time, the company’s personnel management worked in close harmony with the town police who, in fact, designated the people authorized to meet foreigners in joint ventures with companies from the West.
The relatively open atmosphere of our meeting at Rochlitz prompted me to ask very directly a question that I would otherwise have been hesitant to bring up. “How many managers of this factory are members of the Communist Party?” The response was unanimous. “All of us,” after which it was explained that even if one didn't adhere to the communist philosophy, party membership was necessary to get a proper education and be assigned responsibilities. On the other hand, to my more impertinent question, “How did the Stasi work with a factory like this?” the only response was an awkward silence. That makes sense if they understood what I was saying. By such reactions one can measure the weight of the constraints to which they had been subjected and which they still feared.
The meal finished by an incident worth describing. During out conversation one of the managers indicated that the factory had an annex. I asked where it was located. “Fewer than five miles away,” was the response. “How many people are employed there?” “Three hundred.” I asked to see it before leaving. Next, there were side discussions and some agitation. Then I was told that the annex was not on my itinerary, that it would delay me if I visited it and that in any event it was the vacation season. They didn’t know me. I persisted and said that I would, on the way out, stop for a brief visit which didn’t have to be prepared because I understood the difficulties created by the vacation period. The meal finished in good humor. The meeting was prolonged a little as if our hosts wanted to hold us up. Finally, we left. The visit to the annex was worth the detour.
In a small hamlet at the bottom of a valley, we arrived in front of a huge antiquated building covered with dust. In front of the building was a courtyard overrun with tall weeds that a worker (who obviously had been assigned the task in urgency) had just finished cutting with a scythe. Inside, five or six elderly women seated on stools facing big tables appeared to be working on two dusty machines. However, the dust remained on the machines despite the fact that the women were supposed to be working on them. This incident confirmed one of the major problems of their defunct system. No one was unemployed. Theoretically everyone had a job, but absenteeism was massive and it was evident that a facility such as this one only served as a cover for employees who, in practice, never worked. That brutal conclusion, which I came to on the spot, was only half-heartedly contested by our hosts. What a job awaited us to bring to Western norms this world and this system, which had been isolated for 50 years!
One year later I had the opportunity to see the immense progress made.
The President of the French Republic made an official visit to the reunified Germany from September 18 to 21, 1991. He wanted, on that occasion and despite his busy schedule, to visit a former East German factory that had been taken over by a French group. The office of the President of the German Republic proposed Rochlitz. (There probably wasn't a lot to choose from.) I was immediately informed by SEL's management and then belatedly by the French ambassador in Bonn, who was amazed that I had not been notified directly by the Elysée in Paris. In fact, I never received such a notice, neither during the preparation nor when the program became official.
Without having been invited, I decided in any case to go to Rochlitz with Gerhard Zeidler, the president of SEL, to welcome Mr. Mitterand. By my visit I wanted to underline the commitment that the whole of Alcatel was making in the new markets that the fall of communism had opened up.
On arriving at Rochlitz, I was dumbfounded by the visible changes everywhere—as I passed through the village, first of all, where the repainted houses were decorated with flowers, and next at the factory where everything had been repainted, the coal-fired plant had been closed, and the “stalag” was still there but was surrounded by greenery. About ten people under the flag-decorated main entryway awaited the presidential delegation. It was almost an hour behind schedule so I had plenty of time to speak with the German authorities who had come to welcome the French president. I remember, in particular, a pet project of Dr Kurt Biedenkopf, the president-minister of Saxony, about which he had hoped to speak with the French President—to re-establish the close historical ties among the economies of Saxony, Silesia (today Poland) and Bohemia (which had again become Czech). While waiting, I thought to myself that the post-war years were part of the past in Germany and I cautiously pointed out to the president-minister that François Mitterrand, who was very interested in history, had begun his political career just before the last world war. Apparently, I didn’t shake his desire to bring up the subject.
Suddenly, six big, identical German Air Force helicopters appeared and landed in random fashion on the sports field at the factory entrance. The officials rushed towards the president's helicopter as soon as it was identified. For security reasons, until the landing took place it was not known where or in what order the helicopters would come down. This caused some confusion.
We all assembled in a modest conference room. Before giving the floor to Gerhard Zeidler, I welcomed Mr. Mitterrand, emphasizing that Alcatel was honored by this presidential visit to one of its factories; and I added:
"We have in Germany, in Europe—France included—and elsewhere, many other factories where we could show you technology and investments at the forefront of world competition. Here, it’s an entirely different challenge that we are presenting to you. We took over a company ruined by 45 years of socialist management. The president of Alcatel SEL will tell you in an instant how we plan to modernize this company by investment and training…. Already, I can tell you that our company is making a critical contribution towards the modernization of the telephone and rail networks for the new Länder. The risk that we accepted in taking over this company, even before German reunification, illustrates the continual commitment of our group to face the industrial challenges of our time. We are engaged in similar undertakings in Czechoslovakia, Hungary, Poland and the USSR, through our German, Austrian, French and Belgian subsidiaries. In those countries the risk is even greater because the economic picture remains uncertain. Your visit today provides, and I thank you for that, great encouragement to continue that policy. That’s the contribution that an industrial group such as ours makes to the construction of the new Europe, which will be based on large markets and, at the same time, on the harmonious collaboration of successful national entities."
During the speech of SEL’s president, Mr. Mitterrand had to take an urgent call. His aide directed him to a nearby room. When he returned to his seat next to me, I noticed he was preoccupied and, out of courtesy, told him I hoped nothing too serious had happened. He whispered in my ear that it concerned Yugoslavia and that he was very preoccupied with what was happening in that country!
