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 user 2005-09-30 at 11:04:00 am Views: 37
  • #13319

    HP’s French Twist

    Why its plan to lay off 1,200 in France has reverberated all the way up to President Chirac’s office.
    Shock waves have been
    emanating from Grenoble ever since mid-September, when U.S. tech giant
    Hewlett-Packard Co. (HPQ ) announced it would eliminate more than 1,200
    jobs in France. A big chunk of the cuts is likely to come from this
    pleasant city of 425,000 in the French Alps, where HP employs 2,400
    people, about half its French work force. Angry HP workers poured into
    the streets when they learned of the plan, and Grenoble’s mayor on
    Sept. 20 led a delegation to HP’s Palo Alto headquarters, where he
    received a polite but noncommittal reception.

    The protests didn’t stop there. HP’s European brass were summoned to
    Paris on Sept. 26 for a meeting with France’s Labor Minister. Prime
    Minister Dominique de Villepin suggested that companies might be
    required to sign a “code of conduct” limiting their ability to lay off
    workers if, as in HP’s case, the government financed road works and
    other improvements benefiting their factories. President Jacques Chirac
    even asked the European Commission to intervene, although his request
    was quickly rebuffed. HP, for its part, appears undeterred. “We all
    know how politicians are. For better or for worse, this has provided
    them a platform to get some air time. But we don’t feel it’s going to
    impact our ability to do what we’ve announced,” Todd Bradley, executive
    vice-president of HP’s Personal Systems Group, told an investors’
    conference in San Francisco on Sept. 22.

    Grenoble seems an unlikely site for such an uproar. For more than a
    decade it has billed itself as France’s answer to Silicon Valley — and
    with good reason. It is a world-class research center, with scores of
    public and private labs studying everything from advanced materials to
    microelectronics. In valleys leading out of the city, cow pastures have
    given way to office parks and gleaming factories run by multinationals
    such as Royal Philips Electronics (PHG ) and STMicroelectronics (STM ),
    as well as successful local companies such as Sofileta, a manufacturer
    of high-tech industrial textiles, and IT company Groupe Silicomp. At
    8.7%, Grenoble’s unemployment rate is well below the national average
    of 10.1%. The tech workforce of 25,500 is set to grow over the next few
    years as Grenoble and the surrounding Isère region get a major infusion
    of aid from Paris to encourage nanotechnology research and development.
    “Can the local economy absorb the shock from HP? Yes,” says Jean-Paul
    Giraud, president of the Agency for Studies and Promotion of Isère.

    So why all the protests? Politics, for one thing. Chirac and his
    government have made fighting unemployment their top domestic priority.
    News of the HP layoffs plays into national fears that France is losing
    jobs to lower-cost countries in Eastern Europe and Asia. Companies such
    as Philips and IBM have already eliminated hundreds of jobs in France
    in recent months while expanding their payrolls in places such as
    Poland, China, and India. HP hasn’t said whether any of the jobs in
    Grenoble will be transferred elsewhere. But employees note the company
    has a fast-growing facility in Slovakia that performs some of the same
    functions as its site in the Grenoble suburb of Eybens, which handles
    an array of functions from customer support to software development.

    Eric Gaudé, an engineer at the Eybens facility, says that many laid-off
    workers could probably find other jobs in the area — though probably
    not as high-paying as at HP, where employee unions say the average
    annual salary is about $48,000. The deeper fear, he says, is that HP,
    which first set up shop in Grenoble in 1971, will eventually shutter
    most of its operations here: “There’s a sense of treason.”

    Grenoble’s authorities have complained bitterly that when HP wanted to
    expand the Eybens site in 1998, local governments spent more than $2
    million to acquire and clear a piece of adjacent property that they
    then resold to the company for less than $500,000. Patrick Starck, the
    president of HP France, says HP never promised to create jobs in
    exchange for the assistance. Moreover, he says that over the past
    decade HP has paid more than $840 million in French taxes, including
    about $90 million to the municipality of Eybens. “We’ve been a good
    citizen,” he says.

    Dig a little deeper, and there’s still another reason for Grenoble’s
    angst. Despite generous seeding from Paris, the Silicon Alps region has
    not developed the rich ecosystem of high-tech startups and spin-offs
    that makes Silicon Valley’s labor market so resilient. True, government
    research sites such as the Laboratory for Electronic and Information
    Technology (LETI) have served as incubators for some successful
    startups. One is Soitec, a 13-year-old company with $167 million in
    annual sales that is a world leader in supplying advanced insulation
    technology to the semiconductor industry. Yet unlike Silicon Valley,
    it’s relatively rare in Grenoble for people to quit their jobs at one
    of the big high-tech outfits and take a stab at starting their own
    businesses. Of 48 recent high-tech startups listed by the local
    economic development agency, only a dozen were spun off from other
    companies, while the rest were hatched at government labs. “France does
    not have a culture of risk and entrepreneurship,” says Alain Lefebvre,
    one of four former HP employees who started VoluBill, a Grenoble-based
    company that provides customer-billing technology to mobile-phone

    Risk aversion may be one part of the problem, but government
    regulations are another. Even a startup like VoluBill, with 55
    employees, has to give two months’ paid vacation to its employees
    because of worker-friendly French labor laws. Strict anti-layoff laws
    mean that workers at big companies have come to expect that their jobs
    are guaranteed for life — unless the company pays them handsomely to
    leave. That’s what happened at HP in 2003, when the company eliminated
    1,300 jobs in Grenoble through early-retirement plans and buyouts that
    topped $250,000 for some workers. Under those conditions, it’s hardly
    surprising that few employees strike out on their own.

    The outlook for Grenoble isn’t all gloomy. The pace of high-tech
    business creation has picked up since 1999, when France passed
    legislation allowing government researchers to take leaves of absence
    to start innovative businesses, says Jean-Bernard Schmidt, president of
    venture-capital group Sofinnova Partners in Paris. More recently,
    France’s center-right government has started providing tax breaks to
    companies trying to commercialize new technologies, while relaxing some
    regulations on small businesses. For instance, in August, a new type of
    contract was introduced that allows companies with fewer than 20
    workers to fire new hires more easily. Some 30,000 such contracts were
    signed in August alone.

    French startups also are benefiting from greater access to venture
    capital. Sofinnova has financed recent startups originating from such
    French giants as defense and electronics group Thales and
    pharmaceutical maker sanofi-aventis Group (SNY ). “The ingredients are
    now there,” says Schmidt. But the allure of the Silicon Alps may no
    longer be enough to captivate HP and other multinationals.