He is not a name-brand takeover artist. But, whenever a U.S. textile company is put up for sale or is searching for a merger partner, Wall Street investment bankers call Charles Hantho, the president and chief executive officer of Montrealbased Dominion Textile Inc., the dominant textile force in Canada. For the past two years, Domtex has been buying and merging to build the corporate muscle needed to penetrate the U.S. market under the Free Trade Agreement (FTA)—and recently that strategy has been gaining momentum. In 1987, it spent $274 million to buy the Erin Mills Inc. denim plant in North Carolina, which made it the largest denim manufacturer in the world. Last year, it spent another $170 million to purchase WaynTex Inc., a Virginia-based producer of woven fabrics for carpet backing. And on March 22, Domtex announced that it was merging its Caldwell towel division with C. S. Brooks Corp. of New York City to form the largest bath products supplier in North America. Said Hantho, who became president in December, 1988: “We are open to all possibilities.” Putting on corporate weight is just one part of Domtex’s strategy to vanquish its competitors in the new tariff-free North American textile market. Indeed, as early as 1984, Hantho’s predecessor, Thomas Bell, had concluded that a free trade agreement with the United States was inevitable—and that the company faced a grim future unless it shifted its focus from the Canadian market, where it already faced increasing pressure from lowcost Third World imports, to the far larger U.S. sector. In response, he crafted a sweeping restructuring plan that was designed to strengthen Domtex’s profitable sectors while closing obsolete factories and slashing uncompetitive product lines. But Domtex’s stillevolving free trade strategy has had its costs— including a growing unease among its 13,000 employees, of whom 6,500 are unionized.
Going head to head in the United States— where Dominion Textile ranks among the 10 biggest textile companies—has also forced a
change in the company’s corporate culture. Executives who have wide experience in the more competitive U.S. market—some of them Americans—have been recruited. And, after decades of being managed along geographic lines, the company has shifted to a productoriented structure. Domtex’s major product
lines—denim, industrial products, yam, _
consumer products, apparel fabrics and interlinings—are now run as individual, international profit centres, making it easier to co-ordinate global strategies.
According to company executives, the international approach gives Domtex an advantage over U.S. competitors who focus on the home market. By coordinating production facilities on both sides of the border, Domtex can quickly hit new markets in the United States or Canada or retreat when a product becomes unprofitable.
Under the FTA, all textile tariffs will be eliminated within 10 years. That has forced Domtex, which maintains 50 subsidiary companies and had 1988 sales of $1.2 billion, to make hard choices among firms that it believes can win under free trade and those that cannot.
Since 1984, it has spent $200 million upgrading facilities and building new ones to produce denim fabrics, industrial products and spun yams—the products that the firm’s executives say will give them an edge in the United States.
Said Hantho: “We cannot win in the United States by trying to be all things to all people.”
At the same time, 15 noncompetitive Canadian plants—out of a total of 30— have been closed or merged with other operations, with a loss of about 2,000 jobs. The latest blow came in February when Domtex eliminated about 425 jobs in Quebec. The cuts followed an $ 18million investment to increase plant efficiency in Beauhamois, Que., and Sherbrooke, Que., eliminating 370 jobs.
Executives with the 85-year-old corn-
pany say that Domtex is doing its best to cushion the blows for the victims of its trade
strategy. The company gives six-month no-
tices before plant closures and it pays employees for the entire six-month period, whether they stay on the job or leave. Workers also receive a generous severance package based on length of service to the company. And, the
firm has set up a committee that includes
Domtex representatives, union members and job placement consultants to help find new jobs for laid-off employees, either in or outside the company.
But the leaders of some of Domtex’s several
unions say that the company’s approach has not been gentle. Said Jean-Paul Hetu, president of the Central des syndicats démocratiques, a union that represents workers at some of Domtex’s Quebec plants: “It is 10 years before all of the textile duties come off. Why are all these measures needed immediately?”
Hantho counters that the strategy is necessary and that he will continue to build a presence south of the border in the most direct way possible. And when Wall Street bankers call him, Hantho listens.
