Globalization at General Electric - Research Paper Example

Globalization at General Electric Corporate Profile Company Overview General Electric Company, one of the largest Industrial Conglomerate in America, was founded by Thomas Alva Edison (General Electric). Initially the company achieved market dominance by merging with various companies. In 1892, Edison General Company and a Thomson Houston, a competitor of Edison General Electric Company, combined to establish General Electric Company. With the expansion of the company, the focus of the company diversified. In this way GE built a diversified portfolio which brought growth and reduced costs for the company. The Globalization at GE appears to be an inspiring process for the people. Therefore, the aim of this report is to analyze international process at GE and the lessons which the globalization at GE has provided to entrepreneurs and managers. The current Chairman and Chief Executive Officer of GE is Jeffrey Immelt. Moreover, GE has presence in 160 countries of the world and total number of employed people at GE on December 2009 was 304,000. The company holds 2370 filed patents and in 2009, total $5.2 billion were spent in Research and Development (General Electric, 2010). This shows that GE is investing huge amount on its research and development. Corporate Office The headquarters of the company are in USA (General Electric, 2010). Following is the contact and address of GE Global Office. General Electric Head Office 3135 Easton Turnpike. Fairfield, Connecticut 06431-0001 Phone: 203-373-2211 Fax: 203-373-3131 GE Products and Services The company is offering a huge product range and services. Currently, GE is offering products and services related to Appliances, Aviation, Consumer Products, Electrical Distribution, Energy Products, Finance and Business Products, Health Care, Lighting, Media and Entertainment, Oil & Gas, Rail, Software & Services and Water (General Electric, 2010). Case Discussion Why do you think GE has invested so aggressively in foreign expansion? What opportunities is it trying to exploit? The major reason because of which GE invested aggressively in foreign expansion was the primary aim of existence of the organization. All leaders of the company have been envisioning huge goals for GE. GE adopted a huge international diversification strategy as it is evident from electronic products to financial services and television broadcasting. GE goal was to become number one or two globally in all the businesses in which it was participating and to attain this goal, foreign direct investment strategy was adopted. After pursuing international expansion strategy, the second aim was to make GE a truly global company because it was still very much an American company doing business abroad. For example, domestic revenues were still higher than international revenues. To make GE a truly global company, Immelt focused on shifting centre of gravity and brought changes in the way GE was organized and operated. For example company moved its headquarters in 2008 for GE Money to London. Another belief of GE as mentioned in the case study was “to achieve international success, the company must be close to its customers”. GE has been availing various opportunities in the foreign countries. Welch used to consider the uncertain and weak economic conditions as a buying opportunity for GE. GE has been investing in the regions facing weak economic conditions during some periods. For example, from 1989 to 1995, the European economy was weak so the company took advantage of these conditions and acquired 50 companies in the region. In this way it expanded its operations into Europe, Latin America and Asia. With an aim to understand local people needs and avail cheap local resources, GE shifted its research overseas for example in 2004; company opened its Research and Development Centers in Germany, China and India. Moreover, GE believes by locating GE offices in those economies where GE is growing rapidly, GE can better design its equipment according to local needs of customers. It not only enhanced sales for the company but it also offered low cost advantage to GE. In order to evaluate the motives of GE for expanding, the Revenues related model & Cost related model (Madura, 2009) has been used. Therefore, to increase revenues by expanding to new markets and to achieve low cost advantage, GE adopted international expansion strategy. Motives for International Expansion Means of using Direct Foreign Investment to achieve benefits Revenue related motives 1. Attract new sources of demand It appears to be a major motive for GE because GE acquired various companies in Europe, Latin America and Asia, which shows the motive to attract new sources of demand 2. Enter markets where superior profits are possible GE entered in the market where superior profits were possible because GE acquired its own competitors in the new markets 3. Exploit monopolistic advantages By acquiring the companies during the periods of economic slump, GE showed its aim to achieve monopolistic advantage. For example, during period of economic slump in Europe, GE acquired 50 companies. 4. React to trade restrictions Although it does not appear as a motive of GE however, all the economies where GE started its operations had strict trade policies. 5. Diversify internationally GE diversified internationally by identifying the opportunities in the countries for example, in China it invested in infrastructure investments because of the expanding railways, power stations and airports. Cost related motives 6. Fully benefit from economies of scale GE shifted its manufacturing of MRI scanners in China to achieve low cost advantage. The MRI Scanner which cost $1.5 million each was priced only for $500,000 in China. 