After the welcoming speeches we moved quickly to two tables where documents and products retraced the history of this facility. I was surprised to see a copy of the letter I had sent to each of the German employees of Alcatel on the preceding October 3, the date of the reunification of their country. Several months later I received a letter from Chancellor Kohl thanking me for this gesture of friendship and confidence expressed towards Germany at a crucial moment in its history.
The actual visit of the facility was very simplified because of time concerns and, quite honestly, in spite of our efforts, was sufficient in light of what there was to see. The building had several stories with an elevator at one end. It was planned that the president would take the elevator to the third floor, walk down the central isle of the workshop where the electronic cards were made, then go to the fourth floor and return by the elevator, after passing through the workshop on the fourth floor. In fact, as I was demonstrating to the president wave soldering of the components of the cards (the last operation of the third-floor workshop) and was responding to his questions, we were firmly pressed by the security contingent to return to where we had come from and to cut short the visit. I found myself at the end of the corridor alone with the president in the elevator. A bit surprised by this change in program that had been imposed on the president, I apologized and told him that we were supposed to visit the next floor as well. He responded, very good naturedly: “You know, Suard, they don’t tell me anything. I’m in the habit of accepting all the changes they impose on me. They treat me like a sack of potatoes.” The tone was set. I then accompanied him to his helicopter. I stood aside as he said his good-byes; then on his invitation I went to the stairs of the helicopter. The turbines and blades turned but he continued to speak to me for several minutes to the surprise of his delegation, which had already boarded, and of the officials who visibly wanted to move the departure along.
In rejoining the officials, it was easy to dodge the curiosity that that unexpected private discussion aroused. I gave as a pretext the infernal noise of all those helicopters that were going to take off and which would do so once again in an order decided at the last minute.
Our facilities in the new Länder were rapidly brought up to the norms of those of the West and, several years later, totally assimilated. Their integration only reflected what was happening all over the nation.
We also saw, in connection with a delicate matter, how the German system was able to handle with discretion questions impacting the image or important interests of the country. We discovered that the East Berlin employees that had come from RFT were strangely familiar with the S12 and sometime later the police opened an investigation into industrial espionage on the part of East Germany of which ITT, and later, Alcatel, had each been the victim. Copies of documents concerning the System 12 coming from our facilities located in two Western countries had been found. Nothing was heard about the matter in the press and, to my knowledge, nobody was ever bothered by the police, neither in Germany nor in other countries, though the facts were known. I can’t help but compare that exercise of discretion with the hullabaloo in France that accompanied the supposed over-billing of France Telecom by Alcatel CIT, alleged but never proven. To each his own conception of the collective national interest!
Alcatel also tried very hard to get established in Russia and other countries of the East; but it was much more difficult and in terms of sales and profits the results were infinitely more modest, indeed even disappointing.
Alcatel had always maintained business relations with the USSR, in keeping with the relations between the two governments. CIT had even inherited from Thomson an arrangement for technical cooperation with a factory located at Ufa in the Ural, which manufactured the MT switch. That cooperation ended in 1987 and Ufa’s production of several hundred thousand lines saw quality deteriorate due to the unreliability of the components. The supply of dependable components from France improved the situation temporarily, but the lack of money interrupted that relationship and Ufa, despite repeated attempts and friendly relations, could not serve as a base for Alcatel in the new Russia and its production didn't do much to improve the telecommunications network in the USSR.
A significant project, valued at a billion dollars, occupied for several years the various telecommunications manufacturers of the world—the crossing of Siberia with a system of fiber optic cables which would establish a ground connection between Europe and Japan. I even ceremoniously signed the contract which assigned to Alcatel the most difficult stretch between the cities of Irkoutsk and Ulan Ude, including the crossing of the Baïkal Lake with a submerged cable. But we were unable to complete that contract. The COCOM, a Western organization, in fact under the authority of the U.S., which saw to it that sensitive technologies were not exported, hardened its restrictions with respect to fiber optic transmission, so that what was authorized before Alcatel’s signing of the contract was no longer authorized after. One can wonder if the regulations would have developed in the same way if our American competitor had won the contract. But that’s the rude law of international trade to which it is necessary to yield under a system of controlled liberalism.
It was during this period that Louis Companyo, who was responsible for Alcatel’s international affairs, asked me to make a trip to the USSR. The preparations were similar to those of a ministerial trip, involving gestures and symbolic meetings. The chairman is cast in the role of a representative, as are the people he meets. The people around the two principals agree on the subjects to be discussed, the words they would like to have spoken and then on the meaning of the words that are exchanged. We are a long way from a commercial negotiation between private companies.
