Activity objective
To weigh the internationalization of a company as a strategy to stay competitive.
Instructions
Read the following case on Globalization at General Electric and answer the questions below:
Globalization at General Electric
General Electric, the company that Thomas Edison founded, and now is the largest industrial conglomerate in America, produces a wide array of goods and services, from medical equipment, power generators, jet engines, and home appliances, to financial services and even television broadcasting (GE owns NBC, one of America’s biggest three network broadcasters). This gigantic company with revenues close to $180 billion is no stranger to international business. GE has been operating and selling overseas for decades.
During the tenure of legendary CEO Jack Welch, GE’s main goal was to be number 1 or 2 globally in every business in which it participated. To further this goal, Welch disapproved an aggressive and often opportunistic foreign direct investment strategy. GE took advantage of economic weakness in Europe from 1989 to1995 to invest $17.5 billion in the region, half of which was used to acquire around 50 companies. When the Mexican peso value collapsed in 1995, GE took advantage of the economic uncertainty to purchase companies throughout in Latin America. And when Asian slipped into a major economic crisis from1997 to1998 due to turmoil in the Asian currency markets, Welch urged his managers to view it as a buying opportunity. In Japan alone, the company spent $15 billion on acquisition in just six months. As a result, by the end of Welch’s tenure in 2001, GE earned over 40 percent of its revenues from international sales, up from 20 percent in 1985.
Welch’s GE, however, was still very much an American company doing business abroad. Under the leadership of his successor, Jeffery Immelt, GE seemed to intent on becoming a true global company. For one thing, international revenues continued growing faster than domestic revenues, passing 50 percent of the total in 2007. This expansion is increasingly being powered by the dynamic economies of Asia, particularly India and China. GE now sells more wide-bodied jet engines to India than in the United States, and GE is a major beneficiary of the huge infrastructure investments now taking place in China as that country invests rapidly in airports, railways, and power stations. By 2012, analysts estimated that GE was generating 55 to 60 percent of its business internationally.
To reflect the shifting center of gravity, Immelt has made some major changes in the way GE is organized and operates. Until recently, all of GE’s major businesses had head offices in the United States and were tightly controlled from the center. Then in 2004, GE moved the head office of its health care business from the United States to London, the home of Amersham, a company GE had just bought. Afterwards, GE relocated the headquarters for the unit that sells equipment to oil and gas companies to Florence, Italy.
In 2008, the company moved the headquarters for GE Money to London. Moreover, it gave country managers more power. Why was GE doing this? The company believed that to succeed internationally, it must be close to its customers. Moving GE Money to London, for example, was prompted by a desire to be closer to customers in Europe and Asia. Executives at GE Health Care were moved to London because it allowed more accessible flights to anywhere in the world.
GE has also shifted research overseas. Since 2004 it has opened R&D centers in Munich, Germany; Shanghai, China; and Bangalore, India. The belief is that by locating in those economies that are growing rapidly, GE can design better equipment that is best suited to the local needs. For example, GE Health Care makes MRI scanners that cost $1.5 million each, but its Chinese research center is designing MRI scanners that can be priced for $500,000 and are more likely to gain sales in the developing countries.
GE is also rapidly internationalizing its senior management. Once viewed as a company that preferred to hire managers from the Midwest because of their strong work ethic, foreign accents are now frequently heard among the higher ranks. Country managers, who in the past were often American expatriates, are increasingly coming from the regions where they work. GE has learned that a deep understanding of local language and culture is often critical and local citizens are of utmost importance when trying to sell to local companies and governments. For example, in China, the government is an important customer, and they work closely with government bureaucrats which requires a cultural sensitivity that is difficult for outsiders to obtain. In addition to the internationalization of their management ranks, GE’s American managers are increasingly traveling overseas for management training and company events. In 2008, in a highly symbolic gesture, GE Transportation, which is based in Erie, Pennsylvania, moved its annual sales meeting from Florida to Sorrento, Italy. “It was time that the Americans learnt to deal with jet lag,” according to the head of the unit.
Answer the following questions:
Checklist
The questions are answered in detail and completely.