JOHN DeMONT in Montreal
rom all the evidence, Telenet Communications Corp., a subsidiary of the telecommunications giant U.S. Sprint, does not shy away from a challenge. The Reston, Va.-based company, which sells its telecommunications products and services worldwide, has already built the largest commercial international public data network in the world. But with the signing of the Free Trade Agreement, and the elimination of all tariffs on telecommunications equipment, Telenet is preparing to face one of its toughest tasks yet—cracking the Canadian market. Although Telenet has been conducting business in Canada in a small way since 1978, acquiring a bigger share of the market will involve competing directly with domestic telecommunications giant Northern Telecom Ltd. Said Christopher Rooney, Telenet’s vice-president for International Systems: “Companies like Northern Telecom have done quite well in the United States. We just want to turn that trend around.”
In fact, Telenet is already on the move in Canada. In May, it signed a $20-million (U.S.) contract to provide CNCP Telecommunications with a large-scale packet switching network for _ transmitting data—Telenet’s biggest Canadian contract ever. Moreover, the company plans to profit from the links it is forging with U.S. companies that are searching for ways to make gains in the Canadian market under free trade. Telenet managers say they hope that within three years Canadian sales will account for five to 10 per cent of the company’s approximately $270 million (U.S.) in annual foreign sales. But its main competitor expresses no concern over the impending battle for market share. Said William Myers, Northern Telecom Canada Ltd.’s assistant vice-president of sales: “I am confident that in the end we will come out on top.”
Still, Telenet has planned its free trade strategy carefully. During the past 24 months, it has conducted an extensive education program for its sales force to explain the FTA and the new Canadian •opportunities that will emerge for U.S. companies as a result of the deal. And instead of hiring outside consultants to advise it on tackling the Canadian market, Telenet recruited several Canadian-born marketing people who will work out of the company’s Virginia offices. And they will be focusing mainly on Canadian sales. Declared Rooney: “We are hoping for big things in Canada.”
Telenet will concentrate on selling high-speed data transmission 2 in the Canadian market. Its main
products are switching systems that break computer data into small sections known as “packets,” which can be sent along on one of several “paths” after being routed to their destination by powerful switching processors. The company claims that the process almost guarantees error-free transmission and allows large numbers of individual users to operate simultaneously on the same network.
Although Telenet’s products are in wide use elsewhere internationally, so far, sales in the Canadian market have been relatively sparse. Current clients include some U.S. subsidiaries, such as Dun and Bradstreet. That financial information firm is hooked into Telenet’s public data network, which links users all over the world. And some companies use Telenet’s electronic mail systems, which allow people inside and outside corporations, governments and other organizations to communicate electronically.
But Telenet’s activity in Canada may soon increase dramatically. According to company research, the Canadian market for new packetswitching equipment and systems has been growing by a steady 30 per cent a year for the past five years to an estimated $145 million (U.S.) for 1989, with Northern Telecom largely meeting the demand.
Telenet has wide experience operating in foreign countries and it will likely adapt easily to conditions in Canada. And the company will have some easily identified target clients in the
Canadian market. U.S. banks, investment companies and other financial services firms that are making their initial foray into Canada and need to reach offices nationwide and across the world are some of Telenet’s most promising customers. Said Rooney: “We have held conversations with a number of clients thinking of coming to Canada.” As well, Telenet will also attempt to expand its Canadian client base to include corporations involved in activities ranging from Western mining projects to the development of the Hibernia oilfield off the coast of Newfoundland.
In the face of that determined challenge, Northern Telecom’s Myers presents an image of complete calm. He says that his company has competed head-to-head with Telenet in many international markets and won a larger share of business. Publicly, at least, the company has no specific strategy for dealing with its new competitor on its home market. Myers acknowledges that the company might eventually have to cut its prices to compete against the nowcheaper American exports. But then, Northern Telecom is also in a position to export its own telecommunications equipment into the bigger U.S. market at lower prices as a result of tariff elimination. Declared Myers: “Overall, our company is a clear winner from the Free Trade Agreement.” Ultimately, though, Telenet may have something to say about that.
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