Thus, for this 1991 trip Louis Companyo first made contact with the Soviet ambassador in Paris and he reported to me concerning the preparation of the trip as follows:
"The ambassador had gone to Moscow for a meeting between Presidents Mitterrand and Gorbatchev. Following this trip he wanted to meet you or one of your colleagues. In your absence and in case there was an urgency, I suggested to his adviser, MT, that I go to the embassy. That’s how I met the ambassador on May 13 in the presence of MT. The message that he asked me to give you is as follows: At the initiative of the Soviets, the subject of Lake Baïkal was broached by the two presidents without the French having been informed in advance of this initiative. The ambassador indicated to Mr. Mitterrand the importance that the Soviet Union attached to the completion of this contract as well as, in general, the completion of the Trans Soviet Line project. Mr. Mitterrand indicated that he was going to handle this matter personally and he asked Mrs. Lauvergeon, who attended the meeting, to see that it was elevated for closer examination. Mr. Roland Dumas, who attended the meeting, seemed to be no more up-to-date than the Elysée. In this context the ambassador emphasized that he knows of your intention to go to the Soviet Union following the invitation that had been extended to you by Messrs. V and P. He also indicated that because of recent changes in the Soviet government, this project was deferred. Mr. Gorbatchev indicated that your trip was extremely important and must be maintained; and he asked the ambassador to get in touch with the new Minister of Communications, MK, in connection with its organization.… The ambassador would like very much to meet you personally before your departure to the Soviet Union to let you know the latest position of the Russians with respect to the different matters that will be raised, as well as, perhaps, and if that is confirmed, to tell you about a meeting with Mr. Gorbatchev."
Two weeks later a new report from our international director:
"I went to Moscow May 23 and 24 with the
two-fold aim of:
"—assisting the opening of the Sviez Expo 1991 and to greetthe high level visitors;
"—look into the preparations for your visit.
"Mr. Kudrjavzev, the new Minister of Communications, accompanied by 15 communications ministers representing the different republics (including Lithuania, Estonia and Georgia), stopped for a long time at the Alcatel stand. He announced to his delegation that the government of the USSR would receive the chairman of Alcatel in the beginning of June. Then, addressing me directly, he told me he was delighted to be able to meet you personally. Then MM, President of the Military Industrial Commission, First Deputy Prime Minister, arrived at the stand, along with the Soviet Finance Minister, MO, and MP, already mentioned, and by MI, the Vice-Minister to the Minister of the Electronics Industry and partner of Lebell of Angbell. MM, the chief of what is commonly called the Military Industrial Complex, assisted by MK, covers the ministries of the Aeronautics Industry, Civil Aviation (Aeroflot), the Electronics Industry, the Electro-mechanical Industry, Defense, the Radio Industries, the Shipyards, and Machine Manufacturing.
"He also covers the Conzern Telecom for MP. He’s the one who was assigned by Mr. Gorbatchev to organize your visit. MM lingered at the Alcatel stand for fifteen minutes, the time for me, over sandwiches and vodka, to present Alcatel to him as well as our activities in the USSR. For MM a major concern was the unblocking of the Lake Baïkal project with COCOM. I indicated that the contract was being examined by the French authorities and COCOM and that we would not know the final decision before the end of June. He then indicated that if by chance the COCOM opposed the completion of this project, that would be very damaging for the cooperation between Alcatel and the USSR in the transmission field, but that he already knew that the Soviet industry (Danyaya Sviaz) would be able to take over..."
In the end, the trip took place over a period of four days in the beginning of June, first to Saint Petersburg (which was still called Leningrad) and then to Moscow where we were put up in an official residence on Mount Lenin. We had a house for our five person delegation and the continual and attentive assistance of a French speaking officer who took care of everything, even getting our telephone communications for us!
Aside from formal ministry visits and banquet dinners, I had several contacts which were very useful in helping me understand the evolution of the Soviet industrial apparatus, soon to be Russian. Various Alcatel subsidiaries attempted to develop projects. The most imaginative and advanced was that of the Belgian subsidiary which was preparing a joint venture, Lenbel (majority Soviet owned), to manufacture S12 switches and PABX systems in Saint Petersburg. It was to receive a loan from the Belgian government for the financing of imported components. Despite several restarts and adjustments, this project didn’t really take off. I had visited the premises that the Soviet partner had designated for the manufacturing. It was a hall in a gigantic industrial complex in the outskirts of Leningrad, practically inactive, and apparently having previously been dedicated to heavy industry and armament. This project was to have an extension in a facility designed to manufacture integrated circuits.
In that regard, I visited Zelenograd, about 30 miles outside of Moscow. Zelenograd is a huge city and industrial park of several tens of thousands of inhabitants, exclusively dedicated to the armament industry. Until recently this city was totally forbidden to foreigners and, with respect to Soviets, its access was limited to authorized persons. There, we saw workshops rather correctly equipped and which worked. Clearly, this entity benefited from privileged conditions and that was evident from the facilities and surroundings. But the conversion to civil activities seemed like a plunge into the unknown which left the people involved completely stunned. They showed us the building selected for the manufacture of the electronic components. It was a huge concrete building under construction with German financing—naturally, by German companies. I indicated right away that the area necessary for the manufacturing anticipated would hardly occupy a tenth of the building. The response was immediate: "That’s not a problem. We have a lot of projects to occupy the rest." I hope it was true because even the tenth was not occupied inasmuch as the components project was no more successful than the switching project at Saint Petersburg on which it depended.
On the other hand, Alcatel Bell was very successful with Combellga, its other project, more original and more realistic. A company was created with a Soviet majority shareholder (in fact, the KGB), Alcatel Bell, and the Belgian telecom operator RTT to urgently install in Moscow a new telephone network which would make international calls possible without waiting for the refurbishing of the general network. That’s how about 3,000 privileged subscribers (hotels and offices for foreigners and government administrations) were connected to the international network in several months through the PABX and an S12 switch connected by microwave links to a ground station, all in Moscow, which transmitted the traffic via satellite directly into the RTT network in Belgium, which then assured the international carriage. This project of modest cost (6 million ECUs) proved to be a great success and was very profitable.
