The Americanization of Nortel
If you didn't get a chance to read my column in the National Post this week - and still have an appetite for Nortel news - here's some weekend reading material on how the company seems to be less Canadian these days.
Is Nortel Networks Corp. in the midst of being Americanized?
It is a legitimate question given the only Canadians on the overhauled senior management team are chief financial officer Peter Currie and chief research officer Brian McFadden. The rest of the team lives in places such as San Diego, Seattle, San Jose and New York when they are not flying around the world.
In recent years, Nortel's Canadian operations have shrunk with the sale of manufacturing plants in Calgary and Montreal, while there have been major job reductions in Ottawa and Brampton. As much as we like to see Nortel as the country's flagship high-tech company, it is gradually losing its Canadian identity. There are still 10,000 employees here but Nortel doesn't seem as Canadian as it used to be.
This reality hit home earlier this week when Nortel spent US$448-million to acquire Fairfax, Va.-based PEC Solutions Inc., which provides systems integration and consulting services to the U.S. government. One of the key points made by executives is the deal will see a U.S. entity established so Nortel can bid “unfettered” for U.S. government contracts. While security issues are a big consideration post-9/11, it is strange to see Nortel's Canadian roots as a negative.
That said, you can argue that Nortel has no choice but to becomes less Canadian and more global if it wants to stay competitive in the telecom equipment market. But Nortel is a different beast because it has to balance the need to leave the roost with its Canadian heritage. This company was nurtured and supported in Canada through vehicles such as low-cost loans and R&D credits.
As a unit of BCE Inc., Nortel thrived by having a captive buyer to support new research and product development. Over the years, the Canadian government provided Nortel with plenty of financial support to do business. Even today — amid the fall-out of the company's accounting scandal and painful financial restatement — Export Development Canada has remained on board.
The key question is whether Canada will be rewarded for its loyalty. At the end of the day, will Canada continue to play a vibrant part in Nortel's business? The troubling scenario is Nortel could become the next JDS Uniphase Inc., which has nearly disappeared from the Canadian landscape, having employed more than 10,000 people in Ottawa during the telecom boom. While JDS Uniphase is still around, its headquarters are now based in San Jose, Calif.
For those who dismiss the idea of Nortel phasing out its Canadian operations as remote or foolhardy, keep in mind the company is starting to shift R&D activity to lower-cost countries such as China and India. Earlier this month, Nortel invested US$10-million for a stake in India's Sasken Communication Technologies Ltd., which does R&D outsourcing.
If Nortel wants to be really bold, the next move will be the relocation of its headquarters to the United States from Brampton, Ont. — a move that could be sold by positioning it as a decision to operate co-headquarters in Canada and the United States to “meet the needs of customers.” It makes sense given many of Nortel's senior executives are American, and it would be easier if they didn't have to cross the border to visit the office.
As it stands, the idea of co-headquarters is probably untenable because Nortel still needs the Canadian government's support. If, however, the senior executive ranks continue to be dominated by non-Canadians, the issue could receive serious consideration. Perhaps the fear of Nortel leaving town is simply a case of paranoia but anything is possible. Rember, you heard it here first.
© National Post 2005
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