The successful throwback

Date: 6 January 2005
Source: FT
In Britain, when you talk of national champions, you say this in a deprecating way," says Jean-Louis Beffa. "But the French use 'national champion' to discuss a company that is a leader in its field: when we say it, it sounds OK." Mr Beffa, one of France's top industrialists, knows what he is talking about.

Since 1986, he has been chairman and chief executive of Saint-Gobain, the world's second biggest glassmaker. Currently, he is busily completing a report, commissioned by Jacques Chirac, the French president, on how France, and perhaps the rest of Europe too, can stimulate economic growth through technological innovation. The report from the 63-year-old former engineer is due to land on Mr Chirac's desk next week.

Mr Beffa contests the conventional Anglo-American view that national ownership in industry is unimportant. He says the decision to allow General Electric, the US industrial conglomerate, to buy Amersham International, the UK biotechnology leader, which was once owned by the British taxpayer, was a mistake. "You [the UK] should never have let it go. The UK government should have made sure it was kept on strategic grounds. Amersham is at least as important as Rolls-Royce [the aero-engine maker], which I am sure is considered strategically important."

He says that Europe should follow the lead of Japan rather than continue the trend towards unfettered observance of the free market principles of the US. "In general, Japanese industry is highly technology-oriented and has been a success. Government action in Japan has played a big part in creating this state of affairs."

Mr Beffa suggests that governments should nurture excellent companies through programmes of research and public procurement - and, if need be, help them out. The

French government's decision to assist Alstom, the troubled French engineer which flirted with bankruptcy, was a good thing, he says. "I thought it was important for Alstom to be given more time to restructure. The action was right."

Such ideas appear to represent a throwback to discredited ways of running industrial economies. But Mr Beffa insists his concepts are sound, citing his own company as an example of what can be achieved.

Even though Saint-Gobain's direct involvement with the government's strategic planners ended some time ago, he reserves the right for them to have some role at the company - perhaps in helping research and development - in the future.

As France's oldest industrial company, Saint-Gobain has an illustrious history, having been founded in 1665. Under Mr Beffa's stewardship, Saint-Gobain has transformed itself from a state-owned business to a diversified group with expected sales in 2004 of about €31bn (£22bn). The company was privatised at the end of 1986 but protected from takeover until the mid-1990s thanks to cross-shareholdings by other companies controlled by the government. Nowadays Saint-Gobain has a broad list of shareholders.

It is the second biggest maker of flat glass in the world after Asahi of Japan and the second biggest producer of glass bottles and other glass containers, after Owens-Illinois of the US. While the UK glassmaker Pilkington - Saint-Gobain's great historic rival - has become something of an industrial laggard, the French company has tripled its sales since Mr Beffa took the helm and become more international. This has been achieved through an internal management programme that - like Mr Beffa's views about the role of governments - have also sparked controversy. The fashion for much of the past 20 years has been for companies to focus on "core" areas of business. But Saint-Gobain has done things differently: deliberately tacking on new businesses in order to spread operational risks and allow room for growth.

Since Mr Beffa took over, Saint-Gobain has been on a buying spree, acquiring 900 companies. Nearly 40 per cent of sales in 2003 came from the distribution of building materials, which is a service-based business that until the 1990s was unknown to the company.

Saint-Gobain has also spread out into new manufacturing fields such as high-tech ceramics and catalysts, for use in businesses such as semiconductors and cars, as well as industrial abrasives. In 2003, the company's previously dominant business of flat glass accounted for only 14 per cent of revenues, similar to its division making "high performance" materials. Explaining the logic to this change, Mr Beffa pours scorn on ideas about "focus": "A diversified company has many benefits," he says. "Look at Siemens [the German electrical goods company]. They are better for having a mix of companies from which they can get strong cashflow."

Balancing distribution operations - covering a broad range of items for the building trade and operated mainly on a regional basis - with the global manufacturing of flat glass and containers makes sense, he insists. While glass production is a highly cyclical business which changes with the perturbations of the international economy, the distribution of building materials is altogether more stable because of the ways that different national markets have their own peculiar patterns of troughs and peaks.

Saint-Gobain's strategy of diversification gives it the monied muscle-power to get bigger. "Saint-Gobain has about €2.8bn a year from cashflow," says Mr Beffa. "About half of this goes on capital spending. The rest can be spent on acquisitions in any of our three main business fields."

But running such a business is not easy. "You have to ensure that no business is a complete laggard. You need executives with a lot of experience who are able to build up expertise in certain areas and transfer skills horizontally across the business. For instance, in Saint-Gobain, we can transfer legal expertise between companies in our different fields or knowledge of how to build up growth in developing markets. We know about using specific financial instruments in different parts of the world."

Saint-Gobain encourages the flow of ideas on a horizontal basis between divisions through its nine "delegate offices" - which amount to miniature headquarters but, Mr Beffa insists, have very little bureaucracy - in nine countries around the world. These offices - located in, among other countries, India, China, Mexico , the US and Brazil - act as collection points for ideas so that executives can pass them on with maximum efficiency.

In 2003, only 7 per cent of Saint-Gobain's sales came from outside its main markets of Europe and North America. Mr Beffa wants to change this. He has plans to expand in South America and Asia. In the future, he suggests that Saint-Gobain and other "national champions" could be helped by European governments directing more technology cash to help their movement into new businesses that would spur growth in the broader European economy. By such efforts, state investment would "strengthen the strong" and, in Saint-Gobain's case, help the company develop new reinforcing materials for industry or novel glass structures for flat-screen TVs.

600450 The successful throwback
Date: 6 January 2005
Source: FT

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