In the end the projects that succeeded were the modest ones that responded to a credible need created by the opening up of the economy. Thus, Alcatel was able, through the impetus of its Austrian subsidiary, to create private telephone distribution outlets, starting with Saint Petersburg where the customers paid in dollars. The big projects, on the other hand, got mired in controversy and the red tape of administrations in the process of being privatized. All of the industry managers who were culturally trained in the government economy converted slowly to the reasoning and constraints of a market economy, despite the appearances.
I remember a strange discussion that I had with a former minister with whom we met regularly during a number of years. That day, in the presence of our respective delegations, he asked me how the market could resolve a problem as simple as the manufacture of suits. He indicated that in a planned system, from the moment that the length of the fabric, the number of buttons and the amount of thread necessary for a suit is known, and the Plan has determined the number of suits to be produced, it’s easy for the administrators to fix the production objectives for each of the industries that participate in the manufacture of the components of a suit. I had a hard time explaining market adjustment mechanisms and it was clear that I didn’t convince him. Several months later, after the end of the USSR, during a very enjoyable dinner, again in Moscow, I saw him again and inquired of his recent activities. He held out his business card and with a mischievous smile he told me he was a consultant for privatizations! So goes the world. But one mustn’t be too quick to criticize; you can’t eliminate in several months behavior imposed upon three successive generations.
Alcatel met with greater success in Poland. It is true that that country freed itself from the communist system, which was still perceived as having been imposed from abroad. The strong national sentiment and the depth of faith which had always characterized Poland helped it completely reject the system and to rapidly move towards a private economy. The privatizations were organized and carried out in total transparence. Alcatel participated in it.
In fact, Alcatel had established contacts with Poland in the early 1970’s. CIT had granted Teletra (Poznan) a license for the manufacture of the E10A (first generation of the E10 switch) and ITT, by its French subsidiary at the time (CGCT), had granted Zwut (Warsaw) a license for the manufacture of the Pentaconta analog switch. During the 1980’s ITT’s Spanish subsidiary had helped Zwut digitize the Pentaconta.
Strengthened by this history, Alcatel reinforced, in phases, its relationship with its former licensees, which it acquired completely in 1993. During an initial period CIT and SESA developed simultaneously in this market (owing, first, to the E10 and Teletra and, secondly, to the S12 and generous credits from the Spanish government) and captured 60% of the Polish switching market for Alcatel. The group subsequently gave SESA complete responsibility for the Polish market. Alcatel Polska was created and in 1994 the group was the N° 1 Polish manufacturer with sales of 120 million ECUs and 40% of the telecommunications market, which grew rapidly following the privatization of the traditional telecom operator and the appearance of new operators.
Alcatel also invested in Romania. Under the impetus of Alcatel CIT, a semi-public company was created in 1991—Alcatel Network Systems Romania—located at Timisoara. Between 1992 and 1994 that company received orders for 750,000 switching lines, some of which were manufactured in a facility employing 200 people that Alcatel had built and that I would christen in September 1994, along with the telecommunications minister. For that occasion I visited the President of the Republic in Bucharest as well as the Prime Minister. Alcatel Alsthom would be very much sought after to establish itself more in Romania, particularly with respect to GEC Alsthom. But privatizations and the establishment of a market economy were experiencing delays and the economic situation wasn’t very favorable. For that reason, despite a sympathetic government, our investments remained moderate in Romania.
In Hungary, at the initiative of Alcatel Austria and in association with an American telecom operator, the group acquired several secondary operators when they were privatized.
In Asia during these years Alcatel was able to establish operations in a spectacular way in Pakistan, India, Malaysia, Vietnam, but especially in China.
Alcatel had received some interesting bases of operation at the time of its creation in 1987. In Taiwan, first of all, its subsidiary Taisel was the principal telecommunications company on the island and was developing its business activities in a very profitable manner. But at the time economic relations between Taiwan and the People’s Republic of China were in an embryonic state, reserved, and indirect because of the blockage in political relations. In reality, contacts were being made and this subsidiary would, during the coming years, very effectively help Alcatel’s development in mainland China.
However, Alcatel’s principal asset resulted from the initiative taken in the early 1980’s by BTM, then an ITT subsidiary in Belgium which, with the support of the Belgian government, created in December 1983 (with the Chinese PTT Ministry) Shanghai Bell Telephone Equipment Manufacturing Co. Ltd., a joint venture located in Shanghai which became known by the initials SBTMC. This company manufactured the S12 switch under license from BTM. The beginning of the company was modest and laborious—several tens of thousands of switching lines were manufactured and the company employed two or three hundred people in 1985.
Around that time and at the pressing demand of the Chinese authorities, SBTMC created, with the Chinese government, a company called Shanghai Belling to design and manufacture integrated circuits, which were key components of digital switches.
Thanks to the quality of the management team that BTM made available to these companies and the constant support of the Belgian government, Alcatel was able to contribute in a spectacular way to the development of these activities, which grew in conjunction with the explosion of the Chinese telecommunications market. Relations of confidence, and even friendship, were established between the various Chinese and European managers involved in that venture and, notably, with Chairman Lu Ming.
