IBM's operation in France was "promising"—but from the first years, a small and fragmented market. In 1919, CTR established its first European sales office in Paris, using Heidinger's original Dehomag as sales agent. With only a dozen French customers, IBM France, in 1925, opened a manufacturing factory and a branch in Lyon. As late as 1927, IBM was fighting a pitched battle with rival Powers Company for the small French market. Each firm had snared just 30 customers using approximately 50 sorters and tabulators fed by about 300 punching stations. Then in 1931, the Swiss company, Bull, appeared in France with a new low-cost integrated machine that seemed to outperform the Hollerith. Bull's first installation was at the French Ministry of Labor.
12
Even though Bull enjoyed but a single client in 1931, Watson saw the new company as a significant threat. IBM ramped up its competitive machinery to neutralize the new firm. Watson personally inspected Bull machines at French government offices with an eye toward buying the company outright. At about that time, IBM signed up the French Ministry of War, which would become a major client for complex Hollerith systems. By 1932, IBM France had expanded to more than sixty-five customers. Protracted discussions between Watson and French Bull owners broke down. So IBM purchased the original Bull rights in Switzerland, this to the shock of French Bull. Immediately after closing the deal, Watson went further, hiring Emile Genon, the very Bull manager who had sold IBM the Swiss rights. French Bull voted to dishonor the contract as anti-competitive and even moved to separate from its Swiss sister company. The serpentine Bull acquisition controversy led to years of lawsuits in Switzerland and France as IBM challenged Bull's right to sell its own designs, and Bull sued for unfair competition.
13
Watson restructured his French organization in 1936, creating a new subsidiary named Compagnie Electro-Comptable de France, or CEC. By the outbreak of war, CEC had hundreds of machines installed, many of them concentrated in just three sectors: banking, railroad, and the military. IBM now dominated the French market with about 65 percent of usage in France proper, and virtually the entire market in France's colonies, especially North Africa and Indochina. Bull, beset by financial problems, undoubtedly linked to its endless litigation with IBM, secured only 25 percent of the French market share, mainly among governmental and banking clients. Powers clung to its marginal 10 percent segment.
14
As France edged closer to war in the late thirties, French War Ministry orders greatly exceeded CEC's limited factory output. From 1937, excess French military orders were placed directly with IBM NY. In the approximately two years before war erupted in 1939, IBM NY shipped the French military alphabetizers yielding nearly a half million dollars in rentals, as well as $350,000 in spare parts. All of France utilized some 426 million punch cards in those two pre-war years; they were printed locally, ordered from other European subsidiaries, or imported from the U.S.
15
But everything changed in French automation when the country was partitioned in June 1940. The Franco-German June armistice was signed less than three weeks after Watson returned Hitler's decoration. Dehomag's revolt was in its initial tempest state. Nazi forces immediately seized hundreds of CEC Holleriths. A special "requisitioning" platoon familiar with IBM tabulators was attached to the First Panzer Division to effect the confiscation. Machines were carted off from CEC's warehouse and workshops, and even removed from CEC's customers, such as the electric company in Strasbourg and a gamut of armament firms. The largest collection of Holleriths was swept from France's War Ministry, especially the Ministry's tabulator service.
16
In all, 319 Holleriths were commandeered, spirited out of France, and dispersed to waiting Reich customers throughout Germany. Dozens of verifiers, sorters, and alphabetizers were placed at the
Maschinelles Berichtwesen
and its many punch card field offices throughout conquered Europe. Many of the devices were assigned to key German war industry companies. Some were deployed at Nazi occupation offices in Krakow and Prague. The largest group of Holleriths was transported to
Luftwaffe
bases and the German High Command.
