It may be just a short hop to France but UK companies are weighing carefully the opportunities of doing business there. Some have resisted the pull from Europe and are looking to the US instead. Others have taken advantage of the higher status and support that engineering receives in France.
Hampson Industries chief executive Chris Davies is targeting the US for acquisitions in the aerospace sector. ‘I wouldn’t say I have to be dragged kicking and screaming into Europe,’ Davies says, ‘but I would find it far easier declining opportunities.’ French industrial relations are too restrictive for employers, he believes. ‘You can’t manage your own business there.’
Other companies are not convinced by this and have made acquisitions in France. Automotive components group Adwest, in France since 1982, has bought three companies there. ‘They have proved to be excellent investments,’ says chief executive Graham Menzies.
Adwest made its acquisitions to serve the French market. ‘France builds twice the number of vehicles per year as Britain,’ Menzies says, noting that France still has a national motor industry while the UK relies on foreign investment. ‘The national psyche of the French is geared to keeping manufacturing jobs in a globalising economy,’ he says.
The Japanese and Germans have hardly made a dent in the French automotive industry. But, Menzies argues, in Britain, ‘ways of working are hugely influenced by Japanese methods’.
In theory, it is hard to make workers redundant in France; in practice, companies are finding ways to avoid the laws. ‘Most French businesses employ up to 35% of their staff on a temporary basis. They are re-employed every three months,’ Menzies says.
As Britain introduces European law on a 48-hour working week, France is bringing in a 35-hour week. ‘When prime minister Lionel Jospin announced the measure a year ago to help cut unemployment, the French Employers Federation warned that it would increase costs,’ Menzies says. But he believes the rules will be adapted so that staff can average out the hours by taking time off in blocks as extra holiday.
One attraction of doing business in France is that engineering has a higher status there than in Britain. This attracts multiskilled workers, and allows careers to be better planned than in the UK.
Manufacturers also get strong central and local government support. Plans can be executed quickly, as investment decisions are devolved. ‘Our factories are brand new, with 15-year leases, making it easier and more economical to invest. Grant decisions are made locally, which has proved very fruitful,’ Menzies says.
Support from government
David Dunbar, business development director of pump maker Weir Group, agrees that France is more supportive of industry than the UK. He believes the size of the domestic French market makes acquisitions attractive, and says one advantage of operating there is that ‘the French look after the French’.
This year, Weir Group has bought Sebim, a family owned valve manufacturer with 230 staff and a Ffr140m (£15m) turnover, for Ffr80m, and Schabaver, a pump maker with a Ffr30m (£3.3m) turnover, for Ffr47m (£5.1m).
As well as giving Weir a foothold in the Continental valve industry, the Sebim deal provides links to the former Soviet Union and Africa. The Schabaver deal brings access to French and German markets, and France’s export markets.
Weir’s search for acquisitions suited to its core business, using a merger broker, was Europe-wide, but it already had experience of operating in France. ‘We have a smaller pump company employing 20 people,’ Dunbar says. Many problems in tackling a new market had already been overcome. An important step was leaving the established French management in charge.
Metal processor Bodycote has also made an acquisition in France without having been on the lookout there. Last year, French group HIT approached Bodycote as a potential buyer. Bodycote paid £65m for the group last December.
HIT is a heat treatment group with 36 French, three Spanish, four Belgian and one Czech Republic plants. Italian and Romanian plants are being built, and there are two joint ventures in China.
‘We are the biggest metal processor in the world, so if businesses of any size are ready to sell they come to us,’ Bodycote chief executive John Chesworth says. ‘We have found very successful businesses wherever we look. You have to work within the social structure you find.’
Dresdner Kleinwort Benson advised Bodycote on the HIT deal, which involved a £99m rights issue. Financial and legal experts are likely to see more such deals as monetary union becomes a reality.
Chesworth says the French are not as profit motivated as the British, but are becoming more so. He has few worries over how HIT will fit in. ‘Over time, outside companies see the benefits of working our way. They see the principles and the profit coming from it.’