SBTMC’s annual production went from several hundreds of thousands of lines at the end of the 1980’s, to over one million in 1992 (1,360,000), to 4.5 million in 1994 and over 5 million in 1995. To satisfy demand the company decided to build a new factory in the new Shanghai, specifically in Pudong. I have some specific memories of the ceremony to lay the first stone. At the time French-Chinese relations were frozen after the sale of frigates to Taiwan. As my presence had been confirmed, the ceremony for the laying of the first stone in Pudong was cancelled by the Chinese, provoking some disarray among the individuals involved with the project, who went to work to find a compromise. Since I had committed, I could not back down from attending the ceremony. Finally, it was decided to reschedule the event. The French ambassador would not be invited; only the Belgian authorities. There would be no French flag, only the Belgian one and Alcatel’s. The speeches would be made by the N° 2 of each delegation—that is, by John Goossens, the president of BTM, for Alcatel. The N° 1’s—Yang Tai Fang, Minister of the PTT from Peking, and myself—would be invited, each equipped with a brand new shovel to symbolically bury the first stone. That was fine with me because it was cold and windy that day in December of 1992 and a little bit of exercise would chase away the drowsiness, which was inevitable even if you closely followed the speeches.
This clever compromise led to a reconciliation of the official freezing of relations between the two parties and the pursuit of fruitful cooperation by them. The atmosphere was also warm and trustful at all of our meetings, as with the meeting held on the site of the future plant, just before the official ceremony. The two delegations were seated, according to protocol, face to face under a tent on several rows of benches. At the center I was facing the ministerial and political authorities. Between us was a model of the future facility that had been presented to me the evening before. I was surprised to see the factory cut in two by a street. I was told this was required by the town planning agency which, despite repeated requests, refused to adapt the site plan in order to free up a parcel of land sufficient for this factory of 323,000 square feet with its annexes. Inasmuch as the ceremony started late, I dared, after the usual formal exchanges, to raise that objection with the municipal and party authorities who were facing me. As the interpreter translated, I saw discomfort come over the faces of our usual contacts, who were sitting in the second or third rows facing us. But, surprise! The first row began discussing among themselves, then consulted the rows behind, and after several minutes of consultation, the interpreter said: “The secretary of the party finds that the chairman of Alcatel is right and, as a result, the site plan will be modified to satisfy him.” And the factory that I visited during my last trip in January of 1995 was thus constructed in one building. Centralized bureaucratic systems can make decisions rapidly!
That factory received, as did Alcatel, an unexpected tribute many years later. In October of 1999 during a visit to the United States, I fortuitously fell upon a television channel which was rebroadcasting a program from French TV. It was an interview of a French minister who, on the occasion of the visit that China’s president was going to make to France, spoke of the importance of economic relations between the two countries. The only example that he gave was the Alcatel factory in Shanghai, “the biggest that the group has in the world,” he said. I smiled in hearing that free publicity because it came from the mouth of one of those who, at the time that Alcatel was making the decision to build the factory, led the campaign against Alcatel Alsthom which ended with the nationalization of its subsidiary Framatome. The angelic smile of the minister while he was talking hid perfectly his sentiments of an earlier time. Perhaps he didn’t remember a thing; his listeners certainly didn’t. Think about it—eight years in politics can be several eternities!
Thanks to SBTMC and Belling, whose technical progress and development of sales were impressive during these years (the fineness of the integrated circuit etching went from the generation of 3 microns to 1.2 microns; the state of the art has since attained “submicronic” size), Alcatel built for itself an enviable position in the Chinese market. In addition to Shanghai’s production, Alcatel sold switches directly through its different subsidiaries from around the world.
The Chinese government had decided to borrow from abroad to accelerate the development of the country, which it was able to do easily inasmuch as China’s debt level was very low. All of the Western countries offered loans in support of the bids of their national companies. In that vast competition Alcatel had a decisive advantage. The Chinese minister was concerned, and reasonably so, about limiting the number of different systems integrated within his network. Alcatel made it possible for him to have access to financing from numerous countries while receiving the same switching system, which in addition was also manufactured locally. That’s how, besides BTM, the Spanish, German, Italian, Norwegian, Taiwanese and Australian subsidiaries of Alcatel signed significant contracts. Particular mention should be made of the French subsidiary Alcatel CIT. In supplying 300,000 E10 switching lines in Peking, it was one of the very first Western companies to install the digital generation in China, even though it couldn’t subsequently truly participate in the development of that market. It suffered, in particular, not only from the frigates crisis already mentioned, but also from the developments following the events of Tiananmen Square. All of the Western countries decided at that time to suspend all new loans. As Alcatel was able to note first hand, the French government was certainly more rigorous than its European sister countries in applying that common decision.
The result of the persevering policy of Alcatel was impressive. In terms of installed systems as well as annual sales, Alcatel served more than half of the Chinese switching market. In 1994, for example, for total demand for 12 million new lines, Alcatel supplied a little over four million through SBTMC and a little less than three million through exports from the other subsidiaries.
Alcatel did its best to extend this success to other telecommunications areas. The required route was the creation of joint ventures which ensured at least some local manufacturing. The idea was to associate with a state-owned industrial or research entity which was, to a certain extent, designated when our investment proposal was accepted. Generally, the outside partner had to contribute the technology, the industrial investment, and the technical supervision, with the premises and personnel being provided by the Chinese partner. The success depended, of course, on the motivation and quality of the personnel. I remember the visit that I made to a building designated for a transmission joint venture. Welcomed at the ground level of a time-worn, colorless and uninteresting building in an industrial zone, we took the elevator to the third floor to visit the clean room, which had been designated for the joint venture. There, following the custom, we put on white smocks, caps, and slippers to avoid bringing dust into the premises. We walked around. It was pretty much empty. I went to the end and there I found a surprise—it wasn’t closed off but was open to the rest of the building. It would have taken a lot of work in this case to make the culture of quality effective, something which is indispensable in today’s manufacturing!
