Nortel Networks in France

By: Diego Benavides, Patrice Bock, Robert Cooper, Omar El-Khalil

and Yoshiyuki Nakagawa

“Best In France” Case studyDec 2003

Nortel Networks

When did they come to FranceNortel Networks, a Canadian Telecommunications equipment manufacturing company arrived to France in the late 80’s.

Nortel Networks had a particular interest in GSM Technology that drew it to France.

In 1990 Nortel entered into a joint venture with Matra to form “Matra Nortel Communications” in France.

In 2001, Nortel gained 100% of MNC.

Nortel NetworksA complex story…

Nortel had already an office in France at the time it join-ventured with Lagardère (Matra) to build Matra Nortel Communication. MNC was composed of many entities in 2000 : MNE, MNCD (1500 people, sold to SPEE.com), NMC (Nortel Matra Cellular), Bay Networks (500 employees in Valbonne, 2000 global), NNSA, EDSN…

There is therefore a mix of culture between quite French (MNE), very “bay area” cultured (NNE, Bay Networks), and mixed (NMC in 2000 = Nortel Matra Cellular). This case study focuses on NMC, now including the merged NN Europe, consisting of NNE Bay Network, the “mixed” group within NMC.

Physical consolidation has also been performed, with previous Guyancourt and Bois d’Arcy consolidated in Chateaufort, and smaller sites remaining (Guyancourt 100 people remaining, 40 in Sophia Antipolis – Valbonne).

Nortel Networks

What is their businessMostly business to business, since they stopped their mobile phone manufacturing business unit a few years ago;

They sell to telecom operators equipment and services for fixed telephone, data communication, mobile networks (GSM, CDMA, UMTS…).

Nortel Networks requires to be present close to its customers, either through permanent facility (in large countries) or temporary teams dispatching for telecom network setup.

Nortel Networks

What are their key figures

Revenues ($ billions) Growth (%) Employees

WorldwideEMEA (which

includes France) WorldwideEMEA (which

includes France) WorldwideEMEA (which

includes France)2002 10,560 2,574 -40% -41% 37,000 2,5002001 17,511 4,355 49,700 3,750

Company products

What products are produced in France?Nortel were interested in the GSM Technology which was not available in the U.S.A. and Canada. France is the center of expertise for GSM R&D and operations, as well as a key player for UMTS.

Operations include very few standard “plants” of telecom equipment (Chateaudun): products and some part of the development (software) are produced outside France.

Company products

Why are these products produced in France (and not elsewhere for example)?Nortel Networks was interested in the GSM Technology which was not available in the U.S.A. and Canada.

Nortel also established an interest in the UK in the same period.

However France was and remains a key operation due to the developed French presence in the GSM technology and due to the abundant technical resources and the ability to replenish talent pools.

Company products

Are there expansion/reduction plans for these product lines?

Evolution of product lines is done as required by the market:

- no investment any more in GSM

- develop UMTS and in general 3G expertise

- value-add into data/broadband consumer markets

The French site equilibrium is maintained over the mid-term.

Company's clients

Who are the company's clients?Nortel Networks’ main clients are public and private telecoms operators (France Telecom, Cegetel, Bouyges in France).

How will a French presence help or hurt the company's ability to satisfy client demands?Nortel Networks has to be present physically in France to better serve its market. Furthermore, adapting a more “citizen” approach to the market is detrimental to its success.

Why it came to France

Company approach to international growthNortel Networks’ presence in France was directly related to serving the French market in a first stage.

Where else did it considerNortel Networks considered establishing a presence in Germany. However a number of difficulties, mainly HR-related (Labor Law and worker and union issues) made it difficult for them to continue.

Company values

What are the core values of the company that may or may not fit with perceived French values?Nortel’s core values are:

Customers are the driving force

People are our strength

Quality is in every aspect

Innovation fuels our future

Accountability brings clarity

Integrity underpins everything (*)

Company values

Nortel consider these values to be good business objectives and they are not dependant on culture.

No adaptations were made for the French employees. Each manager is responsible for their implementation within his unit.

Although they are rather standard values, thus not very thrilling, their basic deriving conducts are minimum requirements that are enforced as official rules.

