GEC sheds its historical baggage as a new era starts to take shape

GEC sheds its historical baggage as a new era starts to take shapeGEC’s managing director Lord George Simpson has freed the company from its military past, but where is it heading, asks Richard Wilson?
When GECsold its Marconi defence electronic systems business to British Aerospace earlier this year, it not only ended an 80 year involvement in military hardware it also raised some fundamental questions about the future direction for what once was the UK’s largest electronics group.  
And it may be that the aims of GEC’s managing director Lord George Simpson will not be that different from those of Siemens the partner from which he parted company last year.
At the time Lord Simpson may have described the BAe defence sale as a “win-win” transaction with neither firm coming out on top of the other. But many employees and industry observers struggled to see where Simpson was taking GEC.
Within weeks the answer became a little clearer with GEC’s move to build up its now “core” telecommunications business through the $2bn acquisition of US network equipment manufacturer Reltec.
The UK company’s limited success in the potentially enormous US telecoms network market has concerned managers at GEC’s telecoms subsidiary Marconi Communications for some time. The link-up with the US manufacturer has raised hopes of selling its broadband optical fibre transmission technology to American operators.
“The acquisition takes us straight into the heart of the US market-place,” said Mike Parton managing director at Marconi Communications at the time of the takeover. “It opens up the enormously expanding American market for our latest wave division multiplexer and SDH transmission products.”
But US expansion is only part of Lord Simpson’s blueprint for GEC. He has also been telling investors about further projects which could see the company becoming a new player in the Internet and ITservices market.
It is not yet clear what shape these plans will take, but one can guess that they will involve further joint ventures and possibly acquisitions.
The recent move into the North American market is seen as the first sign that GEC, freed from the distraction of its defence business, was finally serious about turning Marconi, which was formerly the GPTjoint venture with Siemens, into a globally competitive telecommunications equipment manufacturer.
“This is a major strategic move which demonstrates GEC’s commitment to develop as a global player in telecommunications,” added Parton.
Reltec is now being integrated into Marconi Communications. It is a significant supplier of fibre and copper-based access systems to US operators such as AT&T and MCI has its own range of optical multiplexers and synchronous transmission systems which conform to the US-based SONET standard.
In addition Marconi’s European business should benefit from Reltec’s own products such as its range xDSL broadband access systems.
Lord Simpson has demonstrated that he not afraid to discard some historical baggage as he changes the shape and future direction of GEC. It is an ambitious plan to turn Marconi Communications into a manufacturing and services company with truly international clout.
Inevitably this will involve further foreign acquisitions, like Reltec, and international joint ventures. The concern is how successful these foreign ventures will be for GEC.
Even if we disregard the failed venture with Siemens, which ended in a degree of acrimony after nine years, the electronics industry is littered with joint ventures and acquisitions which generated as many headaches as benefits to the UK firms involved.
Perhaps most relevant was Plessey’s takeover of US telephone switch manufacturer Stromberg Carlson in the 1980s. The aims of that deal were similar to GEC’s Reltec move, but in reality Plessey struggled with the US management culture and eventually found it difficult to generate significant market and product benefits from the deal.
Even today Lord Simpson could look to the task facing distributor Premier Farnell, which is still trying to maximise the benefits of its ?1.3bn Anglo-US merger three years after the ink dried on the agreement.

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