A lot of joint ventures were formed in 1993 and 1994, with starts as modest and difficult as SBTMC—in Peking for microwaves, in Chengdu for fiber optics transmission, in Shanghai with the participation of SBTMC for business communications and mobile telephones, but also, in various locations, support and after sale service centers as well as a facility for specialty cables. All of these initiatives did not meet with the same success but overall Alcatel had built a unique place in the Chinese market, recognized and, I think, appreciated by the local authorities. That’s, in any case, what I was constantly told by the highest authorities, including Prime Minister Li Peng and Jiang Zemin, President of the Republic. It is true that Alcatel’s notoriety was reinforced by that of Alsthom which had worked successfully in China since the 1970’s in the thermal power stations area, as well as gas turbines, hydroelectric power stations (with Cegelec), and electric networks and rail transport. During that time I took advantage of my trips to press for the return of Alsthom in subways—in particular, the subway extension in Shanghai. I also mentioned the future project of a high speed train between Peking and Shanghai. (The TGV order that GEC Alsthom had just been awarded in Korea had a motivating effect on the Chinese.)
Framatome, which had completed construction of the Daya Bay nuclear power plant jointly with GEC Alsthom for the conventional lot, was also considered by our governmental negotiating partners as being part of the group. I refrained from telling them about the hostile or reserved (depending on the time frame) position of the French government authorities with respect to the control of Framatome by the group.
Alcatel Alsthom appeared particularly well adapted to help the Chinese resolve the high priority problems defined by their Plan—telecommunications, energy, and transport. It played a distinguished role in the 90’s in the Chinese market to the widespread satisfaction of its customers and its shareholders. Alcatel's sales in China represented only five to seven percent of its total worldwide sales, but the China sales represented a much larger percentage of the group's profits
I could also talk about the successes of Alcatel CIT in creating and developing subsidiaries in Pakistan, India, and particularly in Malaysia and Vietnam and the occasions where I participated in christening new plants or the laying of the first stone. In each of these countries, thanks to local manufacturing, Alcatel was able to occupy a significant place in the switching market, but also in the other telecommunications businesses—transmission by ground, under the sea or by satellite—as was the case in Vietnam despite the bureaucratic red tape of the state system. But the will to succeed was great at Alcatel because, for the French, even the youngest, relations with Vietnam always had a quasi-sentimental component.
Establishing the group in Latin America took place around two industrial centers of activity—one in Mexico inherited from ITT and the other in Brazil put together more or less from scratch by Alcatel.
Alcatel successfully developed the activities of its Mexican subsidiary, Alcatel Indetel, as already mentioned.
ITT withdrew from Brazil as well as the other Latin American countries after setbacks in Chile at the time of the fall of President Allende. CGE attempted several times to establish itself in Brazil but its efforts didn’t bring about lasting effects. Aside from a few exports and installation contracts during the period when extravagant projects were being undertaken by the military regime, the Brazilian market remained closed, 98% self-sufficient.
To become a major player in Brazil, Alcatel therefore had to acquire an existing company. But under Brazilian law foreign control of an electronics company was forbidden. As a result, Alcatel had to set up a capital structure with credible Brazilian partners. After several failures and limited agreements, such as the one with Telefonica Standard Electronica, Alcatel was able to acquire a company with an excellent reputation, Elebra, held by Brazilian interests. But the negotiations were painstaking. The company had benefited from significant subsidies to develop a national digital switch and the seller wanted to be sure of the credibility of Alcatel’s Brazilian associates to avoid criticism by the national authorities. But nothing was said clearly. The negotiating team led by Stephan Guérin went to work looking for industrial groups held by families and partners whose reputation, social position and public image would reinforce the Brazilian nature of the new entity. From 1989 onwards, Alcatel succeeded by making successive acquisitions—not only of Elebra (transmission and switching), but also of Standard Electronica (switching), of Standard Rio (switching), of Multitel Systems (business communications) and of ABCTI (transmissions)—to build a unified group with 25 to 30% of the market. This was accomplished in the face of three competitors which had been established in Brazil since the war and which benefited from solid alliances and political support. After a difficult and loss making start, Alcatel Brazil would become prosperous and constitute a solid industrial base in South America. Two other acquisitions were added later: Bracel (cables) and an electrical power supply company (Saft).
Alcatel had also successfully created a small industrial subsidiary in Chile. In Argentina we had to clarify a difficult but classic situation. Alcatel’s radio business had had an agent since the time when it was part of Thomson and significant business had been obtained by it. But Telettra had a joint venture in Argentina with a powerful Italian family. To further complicate the situation, Alcatel's Spanish subsidiary was going to receive large orders from the operator which, with the privatization of Argentine telecommunications, had received the southern half of the network. It received these orders because it was a subsidiary of Telefonica, the traditional Spanish telecom operator. Every agent claimed responsibility for this success. Finally and after many discussions to overcome the roadblocks in Buenos Aires, as well as in Alcatel, a solution was found. Alcatel associated itself with the former partner of Telettra, which moreover was well placed with the second operator (which, with the privatization, had obtained the northern half of the Argentine network). It was a subsidiary of the Italian operator STET with a participation by France Telecom. After a last-ditch effort by France Telecom, which recommended the purchase of the E10, STET, which favored the S12 that it used in Italy, imposed its point of view and Alcatel became the principal switch supplier in Argentina, working with all of the new telecom operators with the same systems.
