As chairman and CEO of Thomson S.A., Alain Gomez runs a company committed to competing in what may be the world’s toughest market—electronics. In part, that commitment is a legacy. But in two critical domains—consumer electronics and semiconductors—Thomson’s presence reflects recent decisions as unusual as they are daring. Just when many Western companies were abandoning these businesses or retreating to niches, Thomson signaled its commitment to stand and fight. In 1987, Gomez swapped Thomson’s medical equipment business, CGR, plus $ 800 million for GE’s RCA consumer electronics business. The same year, he merged Thomson’s semiconductor business with IRI’s to form SGS-Thomson, a 50–50 joint venture that competes in every segment of the chip business. In short, Thomson is betting not just on its ability to compete but on its ability to overtake stronger, mostly Asian, rivals who already hold a commanding lead. As Gomez himself is the first to point out, that contest is far from over. But Thomson is running an impressive race, particularly in light of the distance it has had to come. In 1981, the socialist government nationalized five of the largest French industrial groups, including Thomson S.A. When Gomez was named by the government in 1982 to head the company, it was an industrial conglomerate on the verge of bankruptcy. He moved quickly to cut general expenses, introduce consistent management systems, and restructure. In a break with tradition, he brought in new managers (most under age 40) to head the subsidiaries and key staff functions. Expansion into foreign markets became a prime objective. So did the ongoing rationalization of operations. Even Thomson’s headquarters reflected the company’s new look: the staff moved from an elegant nineteenth century building on the Boulevard Haussmann to a modern office tower at the suburban complex, La Defense. Amidst all this change, constants emerge: respect for systems, order, and numbers; flexibility to use whatever options come to hand; perseverance; regard for hard work and the ability to learn. For Thomson, as for Gomez personally, these are guiding principles in the race for global competitiveness. Although a government appointee, Gomez is first and foremost a manager. From 1970 until he came to Thomson, he was at Saint-Gobain, the French glass and construction-products giant, where he rose from deputy vice president of finance to chairman and CEO of the glass and packaging divisions. Educated at the Ecole Nationale d’Administration, the prestigious training ground for the elite of the French civil service, Gomez spent only a few years at the Finance Ministry before moving to Saint-Gobain. HBR: Ten years ago, Thomson was not a player in world consumer electronics markets. Now you are among the leaders. How did that happen? Alain Gomez: The first thing we did was commit to being in the business. That meant making hard choices about what we would not be in, like telephone exchanges, medical equipment, connectors, and light bulbs. It also meant being hardheaded about what we had to work with, which was not very much. Historically, Thomson was a white-goods manufacturer that produced washing machines, refrigerators, and other household appliances. Then, about 25 years ago, it happened to develop some very, very small capacity, not in “consumer electronics”—no one thought of it that way yet—but in a few products like radios, record players, and TVs. For years and years, RCA was far and away the world leader. We were merely an underdog. If there had been horse races in consumer electronics, there is no way anyone would have bet on us. Now we own RCA consumer electronics. Before that happened, we swallowed up a goodly percentage of our European competitors: French companies first and then, as the industry went through a shaking-out process, others like Telefunken and Saba in Germany and Ferguson in the United Kingdom. The Changing Shape of Thomson So the basic strategy in consumer electronics was to buy market share? Yes, at least initially. Because as you know, one needs a certain scale and market presence to compete. But market share is one thing and managing it is another. External growth puts a heavy burden on your balance sheet and P&L statement. Thomson Consumer Electronics (TCE) has always been racing after profitability and financing. And growth alone says nothing about how you are going to control costs, go on the markets with the right products, and develop the required technology. We grew our capacity as well as growing by acquisition. We took a very long-term view in measuring our return on investments. And when we had to, we licensed technologies and created joint ventures. But we always had the objective of attaining an in-house capacity in strategic technologies. How do you decide what technology to keep in-house, what to do yourself? That question applies more specifically to defense electronics. Let me give you the example of what we did in semiconductors. In the 1970s, we were lousy in semiconductors—we bungled and missed everything. With experience we improved a lot, but we were still too small, we still had insufficient market share to compete even in the European market. So in 1987, we merged our semiconductor group with SGS, a subsidiary of the Italian group IRI, to