Vive Le French connection: backlash over the Iraq war damaged business ties. Here's how CEOs mended them.

It was a tense and angry period after the United States invaded Iraq in March 2003--and France was highly critical. U.S. tourism to France tanked. Angry Americans eschewed French champagne and wines, and even publicly dumped them. Cheddar was "in," camembert was "out." The U.S. Congress turned to "freedom fries" in its own cafeteria and some elected officials urged boycotts of French goods. If that hurt the half-million U.S. employees of French multinationals, too bad, said some. Perhaps most vividly, Condoleezza Rice said, "We should forgive the Russians, ignore the Germans and punish the French" for their opposition to U.S. policy.

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In some ways, it was small time stuff. Overall, food and wine make up only 10 percent of French exports to the U.S. and only a fraction of that was involved. But chief executives of French companies and their counterparts at government ministries and agencies did not just give a traditional Gallic shrug. They recognized that calls for boycotts and cries for vengeance represented a major threat to their interests in the American market. So they revved up defensive action.

Now, three years later, it's clear that the French have successfully consolidated--and expanded--their positions in the U.S. through direct investment and have been working to increase trade. After falling 18 percent in 2003, French exports to the U.S. have started rising again, though by the end of 2005 they remained just slightly below their 2002 levels.

But it's France's investment in the U.S. that shows a real rapprochement, putting it on a par with Germany, Japan and the Netherlands, among the largest investors in the U.S., for a total of about $148 billion. Alcatel, Rhone Capital and Zodiac Group have made major recent U.S. acquisitions, fueling a rise in annual French investments in the U.S. by 81 percent over 2002 levels, after falling 45 percent in 2003. (See charts, p. 40.)

Even though the U.S. is still at war in Iraq, the French have succeeded in warming the political climate as well. The U.S. politicians and CEOs who boycotted the Paris Air Show in June 2003 showed up en masse at Le Bourget in June 2005, looking for business and wooing French companies to invest and build plants in Alabama and New Mexico, among other states. Senator Ted Stevens, an Alaska Republican who was outspoken in support of the war, was President Bush's representative at the show.

More than a handful of the French CEOs who operate in the U.S. business environment are U.S.-educated, and most speak English. They worked hard to drive home the message that "politics is not the domain of business."

In the dark days of 2003, the French Ambassador to the U.S., Jean-David Levitte, played a lead role in dissipating hostility. In letters to administration officials and members of Congress, he complained of "an organized pattern of disinformation" about France's diplomatic stance in opposing the war, and was active both publicly and privately in explaining France's policy on the war.

Another leading player was Serge Bellanger, president of the French-American Chamber of Commerce in New York. Three weeks after the U.S. invasion, Bellanger organized a steering committee of French-American business leaders to design the French business response. The group considered hiring a public relations firm and mobilizing lobbyists, but decided that any media campaign might trigger additional negative publicity. Even good publicity could have heightened awareness of France as "different."

Dual Strategy

So a dual strategy emerged: no public criticism or assessment of France's stance, and a clear line drawn between politics and business. French government officials would be urged to do their part vis-a-vis their U.S. counterparts to limit the fallout, and the business community would rely on both joint and individual tactics to survive.

Some CEOs agreed to keep a low profile:

* Accor, the French hotel company that owns Sofitel, took down the French flag from some of its hotels in the U.S., where it owns 1,250 properties including the Motel 6 chain.

* Groupe Danone Chairman Franck Riboud in Paris pointed out that in the U.S. the brand is marketed as Dannon. He emphasized that it was an American company in America. Danone also owns Evian, which is distributed in the U.S. jointly with Coca-Cola.

* Michelin, which employs 20,000 Americans, decided to remain mum about its contracts to supply the Army and the Air Force. But it did produce a set of in-house responses to its personnel and sought to publicize the fact that at least 1,000 reservists among its employees had been called up for active duty in the U.S. military.

Not all French CEOs played it the same way, of course. Companies such as Air Liquide, which has 4,000 U.S. employees in 200 locations, and Zodiac Group, which has 8,000 employees, proceeded with a "business as usual" formula. Both Air Liquide CEO Benoit Poitier and Zodiac CEO Jean-Louis Gerondeau are adept at English and comfortable in U.S. boardrooms. Gerondeau's Harvard MBA earned him, along with the degree, a network of relationships in the U.S. business community.

