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AB 2000 studies

Alain Boublil Blog

 

Alcatel, Areva, Alstom: same causes, same effects

In less than a year, three key companies of the French industry found themselves in a critical situation. The first, Alcatel, has been bought by a competitor, the second, Areva, has announced considerable losses and asked for the support of its shareholders, and the third, Alstom, had to sold two-thirds of its businesses. Telephone networks, nuclear power plants and turbines are not low-cost jobs destined for relocation. They have always been considered the strengths of French economy. So what happened? As surprising as it may seem, the same scenario happened in all three cases.

The combination of strategic mistakes of their leaders, liberal choices favouring competition at all costs at the European level and persistent blindness of the state led to a result that no one would have imagined only fifteen years ago, when these companies were at the height of their success, able to resist any crisis.

Their leaders’ bad choices, approved by their boards, have certainly weighed heavily upon the situation. Areva’s mining adventures and its will to bid for a quasi "turnkey" plant in Finland were indefensible. Alstom was already weakened by the payments made to its shareholders before IPO when its leaders made a mistake by breaking its partnership with General Electric regarding the production of gas turbines. Things got even worse with the disastrous acquisition of ABB's activities. The presentation of questionable accounts has hurt the company's reputation in the market and the state had to intervene. Alcatel made similar strategic mistakes by selling a number of profitable subsidiaries such as cables (Nexans) and engineering (Cegelec), and on top of it, the company failed its merging with Lucent. Moreover, six different leaders ruled the company in ten years.

These strategic choices were admittedly related to a difficult European context, profoundly adverse to the aforementioned activities. We remember the Lisbon Agenda, approved in March 2000 by European leaders and that promised to make Europe: "the most dynamic and competitive knowledge economy in the world by 2010 ". Instead of reaching this goal, Europe appears today as the "sick economy" of the planet. This declaration showed the will, already formulated in 1996, to open energy and telecommunications markets to competition.Operators, instead of investing and placing orders, started an unbridled race for acquisitions outside their domestic market. Alcatel and Alstom, their major suppliers, were the first victims because these two companies were then mainly present in Europe. The states also reached an agreement that excluded the contribution of nuclear power to CO2 emissions reduction targets, without France taking offense. Even worse: the main European instrument to fight against these emissions - the emission certificates market - collapsed, leading to the revival of the old dirty coal plants, gas plants mothballing and investment freeze. This greatly penalized Areva and Alstom.

But the strategic errors of management and the unfavourable European context do not explain everything. These jewels resulted from the State’s commitment to support the country's industrial development. The State had inspired, through the example of France Telecom that became Orange, the modernization and development of the communication networks that were non-existent in the early 70's. Twenty years later our networks were able to absorb the twofold revolution of Internet and mobile telephony. The State whether we like this fact or not also inspired the nuclear program. Our companies got organized to meet the needs of restructuring and alliances in the most commercially and technologically efficient manner. It was then their responsibilities to take advantage of these new national skills to succeed in the global market. But when this base has collapsed, the structure began to falter and it is now collapsing.

One can view as the ultimate goal the lowering of prices that has benefited consumers, notably in telephony market. But was it necessary to multiply the number of operators so that we have more of them in France than in the United States, which is yet five times more populated? The state certainly earned money by selling the licenses. But how much did it loose from the fall of market value of Orange? The state was indeed and still is its largest shareholder.

How surprising then that providers of telecommunications operators looked elsewhere – despite much more difficult conditions – for the markets they have not found in France?  And how to blame them for not having made their national market a priority as they could no longer find in their own country the support they received in the past? The state’s refusal to allow EDF to order a first EPR while the safety authority approved its design at the end of the 1990s will be remembered as one of the most costly mistakes in economic policy. Areva launched itself into the Finnish market thanks to the support of Siemens that supplied the turbine since the company alone never took the responsibility of such a construction site. Indeed, the last order dated back to Civaux in 1992. Within ten years, the company and its suppliers, including those in charge of pouring concrete, had lost a set of core competencies, due to retirements. This rendered impossible the completion of projects on time and at projected cost.

Through its decisions, the State has weakened these companies, which were yet somehow, its main suppliers and had even been structured for this purpose. In these businesses, the lack of domestic market constitutes an insurmountable handicap. It is thanks to the references and techniques they acquire in their domestic market that companies have the financial resources and know how to conquer foreign markets with some chance of success. Yet, the game is not necessarily over. One does not win wars without allies. It is the same today for the global industry competition. Alstom, reduced to transportation-related activities, will not survive alone. The company’s strong skills in local traffic, trams, high speed and signalling must be promoted. The huge investment programs that are prepared to link China to Europe constitute an opportunity not to be missed as well as the construction of local lines, inseparable from urbanization projects which are being developed in the country. Partnerships are certainly possible. As for Areva, the company is redefining its relationship with EDF. EDF supplies Areva for certain activities such as fuel, manufacture and maintenance of equipment. EDF can also become a partner or co-shareholder in one or more common entities for the design and engineering of reactors. This type of new balance must be achieved in order to start anew.

By supporting these projects, the state can help correct the past mistakes, for which it is partly responsible.

 

Comments

  1. mikaela 04/28/2015 4:17 p.m. #

    Belle mise en perspective, mais qui en prendra la responsabilité étant donné le calendrier électoral ? Et peut-on réellement y parvenir sans renouveler les équipes elles mêmes ?

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