Reindustrialize
The revitalization of the French industrial landscape in response to the environmental emergency and sovereignty challenge
After the Covid-19 crisis, sky-rocketing air and sea freight rates, and the huge port congestions, there was hope that the global supply chain would return to normal. This hope was quickly shattered by Russia’s invasion of Ukraine. The global supply chain came under further strain, in a context of escalating inflationary pressure, as well as a sharp rise in energy prices and raw material shortages.
Paired with growing environmental awareness, these events are bringing out strong trends in terms of rebuilding the French industrial landscape, relocating part of production and integrating our businesses into a regional ecosystem.
Nevertheless, although “Made in France” enjoys international renown, it comes at a cost – financial and operational resources need to be deployed to make French industry competitive, both in France and internationally. What are the main challenges in the coming years, whether in terms of innovation and operational excellence, private investments or public mechanisms, to further boost French know how development?
To gain a better understanding of this fundamental trend, and the means to put in place to encourage it, we decided to bring in on this newsletter three directors of our portfolio companies as part of a joint interview: Messrs Fabien Mazarico and Vincent Godet, respectively CFO and Purchasing and Supply Chain Director of Praticima, and Mr Jean-Philippe Molinari, CEO of Louis Tellier.
Cross interview - Logistics lessons from Praticima and Louis Tellier
Fabien Mazarico, CFO, Praticima
Vincent Godet, Purchasing and Supply Chain Director, Praticima
Jean-Philippe Molinari, CEO, Louis Tellier
1. How has your industrial and logistical organisation been affected by the Covid-19 crisis and the global supply chain disruptions?
Fabien Mazarico and Vincent Godet
Thanks to our local sourcing strategy, we have in large part avoided the logistical problems related to the Covid-19 crisis, as we have a lot of local suppliers, with a few European ones, and a marginal proportion of Asian suppliers.
This supply strategy enabled us, firstly, to avoid additional costs and the substantial increase in delivery times, and to have genuine daily contacts with some of our suppliers, with whom we’ve developed close partnerships for a number of years. For instance, during the 2020 crisis and the various lockdowns, we had the opportunity to have frank discussions with our suppliers who wanted to close their factories, in which we underlined the importance of having them by our side in order to meet the critical needs of medical staff in their daily tasks.
In addition, this geographical proximity with our suppliers also enabled us to overcome certain problems: when suppliers are just 20 km away, we can go and pick up our products from them by ourselves, with our own trucks. This regional proximity also enabled us to address and deliver new customers that our competitors didn’t know how to serve due to different strategies.
The Covid-19 crisis showed us the true strength of our sourcing model.
Jean-Philippe Molinari
During the Covid-19 crisis, we were completely shut down. The entire staff was on short-time work, except the logistics department in order to manage the remaining orders, particularly in e-commerce. Out of 100 people, 95 were on short-time work. Conversely, the resumption in activity was very strong from June to December, which meant we had a decent year in 2020 despite everything. All of our subcontractors suffered from the same problem, because the whole supply chain stopped.
At the end of 2020, then in 2021, we recorded a very strong increase in the price of containers, with prices increasing tenfold. Coupled with the exchange rate and the current euro-dollar parity, this led us to do some thinking. The container issue will be ongoing, as we won’t return to the price levels we saw three years ago. The carbon tax topic is also starting to emerge. This is encouraging us to bring a fraction of production back in-house. We’re also looking at relocating part of our supplies to Morocco or Poland. Part of our subcontracting will also be brought closer to France, which will also save us a few weeks of transportation time and reduce the cost.
The raw materials supply time was very lengthy following the Covid-19 crisis, and is still complicated now, with aluminium and stainless steel prices spiking, which is having a real impact on our cost price. However, we aren’t thinking about changing material, as there are criteria other than price. Tin plate is more ecological and far more durable than plastic for example.
2. Do you think we’re seeing a long-term enhancement of the French industrial landscape and/or the development of regional sourcing?
Fabien Mazarico and Vincent Godet
As far as we’re concerned, as we said, we’ve had a regional sourcing strategy for a long time, as our products and our volumes allow such a strategy. In terms of overall cost, we aren’t losing out, especially as we don’t have sufficiently large volumes to enable us to obtain advantageous rates in Asia. Moreover, the fact that we work with SMEs gives us room for discussion. We’re also making savings on the delivery cost, which is particularly beneficial due to the recent increase in the price of containers. Lastly, our sales strategy is partly focused on our responsiveness and our ability to deliver to our customers quickly, which would be impossible with sourcing from Asia given the delivery times.
More generally, there is a growing number of French industries that have automated their processes, to work on costs, lower the workforce requirement in order to be competitive compared to Asian productions. This operational excellence rationale has been combined with a rationale of lower energy consumption for several years. We’re already very competitive compared to Western and Southern Europe.