form SGS-Thomson Microelectronics. Together we represent about 3 % of the world semiconductor market. But we did not merge all our semiconductor capacity. We thought we had to keep certain components within Thomson-CSF to protect some other products and systems. So we had a technology decision to make. We had to decide what those key components were, what we had to do ourselves to stay in business. That decision is not so very difficult to make if you keep three criteria in mind. One, does this component represent a critical part of our products or system, not so much in terms of cost but in terms of performance? Two, if we do not control this component, are we at risk of depending on competitors? And three, if we control this component, will we have a lot more freedom? It is a rule of the game that you can always buy more from other companies if you can develop and produce yourself what they might be selling. If you are out of the game, they will blackmail you. “You can always buy more from other companies if you can develop and produce yourself what they might be selling.” The hard part of the decision is the management part, the in-house negotiation. In semiconductors, we have the “buyers” on one side of the table and the “vendors” on the other. The buyers, who are the systems and products division people, say we should go outside for everything because it would be cheaper. Their preoccupation with costs is legitimate, but isn’t it also egotistical, blinding them to what is necessary for the company overall to survive long term? As for the vendors, they argue that maintaining our independence has a price. But isn’t that point also a disguised plea for internal subsidies? The final decision is a management one. Can you give us an example of a critical technology? Gallium arsenide semiconductors. We know that this particular technology is very important in the new detection and countermeasures defense systems. The next generation of airborne and ground radars will be organized around it. We think we have to develop and master that technology in-house and subordinate the question of its impact on the P&L. It is the price of autonomy in our defense electronics businesses. As technology decisions get more and more complicated, and the consequences get more and more costly, will CEOs need to be technical specialists themselves? They would if it were possible to be an “all techniques” technical specialist. Remember, as CEO you have to look across the entire organization, not just down into the lab. What is a CEO, after all? A CEO has no speciality. Your job is to help the organization function by itself, to produce on its own. An organization is neither an island nor inert. It is a living system interrelated to a set of wider systems. The CEO’s task is to monitor how the company is attuned to the outside world and how it is renewing itself internally. What are the most important decisions the CEO and top management in a technology-driven company have to make? Getting the timing right is one of those important decisions. You have to feel the moment, and that takes a lot of analysis and discussion, a lot of intuition. Industrial graveyards are littered with the corpses of European and U.S. companies that chose the wrong technology or overextended their development efforts or mistimed innovations. Telefunken ventured imprudently in a VCR development that was beyond its means. Grundig did the same thing in several domains. A very premature foray into the videodisc business was one of the factors in the demise of RCA consumer electronics. “Industrial graveyards are littered with the corpses of European and U.S. companies.” Timing, intuition, is something the people at TCE are very good at and one of the things I love them for. So far we have always managed to be on the right side in our competitive battles with non-Japanese companies. There are two reasons for that. One is that we have always had good manufacturing and overall cost management. The other is that deeply rooted in TCE’s culture is the capacity to detect the relevant technologies and choose the right ones. On Betamax versus VHS, for instance, we chose VHS from the very first day. Not everybody did that. Suppose you’ve made a mistake—chosen the wrong technology, for instance, or failed to develop a product in time. What do you do in that situation? Sometimes you can rejoin the first rank by being a shrewd follower. The trick is being willing to learn from your competitors. TCE has done that twice in an important way, first with RCA in picture tubes, then with the Japanese in VCRs. Both times the reason was the same—we had no other option if we wanted to stay in business. With picture tubes and VCRs, you are talking about major components and major products. And in both cases, at the time, TCE was nowhere technologically. Take TVs. The picture tube accounts for about 30 % of the cost of a TV. Less than 20 years ago, we did not know how to produce picture tubes. Now we are among the leaders. We had to learn how from RCA through a licensing agreement and a joint venture that lasted most of the 1970s. Finally, by the end of that decade, we were autonomous. Now ten years later, we’ve launched a new movie-screen format tube called the 16:9 that represents an important step on the road