Transcript Goodrich 2004

Goodrich
Best in France Case Study
December 2003
Prepared by:
Moiz Arfaoui, Julien Boucher, Arielle Quick and Tim van der Veen
Exec. Summary - Key Lessons Learned







France’s infrastructure and quality of life are world class
It is easy to find french managers who speak english well, but it
becomes harder as you descend through the organization
Language can be an important barrier when communication
problems with a foreign customers have to be escalated
because lower levels dont understand the problem
One way to get around the bureaucracy is to be ‘connected’
(through trade organizations, chambers of commerce, clubs,
groups etc…)
Union power (high) is disproportionate of its representativeness
(low) and can be very disruptive
Cost of labor is 20% higher than in the UK and restrictions are
placed to hinder flexibility
Local managers with global managers are key to act as
intermediaries between US management style and France’s
more social approach
=> Local Roots, Global Reach
Goodrich in France

When did it come


What's its business



Purchased the Aeronautical Systems division from TRW in
October 2002
The design and manufacture of aircraft components and
systems.
Aftermarket support of its products.
What are its key figures



$4bn global sales in 2002
$264m for Aeronautical Systems, 1/3 in France
3% net income in 2002
Why did it come to France?

Goodrich’s approach to international growth is
through acquisitions


Where else did it consider



Goodrich penetrates markets of strategic interest through
acquisitions of local businesses operating in the Aerospace
industry
Goodrich also acquired operations in the UK and maintains
operations in the US
For this product type, its operations are 2/3 in the UK and
1/3 in France
Why was France a key target location


France has one of the strongest aerospace industries (along
with US and UK)
Airbus being one of two major players in the aviation
industry, Goodrich, as a key supplier of airplane parts,
needed proximity to its client
Company values

Goodrich operates in an industry where acquisitions
are a normal part of business





Goodrich acquired the French businesses and did not try to
radically impose their values, management team and force
integration in the global company
As a result, French workers did not experience a “culture
shock” when their company was acquired
Moreover, people are now used to acquisitions because the
industry has gone through a wave of consolidation in the
past few years
The French company became a pure Aerospace supplier
(the Automotive business was off-loaded). This refocus was
viewed positively by Management
Company core values


High labor productivity metrics
Collaborative approach to union negotiations
Company Values (continued)

How did company manage to instill its values in the
French unit?


Goodrich kept the French management in place and
therefore did not try to instill its values to the French unit
Maintaining French staff is crucial in order to navigate the
system (e.g., negotiating with the Préfet to work Sundays)
Case Study:
Goodrich had some difficulties with the “Inspecteur du Travail” who alleged that they were not
adhering to the French labor laws especially regarding the 35 hour work week.
Goodrich explained that it had productivity metrics that it needed to meet in order to make its
profitability numbers. Because the labor policies were restrictive, the company was having a
difficult time meeting them.
Not being productive means shutting down operations which means layoffs which everyone
wants to avoid. Both parties were able to negotiate an arrangement whereby the company
would invest in machinery to improve productivity but they would also be have their staff work
additional overtime hours.
Company Products

What products are produced in France?



Why are these products produced in France?





Aircraft components for civil and military use.
Principally flight control systems.
Goodrich could produce in the US (and does for certain
systems) but this is heavily product dependent
The flight control actuators manufactured in France are
complex and flight critical with very specific and precise
engineering characteristics.
As a result, close proximity to the customer is required to
facilitate communication.
Furthermore, these flight critical products need constant
performance management (e.g., documentation of issues)
Are there expansion/reduction plans for these
product lines?

Expansion – A380
Company's clients

Who are the company's clients?



The company’s main client in France is Airbus
30% of the company’s business is for the French military
Eurocopter is another key client albeit smaller than the other
two

What are their expectations?
 How will a French presence help or hurt the
company's ability to satisfy client demands?


Goodrich communicates daily with all levels and functions of
Airbus. A presence in France is essential for this 2way
contact.
The company’s presence in France is critical for it to win
government and military contracts
Constraints in France

High Cost of Labor

35-hour work week



Social Charges


Extra costs such as the Committee d’Enterprise.
Training


Required Goodrich to hire more temporary workers as it was
too costly or inflexible to hire full time employees
A limited amount of overtime is allowed to manage production
fluctuation – this was done in collaboration with the French
government
An amount equivalent to 0.9% of employee wages must be
either spent on training or given to the government as taxes
Cultural Differences


Capitalist “slash and burn” attitude is not accepted in France
The French see a more defined role for government
intervention in settling their affairs
Constraints in France (continued)

Unionization




While unionization is common in most parts of the world,
unions in France are a legal right but may have just a few of
Goodrich’s factory workers in it.
But Management needs to negotiate with each union
representative almost separately. This often means that
there are 25 people sitting at the table
These tedious negotiations are not as collaborative as they
are in the US where a deal is made with union leaders. The
French legal framework is more overwhelming than the
unions themselves (wages need to be negotiated yearly, no
3 year contract)
High Cost of the Euro


The revenue that is coming out of France however is
reconverted into American dollars which adds more to the
bottom line than it usually would
This has increased the share of Airbus revenues to Goodrich
Adaptation to France


Because TRW was already operating in France, there
were no significant changes made to the basic HR
systems that were already in place
However, there were some adjustments that were
made with new management in terms of:

Management Development: a layer of senior managers was
placed that was able to communicate with American
Executives as well as with the factory staff

Example: An American executive wanted to close a factory
within a month as it was not operating to the expected level. It
was explained to him that this was not something that was legal
in France and that it would likely cause more problems and be
more costly that the benefit of closing the factory down.
Adaptation to France (continued)

Use of Expatriates: Goodrich is very careful to place French
managers in all positions that directly interface with either
factory workers or government. The use of expatriates is
limited.


