Goodrich

1. Goodrich Best in France Case Study December 2003 Prepared by: Moiz Arfaoui, Julien Boucher, Arielle Quick and Tim van der Veen

2. Exec. Summary - Key Lessons Learned • France’s infrastructure and quality of life are world class • It is easy to find french managers who speak english well, but it becomes harder as you descend through the organization • Language can be an important barrier when communication problems with a foreign customers have to be escalated because lower levels dont understand the problem • One way to get around the bureaucracy is to be ‘connected’ (through trade organizations, chambers of commerce, clubs, groups etc…) • Union power (high) is disproportionate of its representativeness (low) and can be very disruptive • Cost of labor is 20% higher than in the UK and restrictions are placed to hinder flexibility • Local managers with global managers are key to act as intermediaries between US management style and France’s more social approach => Local Roots, Global Reach

3. Goodrich in France • When did it come • Purchased the Aeronautical Systems division from TRW in October 2002 • What's its business • The design and manufacture of aircraft components and systems. • Aftermarket support of its products. • What are its key figures • $4bn global sales in 2002 • $264m for Aeronautical Systems, 1/3 in France • 3% net income in 2002

4. Why did it come to France? • Goodrich’s approach to international growth is through acquisitions • Goodrich penetrates markets of strategic interest through acquisitions of local businesses operating in the Aerospace industry • Where else did it consider • Goodrich also acquired operations in the UK and maintains operations in the US • For this product type, its operations are 2/3 in the UK and 1/3 in France • Why was France a key target location • France has one of the strongest aerospace industries (along with US and UK) • Airbus being one of two major players in the aviation industry, Goodrich, as a key supplier of airplane parts, needed proximity to its client

5. Company values • Goodrich operates in an industry where acquisitions are a normal part of business • Goodrich acquired the French businesses and did not try to radically impose their values, management team and force integration in the global company • As a result, French workers did not experience a “culture shock” when their company was acquired • Moreover, people are now used to acquisitions because the industry has gone through a wave of consolidation in the past few years • The French company became a pure Aerospace supplier (the Automotive business was off-loaded). This refocus was viewed positively by Management • Company core values • High labor productivity metrics • Collaborative approach to union negotiations

6. Company Values (continued) • How did company manage to instill its values in the French unit? • Goodrich kept the French management in place and therefore did not try to instill its values to the French unit • Maintaining French staff is crucial in order to navigate the system (e.g., negotiating with the Préfet to work Sundays) Case Study: Goodrich had some difficulties with the “Inspecteur du Travail” who alleged that they were not adhering to the French labor laws especially regarding the 35 hour work week. Goodrich explained that it had productivity metrics that it needed to meet in order to make its profitability numbers. Because the labor policies were restrictive, the company was having a difficult time meeting them. Not being productive means shutting down operations which means layoffs which everyone wants to avoid. Both parties were able to negotiate an arrangement whereby the company would invest in machinery to improve productivity but they would also be have their staff work additional overtime hours.

7. Company Products • What products are produced in France? • Aircraft components for civil and military use. • Principally flight control systems. • Why are these products produced in France? • Goodrich could produce in the US (and does for certain systems) but this is heavily product dependent • The flight control actuators manufactured in France are complex and flight critical with very specific and precise engineering characteristics. • As a result, close proximity to the customer is required to facilitate communication. • Furthermore, these flight critical products need constant performance management (e.g., documentation of issues) • Are there expansion/reduction plans for these product lines? • Expansion – A380

8. Company's clients • Who are the company's clients? • The company’s main client in France is Airbus • 30% of the company’s business is for the French military • Eurocopter is another key client albeit smaller than the other two • What are their expectations? • How will a French presence help or hurt the company's ability to satisfy client demands? • Goodrich communicates daily with all levels and functions of Airbus. A presence in France is essential for this 2way contact. • The company’s presence in France is critical for it to win government and military contracts

9. Constraints in France • High Cost of Labor • 35-hour work week • Required Goodrich to hire more temporary workers as it was too costly or inflexible to hire full time employees • A limited amount of overtime is allowed to manage production fluctuation – this was done in collaboration with the French government • Social Charges • Extra costs such as the Committee d’Enterprise. • Training • An amount equivalent to 0.9% of employee wages must be either spent on training or given to the government as taxes • Cultural Differences • Capitalist “slash and burn” attitude is not accepted in France • The French see a more defined role for government intervention in settling their affairs

10. Constraints in France (continued) • Unionization • While unionization is common in most parts of the world, unions in France are a legal right but may have just a few of Goodrich’s factory workers in it. • But Management needs to negotiate with each union representative almost separately. This often means that there are 25 people sitting at the table • These tedious negotiations are not as collaborative as they are in the US where a deal is made with union leaders. The French legal framework is more overwhelming than the unions themselves (wages need to be negotiated yearly, no 3 year contract) • High Cost of the Euro • The revenue that is coming out of France however is reconverted into American dollars which adds more to the bottom line than it usually would • This has increased the share of Airbus revenues to Goodrich

11. Adaptation to France • Because TRW was already operating in France, there were no significant changes made to the basic HR systems that were already in place • However, there were some adjustments that were made with new management in terms of: • Management Development: a layer of senior managers was placed that was able to communicate with American Executives as well as with the factory staff • Example: An American executive wanted to close a factory within a month as it was not operating to the expected level. It was explained to him that this was not something that was legal in France and that it would likely cause more problems and be more costly that the benefit of closing the factory down.