to high-definition TV. Other companies are making it too. But Thomson was the first to develop and produce it. In the case of RCA, you were learning from Americans. Can the same kind of learning take place when you are working with the Japanese? We played the same game when it came to VCRs. At the beginning of the 1980s, the Japanese were already producing and selling millions of sets, and Thomson Consumer Electronics could not produce one. So again we had catching up to do, and again we started by distributing our competitors’ products. In fact, for years and years, all we heard was that we were the people sticking labels on Japanese sets. But we had entered into technical agreements with JVC. Next we developed our own in-house production capacity. Now we have both a 50–50 venture with JVC in Berlin and a plant in Singapore where this year we will produce one million sets based on proprietary technology. The Japanese have a high regard for their own capacity, and rightly so. They are unbelievable managers. They have great companies. And their technology is superb. But that does not mean that other companies in other countries cannot catch up. Look at what happened in Korea. Whole technologies were brought into that country by the Japanese through licensing agreements out of which the Koreans were clever enough to free themselves. Even so, not many Western companies have learned enough from their collaborations with the Japanese to strike off and compete on their own. What lessons would you draw from TCE’s experience? To start with, we had a very clear idea about our strategy, our objectives. We knew what we wanted to learn, and we structured and managed the joint venture so that we could achieve it. The most important thing is not to fall victim to the entrapping comfort of the licensee-distributor position. On the contrary, you must know that the receiving end of a technology transfer agreement is the one that requires the most activity and initiative. Also, accept that emerging from full dependence takes a long time. Throughout our collaboration, we were heavily criticized both for working with the Japanese and for being so slow. Who criticized TCE and why? We were criticized by some of our competitors and by some of the French. As the only French consumer and defense electronics company, we were supposed to be the national champion. And since the French love leapfrogging—we built Concorde, after all—we were expected to jump over the abyss, to achieve technological preeminence without ever having ensured that our muscles were strong enough and that the ground was prepared. It is quite a different world from America, where no one criticizes a CEO’s policy. We had to shut our ears and keep our course in what was hopefully a coherent, step-by-step way. Like the parrot when it climbs a ladder; it never leaves one rung until it has its other claw strongly fixed on the next. A story like that suggests that state ownership is more a hindrance than a help. Has that been the case for Thomson? State ownership provided Thomson with the funds it needed for its comeback. It was what allowed us to move up into the first division of consumer electronics companies by acquiring General Electric’s GE/RCA consumer electronics business. Backing that bet required a very brave, very long-term investor. Those are not necessarily the main attributes of private investors and the public capital markets. The state can integrate a purely financial decision into a wider set of considerations. It can say, “I want that company to be in consumer electronics for such and such reasons.” But there is one major problem with being a state-owned company. Their CEOs are named by the state. This does not mean that the choices will necessarily be bad. But it does mean that the process is feudal and bureaucratic. It carries the risk of breaking down the immunological barriers between the state and the companies, between entities that have to be separate. And in the long term, that disease has every chance of being fatal. Do you see similar political problems infecting European research consortia like Eureka and JESSI? Forming an R&D consortium is like balancing a pyramid on its tip. Sooner or later it will collapse because the logic is not purely a business logic. When you start a joint venture with another company, you do not start with R&D. You start with your manufacturing facilities and/or products and/or distribution systems. Then you might put together your balance sheets, your P&Ls, and perhaps your shareholders. The goal is to rationalize, to develop synergies. Only then could you develop R&D. There is something artificial in long-term R&D ventures between competing companies that have no other links. They are useful for a time, then you have to think of something else. “Forming an R&D consortium is like balancing a pyramid on its tip.” Consortia are expensive: some say the costs are multiplied by the square of the number of participants. They are slow. And the results are not always better than those of a one-company project. Compare the European fighter plane project, EFA, with the French fighter plane project, Rafale. The development of EFA is slow, it has many cross-national political problems, and the plane does not look any better than the one the French are