Company values

How did company manage to instill its values in the French unit?Nortel Networks faced no problems in applying these values in the French workplace. However the problem they faced was how to communicate these values, as the prevalent French work atmosphere was not used to the U.S. communication philosophy between management and employees.

The official poster communication, prevailing in the US, also has less effectiveness in France, where informal and personal communication is prominent.

Constraints in FranceWhat are the principle constraints the company foresaw before coming to France?Nortel foresaw no major issues. The establishment period was characterized by a major financial backing thus easing the establishment of the subsidiary. The initial stage of presence (80s to 98 was characterized by resorting to the US style of company management).

Did they discover any others?The major constraint that were discovered over time, where HR related: conflict between French and N.A. mindset and communication problems (the French staff perceived the company communication differently than the N.A. staff).

Constraints in France

Which are the worst constraints?HR issues: Labor law and union requirements

How do these constraints differ with their other locations?N.A. Labor law and union requirements were much more loose

Did the local subsidiary lose projects to other countries because of these constraints?No projects were lost to other countries

Adaptation to France

What kinds of adaptations did/is the company making to its people management systems?

Recruitment/Selection: We can identify two stages (Pre and Post bubble burst). Before the bubble burst, Nortel Networks in France enjoyed financial backing which enabled it to outsource recruitment and to hire aggressively. After the bubble burst Nortel Networks had to resort to drastic downsizing policies (two social plans leading to 800 staff being laid off, 90% voluntary(*).

Adaptation to France

Compensation: Compensation was different in the two types of companies that coexisted: subsidiaries that had a N.A. heritage and the pure French subsidiaries. In France there is a yearly negotiation with the unions which has to take place: this is an annual obligation. Equity program were implemented and a “Plan d’Epargne d’Entreprise” today makes much more sense: the company allows its employees to buy Nortel shares.

Management Development: After the execution of the social plans in 2001, Nortel Networks has turned to a number of management development techniques to foster employee performance: Business mentor, HR courses, international meetings, mobility to lead to employee development.

Adaptation to France

Performance Appraisal: Two performance appraisals are carried during the year: the first in the middle of the year and the second at the end of the year. They are meant to classify contributors from low to top. Although flagging employees in France is not possible, these results are sent to the main office in Canada.

Adaptation to France

Communication Policies: Nortel Networks France relies heavily on the communication tools developed by Nortel Networks Canada (a North American Mindset). The use of intranet, email is favored. The company values and ideas are propagated through bulletin boards, posters, and the IT network. The French traditional employee had difficulty aligning himself to this concept of communication. However differences were apparent between employees in pure French business units and those in hybrid N.A./French units.

Training: Company staff training takes place internally.

Key Constraints

Although the issues related to French labor laws and unions are costly, they are manageable.The competition for real business hosting, in Europe, is mainly UK and France.Cost is nearly equivalent between UK and France because:•in France, statutory and mandatory cost (that include health care) are quite high (+50% from base salary)•in the UK, discretionary costs (salaries, bonus) are higherSome countries in Europe could be interesting but still have too many drawbacks : Spain, Germany.Cost of HR : all HR “tools” are used at Nortel (hi-potential selection by managers, surveys, mentoring, coaching, international mobility – this is the most expensive)

Key Benefits

Quality is similar between France and other advanced countries

Tax laws allow sharing profit with employees on a local basis.

The key benefit is to be in western Europe, where the most business opportunities can be found. France being central, and having a historical implantation of Nortel is preferred, but has no specific tangible benefit compared to competing countries.

Essential Advice

The complex legislation and tax situation are not enough deterrents not to consider France as a destination, because there are financial compensations, typically lower average salaries than in the US or in UK.

Human resources issues are manageable (not that hard) although this requires specific knowledge of the French law and other pertaining factors.

France ranks average on all required features. Risk is considered to be low.

We Thank

Laurent PapaixEMEA Compensation & talent strategy (till Nov 2003)

lpapaix@nortelnetworks.com(33) 1 69 55 44 44

François DupontGSM operationsfrdupont@nortelnetworks.com(33) 1 69 55 44 44

Our Team

• Diego Benavides

• Patrice Bock

• Robert Cooper

• Omar El-Khalil

• Yoshiyuki Nakagawa