adaptability of the French armaments industry in an era of globalization, The

Industry and Innovation, Aug 2001 by Serfati, Claude

Privatization of defense contractors was needed if they were to reinforce their collaboration with European companies which included the setting up of financial links. In effect, throughout the 1990s, it has become more and more evident that France could not afford a stand-alone attitude any more. Factors which make France's strategy to remain independent from the USA (and NATO) quite unrealistic include: strong budgetary constraints and ensuing cuts in defense procurement, the speed of technological change the pace of which is set by the USA, geopolitical changes, including the Gulf War (1991) and NATO strikes against Serbia (1999). In that context, in recent years, Europeanization became the "new horizon" for the French government and companies alike. The French industry was once threatened to be marginalized by the constitution of a British-German aerospace and defense company, which finally failed. Some months later, the merger between Aerospatiale Matra and Daimler-Chrysler Aerospace, soon joined by Spain's CASA and Italy's Finmeccanica, witness the capacity of the French meso-system to remain a key player in Europe (Serfati 2001). The new company, EADS (European Aeronautics Defense and Space Company) with 21 billion euros and a workforce of 95,000, will rank first in Europe and third world-wide.

Upon its creation, EADS will control 80 percent of the Airbus capital. Its main European competitor BAe Systems which created in 1999 a large defense and aerospace company, after acquiring GEC's Marconi Electronic System, a 33 percent share of Sweden's SAAB and made significant acquisitions on the highly protected US defense market, will retain 20 percent. The need to compromise between German and French industrial and political interests resulted in a rather complicated shareholder structure within EADS (Dixon 1999). What is still unclear is how this merger, once inspired by defense market objectives, will interact with the long-awaited transformation of Airbus into a company in its own right (i.e. a floated capital company). More broadly, how defense and commercial activities will be teamed together and made compatible in an efficient way is unclear yet (Serfati 2000c).

Thomson-CSF, now owned by Alcatel, also increased its international influence through acquisitions of foreign companies in recent years. A major outcome of its recent spate of acquisitions will be that the French company, which ranks third on the top European defense companies list, will hold as the No. 2 defense contractor in the UK, with almost 1 billion euro in annual sales.

Adapting the "capitalism ii la franCaise"

Along with privatization and Europeanization, the transformations of the French arms industry brought about by the massive entry of institutional investors on the board of top defense contractors, should not be underestimated (Serfati 2000a). The sudden free fall by over 40 percent of Alcatel's share price in 1998 after massive selling by US investors disappointed by profits below their expectations was a trauma for policymakers and business. It was all the more so that, ever since the 1960s Alcatel had been the symbol of the Gaullist policy and the capitalisme a la franvaise.