17
CEC officials logged each machine by original client location, serial number, and leasing valuation so CEC could make a claim in Berlin for payment. These logs were sent to IBM NY for review as soon as they became available. Likewise, German authorities kept meticulous records of each of the 319 requisitioned machines by original site, monthly leasing cost, and new location within Nazi Europe. Although the machines at first were forcibly removed, IBM actually found the action conducive to better relations with the Reich and quite profitable. CEC managers billed the Reich for each machine, and company representatives squabbled with the authorities over precisely how much would be paid for each device. In the fourth quarter of 1942 alone, the German Army paid CEC 9.4 million French francs—equal to about $100,000—for leasing, service, spare parts, and punch cards.
18
Quickly, CEC's profits soared. Volume doubled from 1939 to 1942 to FF101 million for 1942. During that same period profits almost quadrupled to FF26.6 million in 1942, of which FF16.3 million was designated "royalties." Those monies were derived almost entirely from orders placed by Dehomag and German agencies. For example, the 250 sorters manufactured by CEC in 1942—double the 1938 output—were all ordered by Dehomag. What domestic activity CEC did undertake was generally some miscellaneous card printing and reconditioning of the oldest machines not yet requisitioned.
19
Clearly, CEC had been converted into a captive supply source for Dehomag. This was done with IBM NY's full concurrence. In fact, to meet Dehomag's increasing demand, Watson in 1941 approved the construction of two new factory sites. One plant was added to the manufacturing complex at Vincennes, outside of Paris. A second factory compound was erected at Essonnes, twenty miles south of Paris, not far from rail facilities. A March 24, 1941, report from CEC management to IBM NY explained, "The equipment demanded by our customers . . . has caused that the capacity of our present factory at Vincennes was bound to be exceeded very rapidly." Until the new factory was completed, CEC would use outside "jobbers" to supply parts.
20
IBM NY was continuously kept informed about CEC's progress by a variety of formal and informal means. Sometimes, it was just a handwritten letter, such as the one written in English to a manufacturing executive at Endicott by Dehomag engineer Oskar Hoermann. Hoermann was a principal IBM liaison between the German company, the
MB
in Berlin, and CEC.
L
YON
, F
RANCE
April 30, 1942
Dear Jimmy,
I am on a business trip in the unoccupied France and take this opportunity of giving a sign of myself. I am not in the army yet, since we have become increasingly important. Even C.E.C. Paris works for us now. We opened up a small assembly plant in Kuchen, 50 miles from Sindelfingen, and will soon open up another little plant about 100 miles away. Not because we think it wise to decentralize, but because we have to move our work where we have workers available. Once in a while I go to Paris. They have purchased a second little plant at Essonnes, about 30 miles from P[aris]. The main office has moved to Place Vendome.
How are you people at Endicott? . . .
With my very best regards to you and your family,
I remain yours
Sincerely,
O.E. Hoermann
21
IBM Endicott's executive offices received Hoermann's handwritten letter July 20, 1942, in the morning mail.
22
But most reports to Watson were far more detailed. For example, in early 1943, more than a year after the U.S. entered World War II, IBM NY received CEC's regular quarterly financial report for the fourth quarter of 1942. The thirty-two-page, single-spaced report summarized in great detail, and illustrated with numerous tables, all the fiscal pluses and minuses of CEC's business with Germany. Income columns for each month, expressed in French francs, showed the increase over the previous year, with a 1942 total of FF16.311 million compared to 1941's FF11.377 million. January 1942 in come was particularly impressive, showing revenue of FF1.2 million—double from a year earlier. Special notes attributed FF9.4 million, or about $100,000, "paid by the German Army for rental of requisitioned machines." CEC managers were careful to include detailed charts of how the subsidiary's performance measured up against its assigned profit quota—a point system—established by IBM NY.
23
Sales and expenses were analyzed by financial quarter and product. Competitor activities at Bull and Powers were summarized for both the Occupied Zone and Vichy. Line items were entered for maintenance on the machines used by the German High Command, FF304,059, plus an extra adjustment of FF3.79 million for yet another category of machines and maintenance provided to the German High Command.