7. Use foreign factors of production The investments in infrastructure in China offered low cost labour and resources to GE. 8. Use foreign raw materials The creation of Research and Development centres in India and China shows the easy access to cheap resources in these developing nations. 9. Use foreign technology By using Chinese technology, GE reduced its cost of production. 10. React to foreign exchange rate movements By establishing the offices in the developing economies of India and China, GE showed its motive to invest in economies with weak currencies but having a potential to strengthen over time. What is GE trying to achieve by moving some of the headquarters of its global businesses to foreign locations? How might such moves benefit the company? Do these moves benefit the United States? As stated by GE, the major objective of locating headquarters to foreign locations was to get closer to the customers. It could benefit the company because by getting closer to the customers, companies can better learn the needs of their customers. The traditional role of headquarters is changing, previously they were the primary source of knowledge and competitive advantage to firms and nowadays, they act as the receiver of knowledge from their internationally dispersed subsidiaries (Kinnunen, 2009). Therefore, GE achieved to relocate its headquarters because of more economic competitiveness, tax system, excellent infrastructure and central location and highly qualified labour market. GE also achieved various other benefits. MNCs allocate their headquarters in the countries which exempts foreign source income from the domestic income taxation (Huizinga, 2009). Huizinga also stated the findings of Voget (2008), who found that an increase in the tax of parent country on foreign source income by 10% results in an additional 2 percent of MNCs to relocation to an exemption country. GE Money has also availed benefit by shifting its head quarters to London. By relocating headquarters to foreign locations, the company has achieved benefits because the image of the company from a typical American company changed to a global company. Secondly, GE has shifted its Business unit headquarters and not the headquarters (General Electric, 2007) which could be because of attractive climate of foreign countries. When companies relocate their Business Unit Headquarters in foreign locations then it could be because of the attraction of industrial agglomeration and favourable business climate of the host country whereas, if companies relocate corporate headquarters, then it is primarily because of the perceived demand and opportunities offered by shareholders and capital markets of the host country (Birkinshaw, Braunerhjelm, Holm, & Terjesen, 2005). Thirdly, by changing the headquarters’ locations, GE also strived to achieve more efficiency and effectiveness. Massive shifting of headquarters of multinational was noticed between 2000 and 2006 and such moves are primarily driven by efficiency, effectiveness and legitimate factors. The relocation of GE Headquarters and the continuation of operations show the improved effectiveness of GE after making such decisions (Benito, Lunnan, & Tomassen, 2010). Companies also relocate their headquarters to avoid residual taxes imposed by home countries (Voget, 2009). In this way, the home countries suffer because their tax revenues may reduce. As a result of shift in Business Headquarters of GE, the tax revenues might have reduced but it strengthens the relation of USA with other economies. What is the goal behind trying to "internationalize" the senior management ranks at GE? What do you think it means to "internationalize" these ranks? Internationalization of senior management has been an important strategy of GE to understand the local companies and government. The goal of the company was to avoid any risk associated with culture of the host countries. GE believes that cultural and local language are critical for the success of the company and by hiring local nationals the risks associated with it could be reduced. Therefore, to enhance the understanding of senior management about local culture, GE focused on Internationalization of Senior Management. The strategy GE attempted for this purpose was Expatriation. . Moreover, by frequently attending the company meetings in other countries and by attaining management trainings, American Managers have been trying to understand the local culture and needs. Most of the MNCs are seeking to internationalize their managers and the research of Price Waterhouse and Cranfield in 1991 on large European Corporations revealed that European corporations show the need of internationalize expertise of managers however, they usually lack written or verbal strategy to internationalize their managers (Derr & Oddou, 2004). On the other hand, GE has appeared as an international company, which has aggressively pursued this strategy. Internationally experienced management teams are more capable to develop foreign strategic partners and take less time to obtain foreign sales after starting up the company, and it is because of the high degree of internationalization of the experienced management teams (Reuber & Fischer, 1997). Therefore, in an attempt to increase international expertise of managers at GE, company focused on internationalization of senior management ranks like managers and country director. Internationalization of Senior Management ranks may mean shifting senior management as expatriates on senior management positions in foreign offices. For example, the senior management at GE in China could be the American Expatriates, who have been given proper language and cultural training. Actually leadership