Example: The British and the Americans were very surprised
that a strike took place for six days at one of the factories
because of a wage dispute. It was crucial that the matter be
handled by a labor relations expert familiar with conflict
negotiation in France rather than the manner in which it would
have been handled by the Americans in their own country.
Communication and Language: because Goodrich is so
close to the customer, it must ensure that at all contact
points, staff can communicate with customers but that they
can communicate within themselves

While companies are built with a top to bottom structure, the
customer interact across the organization at all levels
Adaptation to France (continued)

Workforce Planning: temporary workers were hired and
agreements were struck with government to allow for
overtime hours



As mentioned above, Goodrich places importance on having
French managers as interfaces. However, it is difficult to find
France managers with hard supply chain management and
planning skills (e.g., Six Sigma, Continuous Improvement)
Goodrich recruits mainly abroad to staff these positions. If
possible French nationals with US experience are hired.
Manufacturing



Production facilities that already exist in France were put to
work as much as possible through overtime agreements
Looking ahead, the aeronautics industry will become like the
auto industry and lowering cost will be an important priority.
As a result, Goodrich suppliers are encouraged to produce in
lower cost countries
Key Constraint Costs

HR Costs



French labor is seen as 20% more expensive than in the UK
Staff turnover has not been a major issue (2-3% per year)
since opportunities are limited in this currently slow economy
The 35hr work week has not created new permanent jobs. It
has forced the company to resort to temporary workforce
and quarterly planning of workforce utilization
Key Benefit of Operations in France

Government Assistance




Soft loans are granted from the government – these loans
are designed to be paid back if and when the project is
successful (specific to aerospace and Airbus suppliers)
This helps to attenuate the risk as aerospace is an
investment intensive industry
While these loans do not have any effect on profitability (you
can’t take them to the bottom line) they do help significantly
with cash flow
Productivity


While France’s productivity is not as high as that of
operations in other countries, the restrictions upon workforce
hours do create an incentive to innovate in manufacturing
processes
Currently, Airbus’ process is more state of the art than
Boeing’s whose process is encumbered with too many lines
manufacturing too many different products in one factory
Essential Advice


Have a strategic objective for moving to France
(market penetration, center of competence, proximity
to customer…)
Use local management with global experience



Because France is so bureaucratic, it is essential to hire
local labor to navigate the system
Hire managers with global experience than can understand
both the parent company’s objectives while respecting the
local way of doing things
Make sure that one of the reasons you are setting up
operations is to take advantage of the skilled labor
force
Essential Advice (continued)

Build relationships


Maintaining good relationships with government and
agencies is crucial to operating in France
Building relationships with associations related to the line of
work that you’re in – contacts and constitute a great source
of advice (e.g., in situations where there are strikes or other
disputes)
We Thank

Richard INGRAM


VP Airbus, & formerly Factory Manager
Goodrich Actuation Systems
13 ave de l’Eguillette
Saint-Ouen l’Aumone – BP 7186
95056 Cergy-Pontoise cedex
Tel: 01 34 32 63 00
Bibliography

References


Goodrich 2002 annual report
Sacrées Français! Un Américan nous regarde.
By Ted Stanger
Appendices


Appendix 1: Interview Questionnaire
Appendix 2: Team Contact Information
Appendix 1: Interview Questionnaire

Why did Goodrich stay in France?





Company Values





Is this necessary to keep the client?
Was there ever any talk of moving the factories to another country?
Is it worth keeping them in France?
Has the mix of work done in France increased or decreased versus
the other factory locations?
What are the core values of the company?
Has it instilled them into the French organization?
Was American management sent over to work there? What is the
split between French and expatriate managers and workers?
How do you integrate the workforces?
Company Clients



Who are they?
What are their expectations?
How will presence in France help your business?
Appendix 1: Interview Questionnaire
(continued)

Constraints in France






Is the 35-hour workweek or RTT a problem?
Are the unions a significant influence?
What about strikes?
How is the union activity viewed from abroad?
Have there been problems when the acquisition happened or
resistance from employees when the acquisition was taking place?
Adaptation to France








How did the company adapt its practices to France?
Compare between France and England
How do the Americans and the British work with the French?
Are there significant differences in performance expectations?
Is there a requirement from the client or the government for
Goodrich to maintain a certain level of activity in France (quotas)?
How are the compensation packages managed between the
countries?
Is there strife between the different ways of doing things?
Has the compensation of French employees improved from this
change or has it remained the same?
Appendix 1: Interview Questionnaire
(continued)

Constraints of Costs of Coming into France




Key benefit numbers





Significant cost constraints related to HR cost policies
Is staff turnover higher in France vs. England?
If it’s too expensive to hire workers in France, has to company
rather preferred to hire temporary workers? Does this vary from
England?
Were there any incentives from the government for Goodrich to
stay in France?
Is there a difference in product quality between France and the UK?
What about revenue/profit per French employee vs. UK employee?
Is productivity different per employee in varying countries? Is this
difference caused by different machinery? Has the company
strategy been defined by country for a specific reason or did it just
happen like that?
What is your advice for companies wanting to come to France?
Would you recommend it?
Our Team

Arielle QUICK
1, rue Million
78350 Jouy en Josas
Tel: 01 39 56 62 31

Moïz ARFAOUI
4 Résidence du Val de Bièvre
78530 Buc
Tel: 01 39 56 21 53

Julien BOUCHER
5 Rue Oberkampf
78350 Jouy en Josas
Tel: 06 66 73 92 43

Tim VAN DER VEEN
5 chemin des 40 Perches
78350 Jouy en Josas
Tel: 06 63 68 81 05