24
CEC's report also emphasized France's dire paper shortages. The Nazis had temporarily authorized a Dehomag paper vendor to supply CEC, but that permission had ended because of Europe's general scarcity. "The outlook was very dark," CEC's report confessed, adding, "we tried to obtain paper by all available means." By scrounging from source to source, CEC hoped it could persevere a few weeks at a time. Among its precious remaining stock of 262 rolls was a cache of 93 rolls from IBM NY.
25
Symptomatic of the paper scarcity, CEC reported, was the summer 1942 crisis at Mandeure, the French subsidiary's one remaining paper supplier. Mandeure warned CEC that it could not supply further paper for punch cards without additional shipments of the vital coal and cellulose it needed for pulping. Claiming an emergency, CEC was able to intervene with Nazi rationing authorities, "pressing them for an allotment of coal and cellulose to 'Mandeure'. . . . This allows us," reported CEC, "to live under the most drastic restrictions which we imposed on our customers." But by the end of 1942, even CEC's compromise alternative suppliers were being exhausted.
26
Yet CEC could only hope profits would continue to rise based on increased machine orders for the Reich supplemented by ancillary punch card services. CEC's 1942 report itemized for IBM NY a wealth of Dehomag orders aggressively being filled despite wartime conditions. Order #52769 for 50 collators would commence shortly with five machines monthly. Order #55158 for an additional 100 collators would be scheduled as soon as raw materials permitted. Order #52768 for 50,000 sorting brushes would be satisfied with 5,000 per month.
27
In addition, CEC's report listed its crucial training courses for punch card operators. Course #10B enrolled 45 keypunch students. Course 11B enrolled an additional 45 students. Course #12B taught 36 students. Schools for Hollerith operators were conducted night and day with course #131 training 94 evening students, course #133 training 16 day students, and courses #134 and #135 enrolling a total of 86 more.
28
Germany's voracious labor and military draft requirements had created a punch card emergency. CEC was not only churning out machines and punch cards, but also skilled operators to make them work for Germany.
To further expand its market, CEC was aggressively serving clients in France's colonial territories now controlled by Vichy. Of CEC's 848 employees, 5 worked at CEC offices in Algeria, 5 in Casablanca, and 3 in Indochina.
29
CEC had become a veritable satellite of Dehomag. The subsidiary maintained a direct link to the Nazi Party. Although Watson's director general was Roger Virgile, the Nazis had appointed one of their own men, a Dehomag agent named Heinz Westerholt, to act as CEC's
Kommissar
. Westerholt was more than a Dehomag employee. He joined the NSDAP (Nazi Party) on May 1, 1933, shortly after Hitler assumed power; the Party issued him membership #2,781,981. Later that year, Westerholt was inducted into the SS, which issued him identification #272,239. In October 1934, Westerholt became a management employee of Dehomag.
30
IBM NY was aware of Westerholt and his Party connections from the outset. Westerholt first became active in CEC's business when he visited Paris in summer 1940 during the Nazi effort to create a punch card cartel. Chauncey kept tabs on Westerholt by a combination of rumors and reports relayed through IBM Geneva, and remained in constant contact with CEC, as well as Otto Kiep and attorney Albert in Berlin. Chauncey clearly identified Westerholt to New York as the Dehomag agent with Nazi Party status who was deployed to undermine IBM's interest in Paris. For his part, Westerholt was among those incensed at Watson for slighting
der Fuhrer.
At one point, Westerholt openly repeated Dehomag's prevailing view: Watson's opinions were "not of great importance" because he had returned Hitler's medal.
31
But cooperation with the Third Reich was imperative for Watson. The recurring crisis of IBM retaining its dominance in Axis punch card operations was again peaking in fall 1941. The urge to create a German-controlled cartel was again confronting IBM NY. In that vein, the Reich began to view CEC as one of a geographical triad of IBM subsidiaries along with Belge Watson in Brussels and Watson Bedrijfsmachine Maatschappi in Amsterdam.