1 Team 10 / January 2004 Intake / HEC MBA Lionel Allouche, Guy Danon, Bongani Dlamini, Gael Rouilloux, Andrea Tommasoli

2 Executive Summary - Key Takeaways  Local Management for local operations as a key success factor  18:8:08 (France : Israel : China) => Local Roots, Global Reach

3 Electra in France  When did it come to France?  Purchased Airwell in receivership at 1994  What is its business?  Worldwide air conditioning equipment manufacturing & Marketing.  What are its key figures?  Worldwide sales: $632M in 2003 ($532M in 2002)  Net income $11.9M in 2003  60% sales in Europe  10% market share of residential AC in Europe  4500 permanent employees  3 plants in Europe, 2 in Israel, 2 in China  Publicly Traded company (ELEK:TASE)  Elco Holding Ltd. subsidiary

4 Why did it come to France?  Electra approach to international growth is through 50% of acquisitions and 50% of internal growth  Electra penetrates markets of strategic interest through acquisitions of local businesses operating in the air conditioning industry.  Where else did it consider?  Electra simultaneously considered acquiring Seveso Clima (Italy)  Why was France a key target location?  Dominant and well-established brand in western-European markets.  Attractive business opportunity.  Entrance to Europe – aligned with company strategy.

5 Company Values  Electra operates in an industry where acquisitions are a normal part of business  Electra acquired the French businesses and did not try to radically impose their values, management team and force integration in the global company.  The firm’s global approach is to leave the local management worldwide to the locals (=> Local Roots, Global Reach)  As a result, French workers did not experience a “culture shock” when their company was acquired  Company core values  Market Leadership obtained via Cutting-edge Technology  Innovation and quality  Employees are company assets – laying out as a last resort.

6 Company Values (continued)  How did company manage to instill its values in the French unit?  Bankruptcy is a facilitator to open-mindness…  Electra kept a French management and therefore did not try to impose its values on the French company  Still, Airwell was not left apart and Electra applied its expertise and experience (e.g. efficient working processes, production expertise, IT solutions)  Only one expatriate sent to France: export manager. Belief that the transition process from Israeli-managed clients to French managed clients would be smoother.

7 Company Values (continued II)  Real Case  Buyout of the bankrupt = ensured no firing of employees.  Within one year brought company from loss to profit.  All employees who were sent on vacation – returned to work after recovery.

8 Company's clients  Who are the company's clients?  Businesses and building facilities owners. Via Home appliance retailers, distribution companies, & air conditioning installation companies.  What are their expectations?  Cold air !!! …and…comfort, reliability, quality of service  All in low costs (…Chinese competition…)  Residential

9 Company Products  What products are produced in France?  Central air conditioning equipment – big, customized and added-value units.  Why are these products produced in France?  Less seasonality on the big units demand accommodates with France’s lack of flexibility.  Big units are the highest added value products, and the ones requiring customization. One of France’s advantages relies on its high-skilled employees that are a required resource for production of high added-value products.  These big and heavy units are mainly sold in Europe.  Worldwide optimization of the transportation costs.

10  How will a French presence help or hurt the company's ability to satisfy client demands?  Worldwide optimization of production lowers production costs.  Central positioning in European market – closer to clients.  Western European production – positioning of products. Company's clients Electra does not believe that the French presence will hurt the clients’ satisfactory level.

11 Constraints in France  Labor  High Cost of Labor  French labor costs 200%+ higher than Israeli ones and 2,000%+ higher than in China.  35-hour work week  Required Electra to hire more temporary workers as it was too costly or inflexible to hire full time employees (300)  A limited amount of overtime is allowed to manage production fluctuation – about 80 hours per employee per year  “De Robien” regulation  Flexible authorized working hours : Less than 30 hours in low season Over 40 hours in peak season

12 Constraints in France (continued)  Unionization  Electra extensively used the Comité d’Entreprise in order to communicate its acquisition strategy to the employees of Airwell  Cultural Differences  Courtesy and behavioral Differences (e.g. perception of the “Bastille day” !)

13 Adaptation to France  Although being French, Airwell did not undergo significant changes with the core HR management and systems that were already in place  However, there were some adjustments that were made with new management in terms of:  Compensation system : motivation through bonuses (up to 25% of yearly salary for the top 5% managers)  Use of Expatriates: Electra is very careful to place French managers in all positions that directly interface with either factory workers or government. The use of expatriates is limited.

14 Key Benefit of Operations in France  Manufacturing  Production facilities that already exist in France were put to work as much as possible through overtime agreements (Airwell moved from heavy loss to profit within one year!!)  Growth  Additional production tool  Access to European market

15 Essential Advice  Before coming to France  Hire the best consultants, perform a good risk assessment and plan the “day after” team.  Adaptation while in France  No attempt to get involved in the French culture, nor try to change it (risky source of mistakes).  Future investments in Europe  Get the best out of the people diversity, people are the greatest asset.

16 We Thank…  Mr. Eliezer BEN-MOSHE  President  Mr. Avi SHAMIE  Area Sales Manager  Mr. Jean Luc VIOLEAU  European Division CFO