General Electric, the company that Thomas Edison founded, and now 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 big three network broadcasters). This giant 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 the legendary CEO Jack Welch, GE’s main goal was to number 1 or 2 globally in every business in which it participated. To further this goal, Welch sanctioned an aggressive and often opportunistic foreign direct investment strategy. GE took advantage of economic weakness in Europe from 1989 to 1995 to invest $17. 5 billion in the region, half of which was used to acquire some 50 companies. When the Mexican peso collapsed in value in 1995, GE took advantage of the economic uncertainty to purchase companies throughout Latin America.
And when Asia slipped into a major economic crisis in 1997-1998 due to turmoil in the Asian currency markets, Welch urges 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, Jeffrey Immelt, GE seems to be intent on becoming a true global company. For one thing, international revenues continue grow 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-bodies 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 estimate that GE will be 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 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.
Next, GE relocated the headquarters for the unit that sells equipment and 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 is GE doing this? The company believes 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 like London because it allows easier flights to anywhere in the world.
GE has also shifted research to overseas. Since 2004, it has R&D centers in Munich Germany; Shanghai, China; and Bangalore, India. The belief is that by locating in those economies where it is growing rapidly, GE can better design equipment that is best suited to 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 $500,000 and are more likely to gain sales in the developing world.
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 among the higher ranks. Country managers, who in the past were often American expatriates, increasingly come from the regions in where they work. GE has found out that local nationals are invaluable when trying to sell to local companies and governments, where a deep understanding of local language and culture is often critical.
In China, for example, the government is a large customer, and working closely with government bureaucracies requires a cultural sensitivity that is difficult for outsiders to gain. 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 to Sorrento, Italy from Florida “It was time that the Americans learnt to deal with jet lag,” according to the head of the unit.
Case Discussion Questions: 1) Why do you think GE has invested so aggressively in foreign expansion? What opportunities is it trying to exploit? 2) 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? 3) What is the goal behind trying to “internationalize” the senior management ranks at GE? What do think it means to “internationalize” these ranks? 4) What does the GE example tell you about the nature of true global businesses?