building alone. If the product development process takes longer and costs more, and the product is no better than available alternatives, do consortia have any advantages? One criterion is financial. Consortia may provide an important source of external funding. Because of the cost of R&D and the pace at which markets are changing, the competitive threshold is rising all the time. Also, consortia have helped us begin to reshuffle our industries by teaching us how to cooperate with one another, how to develop a sort of togetherness that is essential for our survival. But R&D consortia are a very partial and therefore imperfect response to the problem European companies in many industries face: the fragmentation of Europe into national markets. There is no wholly unified, deregulated European market in telecommunications, data processing, defense-related products, even automobiles and food products. Consumer electronics is an exception—and that is why the industry has been consolidated for half a dozen years. Yet the reasons for consolidating European companies already exist: national markets represent only about 3 % to 5 % of the world market in many industrial sectors, and that is no longer enough to ensure the financing of R&D and other investments. Thus European companies have a choice: consolidate—through acquisitions or ventures—or die by attrition. Getting together in a technical or commercial agreement is a preliminary phase. So is participation in an R&D consortium. They are way stations on the road to expanding to full European size. For that reason, we need consortia more in Europe than you might in the United States, where there has been a huge, unified domestic market for more than 100 years and the size of companies reflects that. You say that U.S. companies may not need consortia. Is the same true of industrial policy generally? Let me talk first about France, where there has also been debate about the effectiveness of industrial policy. In some specific cases, it worked well. The restructuring of the French telecommunications, steel, chemical, and pharmaceutical industries has been accomplished through an “industrial policy” approach. Ariane is clearly a success. Airbus may be more controversial, but it too looks like a success. On the other hand, classic shortcomings were not avoided: huge waste in the relentless subsidizing of antiquated, hopeless sectors and bureaucrats having fun poking their noses into postmodern industrial zoning and construction. Historically, Great Britain and the United States attained industrial and economic preeminence through 100 % free-market mechanisms. But we sometimes forget that they were the only countries that did. Surely, perfect markets work perfectly well when perfect information is perfectly available to everyone. But not everybody and everything is perfect except the Japanese, who are more perfect than others. Adam Smith and David Ricardo, please meet Messieurs Ishihara and Morita! For me, the question of industrial policy is not so much a matter of theory as a matter of process. When you have an industrial policy, you are basically deciding that some organization or authority is more clever than the market and allowing it to propose its own aims and objectives. That worries me because when you get away from the constraints of the market, anything is possible: the success of the countries that practice “development capitalism” on the one hand; the wastefulness of the gulags on the other. What makes the difference? Why does industrial policy work so well for some countries and so poorly for others? A great deal depends on the comprehensiveness and logic of the guidance systems that replace the feedback managers would otherwise get from “the market”—their customers, vendors, employees, shareholders, and so on. A guidance system whose magnetic pole is “strive to dominate world markets” is very simple to make work. And if you are among the first to adopt it, you have a great competitive advantage. For one thing, the standard it sets is quantitative, so it is easy to monitor results and hold organizations accountable. It is also a purely microeconomic system, so you can discount other considerations like the adequacy of housing or transportation. Finally, it is self-correcting because you are always adding volume to volume. Even if you have missed something or made mistakes, you are working in a virtuous circle, so you will still be gaining overall. The question for us in the West is how to react to the effects of such a policy. Invariably, the discussion comes down to trying to find some qualitative measures, some criteria by which you can define the national interest. Industrial policy can attain near perfection in a small, socially cohesive country like Singapore, be very efficient in Japan, and work well in Germany. But the larger and more diverse your country is, the more complicated it becomes. For that reason, if I were an American I would probably question the wisdom of “industrial policy” too. But even in America, where industrial policy is probably not desirable 90 % of the time, there is still the other 10 % —for instance, protecting strategically disruptive technologies like biotech or superconductivity that may be the jugular vein of your economic life ten years from