Overall, and even though Alcatel had only a symbolic and problematic presence in Latin America a few years before, its sales rapidly exceeded one billion ECUs in that region and its activities were supported by two solid bases—in Brazil and Mexico.
Alcatel was also interested from the start in the potentially large market in South Africa. A joint venture was created for switching by Alcatel CIT with the principal South African electronics group; and despite the political changes and uncertainties, the business developed and expanded to other fields. Alsthom and Cegelec also had an industrial base in South Africa, particularly after the agreement with GEC.
The international expansion of the cable business deserves also to be explained. It was the work of Claude Bovis, Alcatel Cable’s chairman.
Alcatel Cable, which had functioned as a totally operational profit center since the creation of Alcatel in 1987, continued to pursue the expansion course that had already started under the Les Câbles de Lyon banner. After the acquisitions already mentioned, the latest concluded in 1987, Alcatel Cable couldn’t much hope to further increase its share of the French market. Europe was its first sphere of activity.
In 1988 Alcatel Cable bought Manuli, the N° 2 cable supplier in Italy (after Pirelli, Alcatel Cable's principal worldwide competitor), together with its Greek subsidiary, which would be merged with the one already owned by Les Câbles de Lyon. In 1989 Alcatel bought Les Câbleries de Dour and its subsidiary Fabricable, which made Alcatel (which since 1986 had controlled Les Câbleries de Charleroi) by far the N° 1 cable company in Belgium. In Germany, aside from acquisitions in the new Länder, Alcatel bought, in 1991, Kabelwerke Ehlers, a producer of high voltage cables, industrial cables and telecommunications cables with sales of 60 million ECUs. But the main acquisition took place several months later. Based on a value of 750 million deutsche marks, Alcatel Cable bought the cable business of AEG (AEG Kabel Group), with sales of 920 million ECUs, three-quarters of which were in telecommunications and energy cables and enameled wire. Finalized after approval by the cartel office in Berlin, that purchase put Alcatel in the N° 1 position in the German cable manufacturing market. Moreover, it offered a rare example of a second chance: It can happen that history "passes the plate once more."
Indeed, in 1980, when Les Câbles de Lyon tried to expand in Germany, we naturally entered into relations with Kabelmetal, as explained in the first chapter. However, the general management of CGE, having business relations with the AEG group at the time, wanted us to buy the cable division of that German group. We made visits to each other's facilities, but could not come to agreement on a merger scheme that would lead to clear lines of organization and responsibility. Despite several renewed efforts, negotiations came to a standstill. It is true that, at the same time, the negotiations that would lead to the acquisition of Kabelmetal were moving ahead well, thanks to Les Câbles de Lyon, which had complete responsibility for it. In the end I did not have too much difficulty convincing CGE to abandon its negotiations with AEG and to conclude the agreement with GHH, Kabelmetal’s parent company. Ten years later, when Alcatel again began talks with AEG, the negotiating positions were completely different. Alcatel Alsthom, known and respected on the international scene, played in the major leagues, including in Germany where the French group would employ more people than the AEG group. Alcatel Cable was able to take complete control of AEG’s cable group.
Alcatel Cable's position was also strengthened in Spain by the acquisition of Conductel, a power cable producer. This acquisition complemented the activities of the subsidiary inherited from ITT, which was limited to telecommunications cables.
Alcatel also wanted to position itself in Turkey, a difficult market but one located at the gates of the Orient and close to the new ex-Soviet republics, many of which are Turkish speaking. It did that in two phases—first, in 1991 by acquiring Erkablo, the country’s N°2 cable producer with 20% of the power cable market; then in 1993 by acquiring Izka Rabak, a manufacturer of telecommunications cables, with approximately the same position in its market. These companies experienced difficult months during Turkey’s financial crisis but proved to be profitable afterwards.
In 1991 Alcatel Cable also invested significantly in the North American market by buying from the Canadian group Noranda its Canada Wire subsidiary, with annual sales of 330 million ECUs. This entity was Canada’s N°1 cable producer but was also active in the United States and even in Ireland, which represented its point of entry into the European market.
The English market had always been difficult for Alcatel. In the cable area it was dominated by BICC, one of the world leaders in the field. GEC owned the third largest cable producer in that market. The chairman of GEC proposed to me several times that we acquire that business but his financial demands seemed excessive to me. The company was certainly very profitable, but it operated in a very protective market which would ultimately open up to foreign competition despite the reluctance of the British to accept the rules of the Common Market. We were unable to come to an agreement.
On the other hand, Alcatel tried to acquire the British company STC, its principal competitor for undersea telecommunications cables. I already indicated how that company, in which ITT held 24%, ultimately could not be contributed to Alcatel in 1987. Since then it had been acquired by the Canadian company Northern Telecom. At the end of difficult negotiations lasting several months, slowed down by the British senior management who contested the willingness of its Canadian owner to sell, Alcatel was able to complete the acquisition of STC in July 1993 at a cost of 600 million pounds. (Sales were 305 million ECUs.) Alcatel thereby became the world leader in that very high technology business, with sales of 800 million ECUs and more than 40% of the world market.
STC manufactured cables in two plants, one located in Southampton in the United Kingdom and the other in Portland, Oregon, in the United States. It manufactured repeaters in Great Britain—that is, in Greenwich and Harlow—where there were also research and development activities. But it was necessary to wait eight months for the final decision, because we had to patiently plead our case before the Monopolies and Mergers Commission and continuously and meticulously (right up until the transaction was approved on February 25, 1994) thwart the maneuvers of the British firms that were opposed to the sale.