Air Liquide has been expanding steadily since 2003. Industrial and medical gases along with chemicals are the major part of its sales, and in the first quarter of 2005 the company started a large hydrogen unit in El Segundo, Calif. It is planning additional production capacity for hydrogen in Texas, California and Washington state. "We watch the movement, work to the edge and plan beyond," Poitier says.

Zodiac, which supplies aerospace safety systems, aircraft and marine transport, and advanced technology to the U.S. military and commercial airlines, also has been fortifying its strength in the U.S. Zodiac acquired C & D Aerospace last summer and in January 2006, a 20 percent share of Water Pik Technologies, purchased together with The Carlyle Group. "Frankly," says Gerondeau, "I don't think the word 'France' was mentioned."

Of all French industries, the most vulnerable to backlash was clearly aerospace, and no one seemed more in jeopardy than Dassault Falcon Jet, because purchases of its private planes are highly visible, symbolic acts. "The more abstract the product, the less is the problem," says Jean G. Rosanvallon, president of Dassault Falcon Jet, USA.

He and his press relations group analyzed a huge portfolio of anti-France press stories. Rosanvallon shored up his many personal contacts and stayed in close contact with his Paris offices and the French embassy in Washington, D.C. He wrote to employees even before the U.S. invasion explaining that DFJ had been in the U.S. since 1972, and had locations in New Jersey, Arkansas and Florida with 2,500 U.S. employees. Moreover, its manufactured systems and components, in conjunction with Honeywell, GE, Pratt & Whitney and many others, make the Falcon "a truly French-American product," he said.

But the inevitable had to happen. Several U.S. companies, whom Rosanvallon doesn't identify, put DFJ on notice that cancellations and "de-accessions" were possible, though "deeply regretted." Some clients went so far as to write a letter to President Jacques Chirac as well as to Rosanvallon, criticizing French government policy. One customer, citing possible criticism and damage to his public image put his order for a third Falcon on hold. Sales fell by 50 percent in 2003.

Rosanvallon assured at least one client that "we are actively in touch with government officials in France in an effort to restore normal and cordial relations between our two nations as soon as possible." Ambassador Levitte wrote to another client describing long and cordial U.S.-French relations in hopes of maintaining a faltering order for a Falcon.

The coordinated campaign worked. Rosanvallon says that sales picked up in 2004, surging in the final quarter and increasing even more in 2005. "We were on the edge," he says, "but now that's history." He says sales in 2005 were 10 percent higher than in 2002.

Will the effort to defend the French connection continue to work? U.S. tourism to France has not shown an upswing yet. Some blame can be ascribed to the weak dollar, some to continuing anger and confusion with France's politics. Recent race riots have not helped either. Wines, too, are still a problem, and in some more politically conservative regions, boycotts continue. In big cities, though, it's business as usual, says Michael Aaron, CEO of New York's Sherry-Lehman Wine & Spirits. "Our customers continue to ask for the wines they know and like," he says.

Overall, however, it does appear that the French have expanded their positions in crucial manufacturing and financial sectors to the point that they can use their employee bases as politically savvy tools in state capitals and in Washington, much as the Japanese do. They've succeeded in defusing anti-French sentiment in critically important sectors such as defense and aerospace, and Airbus is holding its own with U.S. airlines despite tough rivalry with Boeing. Ambassador Levitte points out that about 50 percent of each of Airbus' new A380 top-of-the-line jets is made in the U.S.

And equally important, after years of moving into the U.S. market without significant coordinated action, the improved pattern of cooperation among the private sector, government and the Chamber of Commerce has given the French new political clout. No one knows where the next geopolitical lightning bolt will come from, but for now it's a good bet that the French-American business connection will endure for years to come.

France's Post-Iraq Rapprochement

French Imports into the U.S.

(In billions)

2002   $32
2003   $27
2004   $28.4
2005*  $30.6

*Est. based on year to October
Source: French Economic Mission to New York

French Investment in the U.S.

(In billions)

2002    $6.0
2003    $3.3
2004    $9.2
2005*  $10.9

*Est. based on year to October
Source: U.S. Dept. of Commerce

Note: Table made from bar graph.