appears to be the strongest competitive advantage of GE. According to Jeff Immelt, Chairman and CEO of GE, “We have always believed that building strong leaders is a strategic imperative. When tomes are easy, leadership can be taken for granted. When the work is turbulent, you appreciate great people” (General Electric). Therefore, because of the great consideration given to the kind of leadership at GE, the company has been successfully achieving its missions and targets. What does the GE example tell you about the nature of true global businesses? Based on the information given in the case study and the conducted analysis, various results have been drawn. The key learning is that globalization of companies is not a rapid phenomenon. It took around a century to GE to become a truly global business. The company started its process of internationalization by targeting similar markets of Europe and Latin America before reaching out to Asia. The given graph also explains the strategy of the company during the process of internationalization. The culturally distant economies like China was targeted by GE at very late stage because entering into this market required high learning. Source: Global Marketing: Foreign Entry, Local Marketing and Global Management by Johansson (2006) Another key learning is that to become a truly global company, the tag of the home country should be removed. For example, by shifting headquarters of GE Business units to the foreign locations and by getting closer to the customers, GE achieved recognition as a global company. The higher international revenues than domestic revenues may not ensure the recognition of the company as a truly global company. To become a global company, company should not only give consideration to the operations side, but it should also consider the way the company operates. Like the internationalization of company, the internationalization of senior management has also become significant. This process enhances the international expertise of doing business of managers, thereby; enabling them to understand the local needs even in a highly culturally diverse economy. In addition, for a company to become truly global, manipulating the opportunities around the world is very important. For example, the development of railways, airports etc urged GE to invest in infrastructure in China. For a company to be globally successful, attaining a competitive advantage in the market where it is planning to enter is very important. GE took the advantage by entering into the foreign markets at the right time. When European economy was facing a economic slump, companies were drawing out their investments however, GE acquired 50 companies during this period. GE considered the economic slump as the right time to invest in the European economy. Therefore, it is important for the international companies to enter into the markets at the right time. Another key learning regarding the nature of global company is that structure of a global company is not very centralized. During the process of its globalization, to shift the centre of gravity of GE, its Business unit headquarters were relocated to foreign locations. The major aim of this relocation was to take organization closer to the customer and to reduce centralization. Conclusion The analysis of the given study shows that current success of General Electric is not a rapid phenomenon, but it took GE, 130 years to establish a strong global position. The company has been pursuing its foreign expansion strategy by identifying the opportunities in various economies. The initial aim of the company was to become number one or two in each business line the company would target. Through innovation and successful strategies, GE achieved international recognition. However, to make GE, a truly global company, the organization of the company and the way it used to operate was changed. By understanding the local people needs, significant research and development established in foreign locations, relocation business unit headquarters and internationalization of senior management ranks, General Electric finally got successful in establishing an image of global company. Today, the globalization of General Electric is considered as an inspiring phenomenon for the companies planning to become international. Bibliography Benito, G. R., Lunnan, R., & Tomassen, S. (2010). Distant Encounters of the Third Kind: Multinational Companies Locating Divisional Headquarters Abroad. Journal of Management Studies , http://onlinelibrary.wiley.com/doi/10.1111/j.1467-6486.2010.00962.x/abstract. Birkinshaw, J., Braunerhjelm, P., Holm, U., & Terjesen, S. (2005, December). WHY DO SOME MULTINATIONAL CORPORATIONS RELOCATE THEIR HEADQUARTERS OVERSEAS? Retrieved September 17, 2010, from http://www.infra.kth.se/cesis/documents/WP54.pdf Derr, B., & Oddou, G. (2004). 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Global Marketing: Foreign Entry, Local Marketing and Global Management. Boston, Massachusetts: McGraw-Hill Publishing Group, 4th Edition. Kinnunen, R. M. (2009, October 30). Multinational Coporations Headquarters-Subsidary Relationship: A Potential Barrier to Internationalization. Retrieved September 17, 2010, from http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/conferences/taxforum2009/pres_Huizinga.pdf Madura, J. (2009). International financial management. Cengage Learning. Reuber, A. R., & Fischer, E. (1997). The Influence of the Management Teams International Experience on the Internationalization Behaviors of SMEs . Palgrave Macmillan Journals , 28(4), 807-825 . Voget, J. (2009, April 30). Headquarter Relocations and International Taxation. Retrieved September 17, 2010, from http://www.etpf.org/papers/31ukhq.pdf Read More