Impact of Globalisation on General Electric (GE) Policies
Increasing forces of globalisation have altered the terms and nature of conducting business considerably and irreversibly. As a result of globalisation businesses have been presented with a range of opportunities to contribute to the level of their revenues and these opportunities primarily include outsourcing various business processes abroad and exporting products to other countries.
General Electric Company (GE) is a globally diversified technology and financial services company and its products and services include aircraft engines, power generation, water processing, and household appliances to medical imaging, business and consumer financing and industrial products (General Electric Co, Bloomberg, 2013).
GE has achieved an international growth of 18% during 2011 which has contributed to company consolidated revenues of $147 billions during the same period of time. Moreover, 13,000 jobs were created by GE in US during 2011, and international sales of American-made products by GE had amounted to $18 billion during that year (GE Annual Report, 2011).
This report evaluates the impact that globalisation has had on the policies of GE and specifies changes needed to be implemented taking into account the recent economic crisis in the USA and the global financial recession. The report addresses GE policy changes impacted by globalisation in an individual manner by referring to other relevant publications, and changes proposed for GE in the report have been justified in a detailed manner.
- Impact of Globalisation on GE Policies
GE has attempted to take full advantage of possibilities provided by globalisation by formulating relevant policies mainly during the last decade under the leadership of its CEO Jeff Immelt. Financial Time’s Crooks (2012) recites the following words from Immelt: “When I became CEO [in 2001] we were 70 per cent inside the US industrially. Now we are 60 per cent outside the US”.
The specific impacts of globalisation on GE policy changes involve outsourcing of manufacturing plants to developing countries, the shift of research and development centres overseas, the shift of various divisions of company head offices overseas, concentration to local workforce in GE overseas operations, and increased focus on exports. The nature of these changes and pros and cons associated with them are discussed further below in a more detailed way.
2.1 Outsourcing of Manufacturing Plants to Developing Countries
GE international manufacturing plants have been set up in a range of countries, but the focus has been made mainly on Mexico, China and India. The main rationale behind the formulation of this strategy directly relates to cost saving considerations associated with human and other resources available in these countries.
Specifically, due to the initiatives of maquila policies in Mexico, Special Economic Areas in China, and India’s recent economic reforms, favourable conditions have been created in these countries to attract foreign direct investment to be committed by large multinational companies (Vietor and Veytsman, 2007) and GE is taking advantage of these opportunities in a great extent.
It has to be noted that the practice of outsourcing manufacturing plants to developing countries is not unique to GE, and growing numbers of businesses along wide range of industries have been engaged in this practice with varying degree of success.
However, it is important to highlight that the practice of outsourcing manufacturing plans also has some disadvantages for GE. For example, by engaging in outsourcing GE compromises the level of control over the manufacturing process, and this may have a negative impact upon the quality of products. Moreover, outsourcing may involve hidden costs and legal issues may arise if relevant terms and conditions are not clearly specified.
2.2 Shifting Research and Development (R&D) Centres Overseas
In order to take advantage of opportunities offered by globalisation GE has shifted a number of its important R&D Centres overseas. Nowadays, GE global research locations include Global Research Headquarters in New York, John F. Welch Technology Centre in Bangalore, China Technology Centre in Shanghai, Global Research in Munich, and Brazil Global Research Centre in Rio de Janeiro.
Effective R&D has been traditionally one of the main sources of GE competitive advantage (Magee, 2009). By opening its major R&D units in different continents GE became better positioned to design equipments and products that are best suited to the specifications of local needs.
For instance, GE Health Care division in London produces MRI scanners that have a price tag of $1.5 million per unit, and the same product is produced in China Technology Centre in Shanghai for $0.5 million taking into account macroeconomic realities of the developing country.
The opening of John F. Welch Technology Centre (JWTC) in Bangalore on 17 September 2000 has been assessed as an important strategic move by GE by many business researchers and practitioners. “It started with 275 employees and by November 2003, the number of employees increased to 2200” (Rajan and Rongala, 2008, p.155).
Scientists, researchers and engineers within the centre collaborate in virtual teams with their colleagues who are located in different countries in fields like Power Electronics, Colour Technology, and Composite Material design. Moreover, “operations in India involved crucial knowledge functions such as non-standard software development, critical network management, real-time systems monitoring, and global product design and development” (Inkpen and Ramaswamy, 2006, p.82) and this made further increased the level of effectiveness of various business operations.
2.3 Shifting Head Offices Overseas
Intensifying forces of globalisation has also impacted GE policies in a way that a range of important division head offices were shifted to other countries. Healthcare business of GE became the first large division of the company to be managed outside of US in UK’s Buckinghamshire village of Amersham, following a purchase of a local bioscience company called Amersham by GE for £5.7 billion in 2003 (Roberts, 2010).
Moreover, the same strategy has been adopted in relation to oil and gas division head office that has been shifted to Florence, Italy, and GE money, financial services division head office has been relocated to London in 2008.
