Thomson S.A.

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Thomson S.A.

51, Esplanade du Général de Gaulle
La Défense
10 Puteaux
Cedex 67
92045 Paris La Défense
France
(1) 49 07 90 00

Public Company
Incorporated: 1893 as Compagnie Francaise Thomson-Houston
Employees: 104,500
Sales: FFr75 billion (US$12.38 billion)
Stock Index: Paris

Thomson S.A. and its subsidiary, Thomson-CSF, make up one of France’s largest industrial combinations. With interests in consumer electronics, television, electronic components, semiconductors, medical equipment, and aircraft and military electronics, Thomson is a major European source of scientific and communications research. The company has developed and maintained a francocentric, somewhat highbrow corporate image, despite years of mismanagement followed by nationalization. Under the leadership of the celebrated Alain Gomez, Thomson has been transformed into a competitive, forward-looking industrial powerhouse.

Thomson was originally founded as the French subsidiary of the Thomson-Houston Electric Corporation, an American tramway-equipment manufacturer with considerable resources in patented machinery for the electric-power industry. The company, called Compagnie Francaise Thomson-Houston, was established in 1893, and operated largely as a sales and administrative office. Ten years later, the parent company was acquired by the American General Electric Company, and General Electric sold the Compagnie Francaise Thomson-Houston to a group of French investors.

The new owners, who retained the name of the company’s American founders, were faced with the difficult task of building a strong group of engineers and project managers. For many years, the company maintained a licensing relationship with General Electric. In search of greater managerial and creative freedom, Thomson-Houston began a diversification program in 1921 which led the company into a variety of new marketing segments, including General Electric’s emerging specialty: the consumer market.

Thomson-Houston grew slowly during the 1920s and 1930s. Changes in the government resulted in inconsistent industrial policy, which, on occasion, led to adverse economic conditions. Unwilling to invest heavily in new plants and equipment, Thomson-Houston saw no major growth until the eve of World War II, when the government hastily drew up an industrialization plan which, it hoped, would discourage German military adventurism in Europe. Thomson-Houston scarcely had time to begin planning production schedules before its facilities were overrun by German troops.

During the occupation, Thomson-Houston’s facilities were either converted to meet the needs of the German war effort or idled. As in virtually every sector throughout French industry, consumer-product manufacturing ceased entirely, leading to a shortage of switches, motors, and lights.

At the end of the war, Thomson-Houston was reorganized to facilitate recovery. At the request of the government, the company first devoted production efforts to rebuilding French infrastructure and industry, but the demand for consumer products remained high for several years as well.

Political discord between France and the United States eventually led many French companies to end associations with American companies. For Thomson, however (the name Houston was dropped during this period), several other factors contributed to the company’s decision in 1953 to end its 50-year cooperative agreement with General Electric. Thomson had emerged as an important industrial supplier and strategic military resource. Sensitivity to the security of new French technologies and the French nuclear effort, in addition to Thomson’s ability to remain commercially successful on its own, all necessitated independence.

At the same time, Thomson benefited from a government militarization program to support French colonial interests. This provided the company with sufficient capital for a steady and broad internal expansion which continued until 1966. That year, Thomson acquired Hotchkiss-Brandt, a profitable French consumer-products company with substantial interests in automotive and military products. The acquisition marked the beginning of a phase of rapid expansion by acquisition for Thomson.

In 1968 Thomson-Brandt, as the new company was now called, merged its electronics division with the French communications manufacturer Compagnie Generale de Telegraphic Sans Fils. The new subsidiary, Thomson-CSF, became France’s primary manufacturer of high-technology professional electronics. Looking beyond its borders, Thomson-Brandt acquired several smaller companies throughout Europe, by the mid-1970s, the company’s interests extended to Asia, Africa, and North America.

Thomson-Brandt gradually lost the ability to efficiently manage shortcomings in development, production, and, ultimately, profitability. Overburdened by a bureaucracy which included two autonomous chief executives, Thomson-Brandt had no effective central-planning capability and no real budget control. These problems were exacerbated by a steady diet of government business; because liquidity could be guaranteed through sales volume, Thomson-Brandt continued to sink deeper into financial chaos. The company made numerous attempts to build new markets, including several joint ventures with companies like Xerox, Contel, and later the Italian electronics company SGS.

