BUSINESS

A giant cuts costs

Northern Telecom faces more competition

PATRICIA CHISHOLM September 18 1989
BUSINESS

A giant cuts costs

Northern Telecom faces more competition

PATRICIA CHISHOLM September 18 1989

A giant cuts costs

BUSINESS

Northern Telecom faces more competition

Officials at Northern Telecom Ltd. were clearly angry earlier this month when The Toronto Star declared that the company was planning to close its Toronto research facility and transfer the work done there to centres in Texas and California. Although Stephen Bowen, senior vice-president of public affairs at the giant telecommunications firm, declined to either confirm or deny that the Toronto facility, with about 115 employees, will close, critical reaction to the reports was swift. Emphasizing that high-technology research is vital to Canada’s economic future, Ontario Premier David Peterson said, “It’s of concern to the country if anybody packs up and leaves.” Stephen Langdon, federal New Democratic Party critic for development and employment, added: “It’s not as if Northern Telecom is a small bit player. It is absolutely central.”

The unwelcome publicity for Northern arose during a critical period for the company. Chief executive officer Paul Stern, who took over last March, has embarked on a corporate restructuring that has included the closure or amalgamation of several Northern facilities in Canada and the United States. An

American with a reputation for executing tough cost-cutting measures at large corporations, Stern has said that the reorganization at Northern is necessary if the company is to compete effectively on a global scale. And most analysts expressed the view that Northern, which is now largely directed from its headquarters in Nashville, Term., will soon be facing tough challenges for market share from such competitors as American Telephone & Telegraph Corp. and Siemens AG of West Germany. Some also say that Northern may be sold within the next few years.

Northern’s move into the United States has been under way for about a decade, although the company has maintained a presence there for more than 20 years. Sixty per cent of the company’s revenues now comes from customers in the United States. The company was founded almost 100 years ago as the Canadian manufacturing branch of Western Electric, which at the time was AT&T’s manufacturing subsidiary. Cur¡rently, there are slight2 ly more employees in the g United States—22,348 com; pared with 22,266 in Canada.

And Northern Telecom is I “just at the beginning of a I period of global expansion,”

said Francis Mclnerney, an analyst at Northern Business Information Datapro in New York City. Mclnerney said that Northern will be taking measures to protect itself from huge competitors, including Siemens, which recently took over the leading position in business telephone systems by purchasing a division of IBM. Formerly, Northern had occupied the top position in that field. Mclnerney also noted that Northern’s cost efficiency is “awesome,” making it an attractive buy should its controlling shareholder, Bell Canada Enterprises Inc., a telecommunications giant based in Mississauga, Ont., decide to sell.

Bowen dismissed as “idle wool-gathering” recent speculation by some analysts, including Mclnerney, that Northern may indeed be sold within a few years. But many politicians and union members said they are concerned that Northern will weaken its Canadian presence. Canadian Auto Workers president Robert White said that Northern Telecom is on the leading edge of research and development in Canada mainly because of protective regulatory policies that created a secure market for Northern products. Said White: “Now, they are moving their business out of Canada. It’s a slap in the face for the Canadian people.”

The restructuring at Northern has been closely watched in Canada because of the company’s huge influence in the sensitive telecommunications industry. Northern, through its subsidiary Bell-Northern Research Ltd., is by far the largest employer of telecommunications research professionals in Canada.

In recent years, Northern has hired between one-quarter and one-third of all available PhD electrical engineering graduates that Canada produces every year. And several Canadian high-technology companies, including Ottawabased Mitel Corp., were established by former Northern employees.

Currently, more than 70 per cent of Northern’s research employees—there are 6,100— are still located in Canada, the majority in BellNorthern Research’s Ottawa facility. Bowen said that Northern’s plan is to “keep it that way” and that the company spent $84 million last year with a similar amount to be spent this year to expand its Ottawa facilities.

But plant closures have already cost many jobs in Northern’s manufacturing operations. Layoffs in its two Canadian manufacturing operations have numbered more than 700 this year, which includes August plant closures in Aylmer, Que., and Belleville, Ont. Over 460 employees were relocated at Northern’s expense. The number of jobs lost in the United States was even higher—just over 1,000, after plant closures in Nashville, Concord, N.H., and Minnetonka, Minn.

Clearly, the emphasis at Northern now is to continue executing its extensive cost-cutting program in preparation for global expansion. As with other large multinationals, borders may soon become no more than doorways to bigger—and richer—markets.

PATRICIA CHISHOLM

JOHN DALY