Businesses are realising that although the unit cost is higher with local sourcing, they can make up for it on the cost of transportation and the cost of financial assets connected with delivery times. We can also add the recent problems related to the exchange rate. Due to these additional costs, Asia is becoming less competitive.
We’ve accepted losing some gross margin, but I think we’re gaining in terms of operational margin and image. And our customers are happy to pay a little extra as their delivery times are very short, thanks to the geographical proximity of our suppliers.
Moreover, what wasn’t considered during the 1980-2000 period, and is increasingly considered now, is risk management. The geopolitical risk is now very high, and this factor will force us to be more and more independent in my opinion. The stranglehold that we had on Southeast Asia, a relic of the colonial past, no longer exists. The same goes for Africa. We have no choice but to reindustrialise, to relocate production in order to be independent. The return of certain types of production that had been relocated, for example in electronic boards, energy and even the motor industry, is something we’re currently seeing.
Two other points will strengthen local or European sourcing. Fifteen years ago, we relocated to low-cost countries to serve the national market. Now these factories in LCC are serving local markets, so we’re now looking for capacity in Europe to serve Europe. Secondly, I strongly believe in the groundswell at the generational level based on an environmental and societal rationale. The new generation wants a social project that isn’t just based on finance but strongly factors in environmental issues.
Jean-Philippe Molinari
Regarding the “Made In France” label, it’s necessarily an element consumers are sensitive to. However, they’re still very careful regarding purchasing power. Although French production can be economically viable on a small-series scale, to promote it significantly, huge industrialisation subsidies would be needed. We aren’t in a position of high technology or high added value at the product processing level. The quality may be better, but price is still a major factor. We could therefore improve the competitiveness of French industry by, for example, introducing border taxes to regulate labour gaps (or through the carbon tax), or by reducing wage costs in France.
But even if you lower the cost of labour, it’s very difficult to make up for a cost of labour that’s 5 to 10 times cheaper. This is why there are very substantial challenges for us around maintaining a very high level of quality but also the competitiveness of our production process and operational excellence.
In the end, in B2C, the trend in favour of “Made in France” always needs to be put in the context of concerns about purchasing power. The B2B market is different: we’re at the tail of the comet of French gastronomy, which has a very strong brand image around the world. The “Made in France” label for kitchen utensils is a very strong guarantee of know-how for chefs all over the world. This is a real asset for developing our export positions.
3. What financial and operational resources need to be put in place to enhance the reach of French know-how?
a. What are the company’s internal resources (e.g. operational excellence, innovation, etc.)?
b. What are the main external aid and financing mechanisms?
Fabien Mazarico and Vincent Godet
An issue that we will have in the coming years will be related to skills. People need to be retrained, because the main reindustrialisation resource is people, and at the moment we don’t have them.
Training is a big topic. But before training talent, talent needs to be attracted, by restoring the image of the positions in question. We need to make people understand the need to produce locally through environmental and societal issues. It’s up to central government, trade unions, the whole profession to work on this.
At the communities and regions levels, we’ll have to ask ourselves how to attract talent to business areas tens of kilometres away from urban areas. And the first answer is setting up public transport resources. Around us, there are hundreds of jobs to fill, and businesses aren’t managing to recruit. We need to set up training, increase public transport and restore the image of these professions, in order to attract and reindustrialise the French economic landscape.
In addition, to be competitive, the impact of wage costs also needs to be limited. The subjects of factory organisation and operational processes are therefore key.
If we can become proficient in these aspects and offer innovative products, the French brand image, our ability to manage after-sales service even for export, as well as the reliability of our production, should enable French industry to make its mark internationally.
Jean-Philippe Molinari
We need to create products with higher added value. It’s the only way to counter low costs, and that comes through innovation.
There have been quite a few aids to investment, such as interesting deferred loans. Meanwhile, regional aid is starting to dry up. We have a lot of support not at the industrial level but at the know-how, training and support levels. We also have export aid, for trade shows abroad for example.
Moreover, CSR is becoming a key topic for funds such as ReG and Bpifrance, due to their clients’ desire to invest in more sustainable companies.
Lastly, we also have the operational excellence topic, which is crucial. High-end industry in France is performing well. Conversely, at the SME and SMI level that I discovered five years ago, there is a huge amount of room for progress to be implemented, whether in terms of automation, management, CSR, etc. There are factories today in France where you would think you were still in the 19th century! These are paternalistic, century-old, family businesses, for which the notion of investment has never been a priority. There are a lot of avenues for improvement there. Key performance indicators and targeted processes need to be put in place. This is what I have been working on at Louis Tellier since I joined the group, and this is what we want to further accelerate with our new shareholders.