During this period, industrial mismanagement became a political issue for French Socialists, who promised nationalization of large industries. In 1981, the year the Socialists came to power, the government took over management of Thomson-Brandt. Alain Gomez, a Harvard-educated manager who had worked several years for Saint Gobain, succeeded Jean Pierre Bouyssonnie as chairman. Administrators appointed by the government found the company in such poor shape that it required a massive reorganization. While production continued unhindered, management’s three-year shake-up ended in 1981, when Christian Aubin was appointed to overhaul the company’s financial-reporting system. New reporting methods enabled Gomez to identify losing and underperforming assets and recommend divisions for divestiture.

The year-long reorganization began in September, 1982 and resulted in the creation of a new holding company called Thomson S.A., which superseded the old Thomson-Brandt organization.

In one of his first moves toward revitalizing Thomson, Gomez participated in a plan led by Industry Minister Laurent Fabius to rationalize French electronics production. Under the agreement, concluded in 1983, Thomson transferred most of its interests in telecommunications equipment and cable manufacturing to French electronics giant Cie Générale d’Electricité (CGE), participating only through a minority interest in a subsidiary managed by CGE. In return, Thomson took over a portion of CGE’s interests in consumer electronics, electronic components, and defense electronics. The pact drew much criticism, particularly for Gomez, a visibly frustrated entrepreneur and reluctant government servant. Gomez nevertheless defended the agreement, citing it as an essential step in positioning Thomson for greater competitive innovation.

In a separate move more in keeping with his ambitions, Gomez attempted to acquire the West German electronics company Grundig in 1984. Rebuffed by German antitrust law and the defiance of the company’s founder Max Grundig, Gomez turned his attention to an easier target: the somewhat smaller firm Telefunken. Thomson, while successful in this effort, was widely denounced in West Germany, where the nationalization of French industry was perceived, in Gomez’s words, “as something between archaic and obnoxious.” Thomson’s greatest benefit from the takeover was not Telefunken’s product line, but instead the ability to circumvent German import restrictions and use Telefunken’s marketing network. The company was later criticized for streamlining Telefunken’s operations and laying off workers in Germany.

As Thomson’s position in world markets continued to recover, mounting opposition to the nationalization program led the Socialist government to reassess its experiment and declare that several companies would be returned to the private sector. On top of this, in 1986, Socialist President Francois Mitterand was forced to share power with a conservative element under Jacques Chirac, a strong proponent of privatization. And so during 1987, several companies were returned to the public ownership, including Thomson. Gomez, who had become chairman of Thomson as a left-wing functionary, had become a proven turn-around artist, widely admired by conservative industrialists.

In July, 1987 Thomson engineered another operations swap. Only one month after acquiring the consumer-electronics unit of Thorn-EMI, Thomson took over the American General Electric Company’s entire consumer-electronics line—most of which GE had acquired in its 1986 takeover of RCA—in exchange for its Compagnie Generale de Radiologie medical-equipment unit and some cash. As with Telefunken, Thomson saw nominal value in the products themselves, but sought to take advantage of an established marketing network.

This strategy of acquiring product lines for their marketing networks is not likely to pay off for several years. Meanwhile Thomson struggles to revamp its product lines and create a consolidated brand identity. The strategy carries great risk because it increases Thomson’s exposure to the volatile consumer-electronics business, which is dominated by companies such as Philips (which succeeded in acquiring Grundig), Matsushita, and Sony. It is, however, a necessary risk if Thomson is to reduce its dependence on profitable but unpredictable military contracts.

Thomson has been successful in raising quality at its new U.S. operations, and has raised its expenditures on research and development. In anticipation of the creation of a common economic community in Europe in 1992, Thomson entered into an agreement with Philips to jointly develop high-definition television in competition with Japanese consortiums.

Gomez’s restructuring efforts have continued unabated, earning record profits. Seeking to end Thomson’s staid reputation, Gomez recently moved the company’s headquarters out of its posh estate on Boulevard Haussmann and into an industrial development in a Paris suburb. Continued efforts to reduce Thomson’s labor force have generated opposition to Gomez’s management from left-wing political circles. Despite this, Gomez is determined to make Thomson succeed, an effort he freely admits may yet take many years.