now. Does that make protectionism an essential part of Europe’s catch-up strategy against Southeast Asia? When you have few options, you use the ones you have. In the last decade, Europe has improved its performance overall. Even so, if we extrapolate the trend lines in high-tech industries, we are still washed up. And by we, I mean the West—not just Europe. Japan is so far ahead on the experience curve that it is poised for victory. We cannot possibly catch up unless there is some kind of rupture, some sharp break with the past. Historically, ruptures always happen. “Catastrophe” is at the end of linear processes. But when? We do not have the luxury of time. So why not anticipate? At this point, Europe is probably not grown-up enough not to have to wait for the United States to send a protectionist signal first. Nevertheless, the state can do only so much. There is no question that the center of the world is moving toward Southeast Asia. Not only are the costs much lower but the workers are very good, as are the engineers and professionals. It is a function of social coherence and education and valuing hard work and family. The question for the West is how you instill that. I know you do not answer it through the state. Some 500 of the managers and engineers in TCE’s Asian operations are Asians, many of them part of the Chinese diaspora. They are good in everything they do. But the Chinese diaspora is a product of centuries of hard times in which only the very best managed to get away. To develop that kind of drive and coherence you have to undergo the throes and terrors of bad times—which may mean that we in Europe are in for it in the future. “When you have few options, you use the ones you have.” You sound pessimistic about the outcome of the competitive battles between West and East. Do Western companies have any hidden cards, any unexpected assets that might come into play? Our multiculturalism—and our ability to nurture it, develop it, and thrive on it. Culturally, the United States and Europe are melting pots. That is an asset, not a liability. Every human grouping has its strengths and weaknesses as well as its own culture. Putting those differences together can give you a sum that is much more than one plus one. As businesspeople, we recognize such possibilities all the time when it comes to research specialties. One of the reasons we acquired RCA consumer electronics was that we knew our labs were complementary, that the Europeans were better in electronics and micromechanics and the Americans were stronger in software. The principle works in management too. TCE was very French in its management culture—flexible and fast moving, but also a little too intuitive, not systematic or organization-oriented enough. GE/RCA, on the other hand, had all the American management strengths and systems that are indispensable in a big organization—as well as a decision process that was overly full of procedures. The two cultures mixed up rather well. The Americans are learning to accelerate their pace, and the French are learning to be more systematic in their decisions. “Culturally, the United States and Europe are melting pots. That is an asset, not a liability.” That is where I believe we have an advantage against our Japanese friends. In the 1960s, the Japanese learned American management techniques. From that standpoint, there is no difference among any of us, except that they applied those techniques with superior thoroughness, dedication, and seriousness. But there is also that propensity to rigidity that comes when you are so cautious, so dedicated to preparation and analysis. You run the risk of falling prisoner to your own proprietary work. You may lose the openness of mind that comes with the knowledge that, indeed, anything can happen and that you must always keep something in reserve, some flexibility to adapt to a situation that is new. Are there instances where the Japanese have been taken by surprise, where their own success has worked against them? In a way, that is what happened with HDTV in Europe. The Japanese launched what they deemed to be their final offensive in the TV business. We responded, but on a rather small scale, partly as a final life reflex, partly as a bluff. We said, “The proposed Japanese standard is not in the interest of the consumers because it is not compatible. We, Europeans, will demonstrate a compatible standard two years from now.” Two years later, it was a reality—a complete prototype system was presented at Brighton, England. Three years ago, the battle was supposed to be over and done with: there would be one Japanese standard for Europe and the United States. Now they can forget about Europe, and the United States has become an open question. Had we been Japanese, it would already be all over because, according to the book, chapter 1 through chapter 25, we did not stand a chance. The battle for HDTV is far from being over, of course. But I suspect that at the end of the day, when you are talking about global companies in global markets, Japan’s homogeneity could be its Achilles’ heel. What about Thomson? Is it a global company, or is it a French company doing business throughout the world? In its defense electronics business, Thomson is not global at all. Until the beginning of this year, it