GE policy of shifting head offices of its various divisions overseas has both, positive and negative implications for the company long-term growth. The advantages gained by GE as a result of relocating several of its head offices in London include becoming geographically closer to serve the vast European market. “The move of GE Money to London, for example, was prompted by a desire to be closer to customers in Europe and Asia. Executives at GE Care like London because it allows for easier flights to anywhere in the world” (Hill et al, 2006, p.4)
2.4 Priority for Local Workforce in GE Foreign Operations
Strategic level management in GE have long recognised the advantages of employing local workforce in foreign branches of the company and accordingly, relevant provisions have been introduced in company policy and the proportion of non-US workforce against US workforce has been steadily increasing during the last several years.
Specifically, “GE’s non-US workforce numbered 170,000 at the end of 2011. The figure was up 10% overall from the previous year and up 11.8% when excluding the loss of internationally based NBC Universal employees” (Sechler, 2012).
The policy of increasing the numbers of local workforce within its international subsidiaries in general, and internationalising the senior level management in particular provides specific benefits to the company that include gaining valuable knowledge about the characteristics of the local marketplace, and it might have a positive contribution to GE image in a host country.
Moreover, the practical implementation of this policy assists GE to gain knowledge about the local culture and avoid difficulties and misunderstandings that may arise due to cross-cultural differences.
2.5 Increased Focus on Exports
Another important opportunity enabled by increasing forces of globalisation that is being effectively utilised by GE relates to the possibility to engage in an international trade. According to Annual Report (2011), GE’s US exports have amount to $18 billion during 2011, which is increase of a $1 billion from the previous year.
As the leading exporter in the US, a range of GE’s products such as jet engines, gas turbines, locomotives, media content and financial services are in demand in other countries. Interestingly, “some of the GE facilities in the US produce mainly for foreign markets. For example, GE Energy’s Greenville, SC facility manufacturers and assembles gas turbines for export” (Istrate et al, 2010). Canada, France and Germany are traditionally major export markets for GE products made in USA, and Brazil and China have also recently joined the list of five top export markets.
Moreover, according to Alessandri (2009), GE’s CEO Jeff Immelt has taken on a personal mission to improve the level of US exports in general speaking about the issue at an economic forum in Montreal in June 2009.
Arguably, among GE policy changes impacted by globalisation discussed above, enhancing the volume of exports can be specified as a policy that has only positive implications for the company, as well as the US government. These implications are straightforward and include increasing levels of revenues and the creation of new jobs.
- Changes Needed to be Implemented in GE
Specific changes need to be implemented in GE taking into account the current macroeconomic realities that have been impacted by the recent economic crisis in the USA and the global financial recession to ensure the long-term growth of the company in a global level. These changes include, but not limited to increasing the level of focus on dealing with cross-cultural differences, enhancing the level of flexibility of the business, finding effective balance in proportion of US and non-US workforce, to be seeking constructive collaboration with the US government, and re-launching GE E-Commerce division.
3.1 Increasing the Level of Focus on Dealing with Cross-Cultural Differences
Defined as a way things are done within specific groups (Corey et al, 2008), culture is an important aspect of the business not to be overlooked by GE in international markets. In other words, the level of cross-cultural awareness of GE workforce need to be increased so that misunderstandings caused by vast differences between US and Asian and other cultures can be avoided.
It is important that cross-cultural awareness classes are provided to all members of GE workforce regardless of industry and managerial ranks. This is because even when any particular manager based in the US is not assigned to operations on a foreign country, there are substantial chances that the manager is going to interact with representatives of other cultural background in a professional capacity and the lack of cross-cultural awareness may cause misunderstandings with potential negative implications for the business.
Moreover, globalisation has caused the workforce within the US as well to belong to various cultural background (Nolan, 2008), and from this perspective investing on the level of cross-cultural awareness on GE workforce is likely to contribute to the level of overall effectiveness within the organisation.
3.2 Enhancing the Level of Flexibility of the Business
The idea for GE remaining flexible like a small business amid its gigantic size has been long advocated by former CEO Jack Welch, and this fact has had immensely contributed to the success of the company. However this important issue is not attracting a due level of attention from current CEO Jeff Immelt, and this casts concerns about the level of GE competitiveness in the future.
This is because the importance of flexibility is greater today for GE than ever before due to highly uncertain macroeconomic environment in US and the dynamic nature of the global economy in general. Moreover, the requirement for flexibility is imposed to businesses by rapid technological advancements and increasing role of internet-related technology in facilitation of various business processes (Caselli, 2012).
Therefore, it is necessary for GE to re-emphasize the importance of remaining flexible across all management levels, so that the company would be able to respond to changes in global and local market environment in an operative manner.