12. Adaptation to France (continued) • Use of Expatriates: Goodrich is very careful to place French managers in all positions that directly interface with either factory workers or government. The use of expatriates is limited. • Example: The British and the Americans were very surprised that a strike took place for six days at one of the factories because of a wage dispute. It was crucial that the matter be handled by a labor relations expert familiar with conflict negotiation in France rather than the manner in which it would have been handled by the Americans in their own country. • Communication and Language: because Goodrich is so close to the customer, it must ensure that at all contact points, staff can communicate with customers but that they can communicate within themselves • While companies are built with a top to bottom structure, the customer interact across the organization at all levels

13. Adaptation to France (continued) • Workforce Planning: temporary workers were hired and agreements were struck with government to allow for overtime hours • As mentioned above, Goodrich places importance on having French managers as interfaces. However, it is difficult to find France managers with hard supply chain management and planning skills (e.g., Six Sigma, Continuous Improvement) • Goodrich recruits mainly abroad to staff these positions. If possible French nationals with US experience are hired. • Manufacturing • Production facilities that already exist in France were put to work as much as possible through overtime agreements • Looking ahead, the aeronautics industry will become like the auto industry and lowering cost will be an important priority. • As a result, Goodrich suppliers are encouraged to produce in lower cost countries

14. Key Constraint Costs • HR Costs • French labor is seen as 20% more expensive than in the UK • Staff turnover has not been a major issue (2-3% per year) since opportunities are limited in this currently slow economy • The 35hr work week has not created new permanent jobs. It has forced the company to resort to temporary workforce and quarterly planning of workforce utilization

15. Key Benefit of Operations in France • Government Assistance • Soft loans are granted from the government – these loans are designed to be paid back if and when the project is successful (specific to aerospace and Airbus suppliers) • This helps to attenuate the risk as aerospace is an investment intensive industry • While these loans do not have any effect on profitability (you can’t take them to the bottom line) they do help significantly with cash flow • Productivity • While France’s productivity is not as high as that of operations in other countries, the restrictions upon workforce hours do create an incentive to innovate in manufacturing processes • Currently, Airbus’ process is more state of the art than Boeing’s whose process is encumbered with too many lines manufacturing too many different products in one factory

16. Essential Advice • Have a strategic objective for moving to France (market penetration, center of competence, proximity to customer…) • Use local management with global experience • Because France is so bureaucratic, it is essential to hire local labor to navigate the system • Hire managers with global experience than can understand both the parent company’s objectives while respecting the local way of doing things • Make sure that one of the reasons you are setting up operations is to take advantage of the skilled labor force

17. Essential Advice (continued) • Build relationships • Maintaining good relationships with government and agencies is crucial to operating in France • Building relationships with associations related to the line of work that you’re in – contacts and constitute a great source of advice (e.g., in situations where there are strikes or other disputes)

18. We Thank • Richard INGRAM • VP Airbus, & formerly Factory Manager • Goodrich Actuation Systems 13 ave de l’Eguillette Saint-Ouen l’Aumone – BP 7186 95056 Cergy-Pontoise cedex Tel: 01 34 32 63 00

19. Bibliography • References • Goodrich 2002 annual report • Sacrées Français! Un Américan nous regarde. By Ted Stanger

20. Appendices • Appendix 1: Interview Questionnaire • Appendix 2: Team Contact Information

21. Appendix 1: Interview Questionnaire • Why did Goodrich stay in France? • Is this necessary to keep the client? • Was there ever any talk of moving the factories to another country? • Is it worth keeping them in France? • Has the mix of work done in France increased or decreased versus the other factory locations? •  Company Values • What are the core values of the company? • Has it instilled them into the French organization? • Was American management sent over to work there? What is the split between French and expatriate managers and workers? • How do you integrate the workforces? •  Company Clients • Who are they? • What are their expectations? • How will presence in France help your business?

22. Appendix 1: Interview Questionnaire (continued) • Constraints in France • Is the 35-hour workweek or RTT a problem? • Are the unions a significant influence? • What about strikes? • How is the union activity viewed from abroad? • Have there been problems when the acquisition happened or resistance from employees when the acquisition was taking place? •  Adaptation to France • How did the company adapt its practices to France? • Compare between France and England • How do the Americans and the British work with the French? • Are there significant differences in performance expectations? • Is there a requirement from the client or the government for Goodrich to maintain a certain level of activity in France (quotas)? • How are the compensation packages managed between the countries? • Is there strife between the different ways of doing things? • Has the compensation of French employees improved from this change or has it remained the same?

23. Appendix 1: Interview Questionnaire (continued) • Constraints of Costs of Coming into France • Significant cost constraints related to HR cost policies • Is staff turnover higher in France vs. England? • If it’s too expensive to hire workers in France, has to company rather preferred to hire temporary workers? Does this vary from England? •  Key benefit numbers • Were there any incentives from the government for Goodrich to stay in France? • Is there a difference in product quality between France and the UK? • What about revenue/profit per French employee vs. UK employee? • Is productivity different per employee in varying countries? Is this difference caused by different machinery? Has the company strategy been defined by country for a specific reason or did it just happen like that? • What is your advice for companies wanting to come to France? Would you recommend it?

24. Our Team • Arielle QUICK 1, rue Million 78350 Jouy en Josas Tel: 01 39 56 62 31 • Moïz ARFAOUI 4 Résidence du Val de Bièvre 78530 Buc Tel: 01 39 56 21 53 • Julien BOUCHER 5 Rue Oberkampf 78350 Jouy en Josas Tel: 06 66 73 92 43 • Tim VAN DER VEEN 5 chemin des 40 Perches 78350 Jouy en Josas Tel: 06 63 68 81 05