was nearly all French. But the defense market is changing. Its timetables are speeding up, and it is becoming a much more cost-competitive world. So the patterns of competition that drove the consolidation of the consumer electronics and semiconductor industries are now coming into play in defense electronics as well. That is why in January we bought Philips’s European defense businesses. And why Thomson-CSF will become more European, more international, if not necessarily more global. You do not choose to become global. The market chooses for you; it forces your hand. And the day has not yet come when defense-related products will be wholly global. “You do not choose to become global. The market chooses for you; it forces your hand.” TCE is global. We operate in all three parts of the triad. Our products are completely fungible. And there are no impediments to worldwide distribution. We must have an organization that can install and move the links of the business chain to any part of the world. Ten years ago, that meant moving assembly and production to low-cost areas such as Malaysia and Taiwan. Now it also means moving marketing and R&D to places like Singapore. Years from now, the wisest decision might be to bring production plants back to Europe and move the headquarters wherever the brightest, most hardworking people are. How will you know that TCE is managing its multiculturalism successfully? Product development will be one measure. Multiculturalism will be a competitive advantage when we can quickly and routinely adapt global products to national market characteristics without the heavy apparatus of big marketing, engineering, and R&D procedures steamrolling along. Even if products do converge completely—and I am not at all sure that they will, that Americans, for instance, will give up their wooden TV cabinets for European high-tech—we will still have to search for ways to satisfy national characteristics. Management is the other metric I watch. We must develop a natural system of promotion that will produce leaders in proportion to the nationalities that are part of Thomson. Right now we have two Americans and one German national among our top eight management positions. That is not bad, but it is not good enough. When you drop down in the management ranks, the proportion is even lower. To address that, we insist on the internationalization of in-house training. We have instituted seminars for senior managers in which half of the seminar takes place in Europe and half takes place in the United States. Next year, those seminars will include our Asian managers, and half the time will be spent in the Far East, with the other half in either Europe or the United States. Each year we also hold several sessions that bring together groups of 150 or so young engineers and executives who have been with the company for three years. They come to France from all over Thomson and all over the world. What does globalizing Thomson mean for individual managers? A tough personal life. No one can afford to be lazy in any business anymore, and that is particularly true in electronics. It is the toughest market in the world because the technology changes at such an accelerated rhythm. It also leaves you no choice but to become global fast, and that is hard work. Look at Pierre Garcin, the CEO of Thomson Consumer Electronics. He spends at least one week in the United States every month, plus a week in Asia every second month, plus, of course, commuting inside Europe. Two of the executive vice presidents in charge of the four world product groups are based in Indianapolis, while the other two are in Paris. They have to meet regularly as well as travel to their sales organizations. Contrast that with what life used to be in a national or traditional “international” company, where nationally based executives had the responsibility for a single country, and the corporate staff worked on the basis of functional reporting. What about younger managers? What will characterize the future leaders of global companies? Performance and character. I usually look first for character. Do they have stamina and dedication? Do they have the physical and mental balance to be leaders? Not everybody makes the same choice in weighing work and personal life, and that is legitimate. But for leaders you need the people who are willing to work hard and get results. Then, of course, that judgment always has to be tested against the record, what their bosses say about their performance. Leadership also demands an open mind and the willingness to engage with different points of view. That is something Americans could relearn. Americans used to be the greatest travelers and adventurers in the world. Then, in the 1970s, they stopped traveling so much and learning about everyone else. They hid behind their language barrier—the fact that English is the “universal” language. “Accept that life has a lot of messy realities, that the world is not perfect… Then get on with it.” It is time for Americans to reopen themselves to real international exposure, to regain the flair for international affairs. One has to remove the ideological blinders and accept that life has a lot of messy realities, that the world is not perfect—it is unstable and, sometimes, dangerous. Then get on with it.