I considered this acquisition a major success for Alcatel. That was also the unanimous opinion of the Board when I presented to it the results of the negotiations and the high price that it had been necessary to accept. I can still hear the honorary chairman, Ambroise Roux, congratulating “Chairman Suard,” for the positive conclusion of these negotiations. The reader will see how, eighteen months later, the Board didn’t hesitate to go back on its position, not only with respect to this point but with respect to others as well.
Alcatel now held the rank of and was established as a world leader in the undersea telecommunications market, for a line of business which, even though cyclical, had the promise of a great future. It appeared that the need was evident for new capabilities to transmit the enormous amount of information, data and images anticipated as a result of the revolution of the telecommunications market. Historically located in France, in Orleans for the manufacture of repeaters and at Calais for the manufacture of cables, Alcatel had built, in the conditions discussed earlier, a new factory in Sydney which was fully active from this point forward, with two lines to manufacture the Sydney-Guam and Sydney-Hawaii links, for which the order marked a powerful entrance by Alcatel into the huge Pacific market. With STC, Alcatel penetrated the Anglo-Saxon world and set up operations in the United States. Alcatel thereby gave itself the means to reinforce its position as leader in each of the major markets and with the major purchasers. This wager would prove to be very beneficial and that business would explode to the point of assuring practically all of Alcatel’s profits during the late 1990’s.
The last significant acquisition by Alcatel Cable during these years was in Switzerland and here again the investment has a rich background.
Les Câbles de Cortaillod had created a subsidiary in Lyon in 1897, which, at the request of the government, was to be “Frenchified” under the name Société Française des Câbles Electriques, Système Berthoud, Borel et Cie, which would be acquired by CGE in 1912 and renamed “Compagnie Générale des Câbles de Lyon” in 1917. In 1994 Cortaillod, which had bought one of the two traditional competitors in the Swiss market (Câbleries de Cossonay) had easily become the principal cable company in Switzerland. It had maintained certain technical relations with Les Câbles de Lyon for a long time, but with ITT as well—for fiber optics, for example. Moreover, it had invested in cable television distribution and its subsidiary (Rediffusion) had about 30% of the Swiss subscribers. STR, which had become Alcatel STR in 1987, was also a Rediffusion shareholder (minority but significant). Alcatel Cable had wanted for a long time to acquire Coraillod, with the agreement of the company's management, but it took a long time to convince the majority shareholder, Charmilles. The acquisition was finally concluded in the spring of 1994. Alcatel Cable, Alcatel STR, and Générale Occidentale took joint control of the Cortaillod group, which had sales of 500 million ECUs, divided practically into thirds between cable, cable TV, and distribution of electrical and electronic equipment.
At the end of a ten-year period (1985-1994), after I was no longer directly responsible for this sector, Les Câbles de Lyon, and later Alcatel Cable, had become the unquestionable world leader for power, telecommunications and specialty cables and was strongly positioned in copper metallurgy and the manufacture of fiber optics. It was a wonderful company, at the leading edge of technology and very profitable, of which Alcatel Alsthom was proud—me first of all because, as the reader will understand, I left a part of my heart in that business where I had my first introduction into industry during the 1970’s. I am very appreciative of Claude Bovis and his colleagues, most of whom had also been my colleagues, for taking the baton to the finish line.
Alcatel Alsthom's international expansion had unquestionably placed the group at the level of the major companies on the world scene and set it soaring in France. L’Expansion, in October 1993, in an article concerning the “world war” among business enterprises, noted this ranking of the French group:
"There’s a ranking little known to the public—those of multinational firms disposing of the most assets outside of their country of origin. The fifty companies in the ranking constitute the avant-garde of the world economy…. At the head of this ranking is Shell followed by Ford, General Motors, Exxon, IBM and BP. Then comes Nestle, Unilever, ABB, Philips and Alcatel Alsthom."
We were far from the CGE of the 1970’s, limited principally to operations in France.
A corporate sponsorship program led by Françoise Sampermans in 1988 accompanied very nicely the international expansion of the group. Alcatel Alsthom had decided to sponsor the Baroque Music Center of Versailles, founded in 1987 by the Ministry of Culture, the Conseil Régional d’Ile de France, the Conseil Général des Yvelines, and the City of Versailles. The organization's mission was to revive the music of Versailles by research, training, and concerts. As Vincent Berthier of Lioncourt, director of the center, wrote:
"Versailles is the most beautiful castle in the world, at which the best artists of the seventeenth and eighteenth centuries brought the mark of their genius. It mustn’t be forgotten that it was also one of the exalted places for music. In its reception halls, its galleries, its chapel, and its gardens, music resonated at all hours. The history of Versailles is linked to the greatest composers from Lulli to the young Mozart playing in the anterooms of Louis XV's daughters.… The Baroque Music Center of Versailles brings to life the music of these composers by placing them again in the sumptuous environment that was conceived for them."
The majesty of the castle of Versailles is recognized all over the world. The performances that we organized once or twice a year enabled us, at a rather modest cost, to receive our French customers there, and especially our foreign customers, always fascinated by the majesty of the reception halls and galleries and the refined music. These tasteful masterpieces of classic French taste and art added value, consciously or unconsciously, to the image of Alcatel Alsthom in the eyes of our guests (I hope at least) and I am sure that all were under the spell of these exceptional surroundings.
 Bercy was the new location of the Ministry of Finance. (Translator's note)