3.3 Finding Effective Balance in Proportion of US and non-US workforce
There are obvious advantages for GE in employing local workforce and in its foreign subsidiaries and internationalising the senior level management. These advantages include cost-saving and obtaining valuable knowledge and experience about specific characteristics of a local market.
However, one should not forget that “in 1989, the closing of a GE plant in Morristown, Tennessee, gave birth to a community-based local organisation called CATS: Citizens Against Temporary Services” (Lee, 2007, p.247) activities of which resulted in a considerable blow to GE brand image.
If GE continues to pursue its credo of becoming a truly global company ignoring rising discontent among US population and various non-government organisations about jobs being shifted overseas this may cause GE to attract public criticism with the aid of the media and consequently a massive blow to GE brand image might prove to be inevitable.
Accordingly, specific measures need to be introduced by CEO in order to address this issue in an effective manner. These measures need to include finding and maintaining and appropriate balance in proportion of US and non-US workforce employed by GE, and to be effectively communicating the instances of job creation for US workforce to organisational stakeholders through efficiently integrating various marketing communication channels.
3.4 Seeking Collaboration with US Government
The idea of seeking collaboration with the US government is related to the previous point discussed above; however this specific change proposal implies an adoption of a proactive approach towards reaming highly competitive in the global marketplace.
It is important to acknowledge that it is highly challenging for GE to remain competitive in the global level without the assistance of the US government. According to Lou and Wang (2009), large multinational companies in China, a country from where future GE competitors are likely to emerge, gain practical assistance from Chinese government in relation to various aspects of the business.
In the US, on the other hand, the relationships between global entities like GE and the official government are less constructive, and many government initiatives to assist global private entities are likely to be perceived as the waste of violation of public interests, and thus the government is discouraged to negotiate with large corporation the ways in which they can obtain help from the government to become more competitive.
Although it is a challenging task to accomplish, GE CEO has to strive to seek collaboration with the US government in terms of gaining its assistance in increasing the level of competitiveness of the company. The type of assistance to be asked by GE CEO from the US government includes negotiating trading terms with major trading partners such as Canada, Mexico, and China.
There are chances that GE CEO would be able to build constructive relationship with the US government if the company succeeds to communicate the importance of GE to the national economy to the government and other organisational stakeholders.
3.5 Re-launching GE E-Commerce Division
GE’s E-Commerce division had been launched in 2000 only to be sold two years later to Francisco Partners for $800 million due to the official formulation that e-commerce division did not integrate with GE core services. GE E-Commerce division consisted of Global eXchange Services that managed business-to-business transactions over the internet, and only 10 per cent of the business was retained by GE after the sale.
However, there have been dramatic developments in e-commerce industry since then with e-commerce websites such as Google, Facebook, and Amazon becoming multi-billion businesses in a matter of only several years. Moreover, it can be argued that some e-commerce businesses are developing partially at the expense of traditional offline businesses and this fact further increases the importance of the sector to be focused by GE.
Therefore, E-Commerce division needs to be re-launched by GE CEO and the most competent employees at various levels need to be attracted into the unit. Justification for this specific change proposal within GE relates to the fact that unlike offline business environment E-Commerce provides wider opportunities for creative and there are many potential businesses that currently have no analogue and by initiating them GE can gain the first mover advantage.
GE is among the first big companies that recognised the opportunities created by increasing forces of globalisation and embraced them with the leadership of its legendary CEO Jack Welch. Under the new CEO Jeff Immelt starting from 2001, on the other hand, GE has pursued a goal to become a truly global company and this goal has been achieved by now to a certain extent.
The main rationale behind outsourcing manufacturing plants to developing countries, shifting R&D centres and head offices of some divisions to other counties, and concentrating on employing local workforce has been declared as becoming closer to international customers, but it can be argued that cost saving considerations prevail among any other reasons for GE’s engagement in such practices.
This report has identified that globalisation has impacted upon a range of GE policies that include involve outsourcing of manufacturing plants to developing countries, the shift of research and development centres overseas, the shift of various divisions of company head offices overseas, concentration to local workforce in GE overseas operations, and increased focus on exports.
Necessary changes need to be introduced within GE business strategy so that the company would be better positioned to face the demands of the modern global economic environment. This report has proposed these changes as increasing the level of focus on dealing with cross-cultural differences, enhancing the level of flexibility of the business, finding effective balance in proportion of US and non-US workforce, to be seeking constructive collaboration with the US government, and re-launching GE E-Commerce division.
In summary, GE has been able to gain substantial benefits from the changes in the marketplace resulted from increasing forces of globalisation up to now by devising effective business strategy. However, further intensifying level of globalisation may create substantial challenges for GE due to the emerging economies like China and India claiming for a greater role in the global marketplace.
In other words, nowadays, companies within newly emerging superpowers in general, and China and India in particular are gaining the level of experience and competence sufficient enough to become potential competitors to GE in the near future. Therefore, changes highlighted in this report need to be implemented so that GE would be able to successfully compete with such companies.
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