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International Business

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Question No 1: Why do you think GE has invested so aggressively in foreign expansion? What Opportunities is it trying to exploit?

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The main purpose set by the former CEO Jack Welch was being number one or two worldwide in every business in which General Electric participated. To promote this purpose, Welch introduced a number of corporate initiatives, today known as GE Operating System. Globalisation was one of the four major periodic initiatives, namely Work-Out, Boundaryless Organisation, Globalisation, and Six Sigma (Grant 2008). Globalisation of GE is notable for its aggressive investments in foreign expansion. It was aimed at “exploiting international economies of scale across GE’s business portfolio and taking advantage of global opportunities as they arise” (Bucifal 2009).

The fundamental reason for such aggressive investments can be explained by suitable foreign environment. For the GE's financial growth at a swift rate, it was essential to purchase the companies that were in financial jeopardy. The price of such companies was much lower, and these companies had already been in the corresponding competitive niche (Bock 2001).

Thus, during the European economic weakness of 1989-1995, the company invested 17, 5 billion US dollars in the European market. Half of the amount was used to purchase 50 companies. The collapse of Mexican Peso in 1995 empowered General Electric to purchase the companies in Latin America. During the 1997 Asian financial crisis that occurred because of turmoil in currency markets, “Welch urged his managers to view it as a buying opportunity.” This helped the company to acquire opportunities in Japan where the company invested $15 billion as well as in other Asian countries. (Hill 2008)

Sales growth, grow of  market share, earnings per share, dividends and per share book value (Berzon 2008), budget cutting, and acquiring economies of scope are among the reasons why GE went global asglobalisation allowed General Electric to reach a variety of new customers located in the abovementioned regions. Furthermore, GE saved work places for those people working in the purchased loss-making companies. It promoted the economy of the country to stay afloat and thereby to increase authority and influence of General Electric in the estimation of the public. On the other hand, GE reduced their costs by paying lower salary as person hours in the abovementioned regions are lower in cost than in the United States. 

Another reason why GE acted so aggressive is because they did not want to give their competitors a chance to shift the same ground.

As a result of such an aggressive expansion, in 2011 General Electric attained more than 40% of its income from global sales compared with 20% in 1985.

Question No 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?

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General Electric became a true global company under the guidance of Jeffrey Robert "Jeff" Immelt who became chief executive in 2001. The Welch’s policy of globalisation proved its efficiency and 50% of the total income in 2007 was received from international revenues. However, the most essential thing is that “overseas sales are growing even though the slowing American economy is damping sales back home” (Deutsch 2008). The analysts forecasted that by 2012 General Electric would generate 55-60% of international business, thus achieving the true multinational or global company image.

At most, such rapid international growth is achieved due to Asian dynamic economies, especially in China and India. Thus, India is the largest purchaser of wide-bodied jet engines (GE 2013), and China is congenial investment climate for power stations, railways, and airports.

In such a way, it is no wonder that General Electric has moved some of the headquarters of its global businesses from the United States. For instance, in 2004 General Electric bought the company Amersham outside London, and GE Healthcare was moved there from Wisconsin. Jeffrey Immelt was satisfied with the results and the unit for selling gas and oil equipment was relocated to Italy and the headquarter of GE Money was moved to London. Today, GE has research centres located in Munich, Bangalore, and Shanghai, thereby the designed equipment meets the requirements of local needs. For instance, MRI scanners designed by GE Healthcare cost 1,5 million US dollars apiece, but GE Chinese research centre designs MRI scanners at the price of 500,000 US dollars apiece, and such scanners afford more profit in the developing world.

By relocating its headquarters, General Electric escaped the stagnant US economy and concentrated on foreign policy, in such a way taking possessions of the growing demand for its products. Such actions also resulted in stronger connections with the government and people of the countries. In many cultural traditions, like the Chinese one, for being successful it is very important to have a high level of cultural sensitivity. Obtaining cultural sensitivities for outsiders is a lengthy process and for a company it is better in all senses to hire people of that culture.  As for example, GE Money was relocated to London in order to be closer to European and Asian customers. Being fully acquainted with customs and culture of the corresponding country, GE reduces to zero mistakes in marketing strategies (Snow, McKenzie & Kurtz 2010).  

The United States receives no pecuniary profit in the course of such actions as taxes are paid to the country where the company is located. However, it may have benefit by means of new ideas and received international experience.

Question No 3: What is the goal behind trying to “internationalise” the senior management ranks at GE?

The goal of “internationalising” the senior management ranks at GE is to be sensitive in terms of culture. General Electric reached the conclusion that only managers with deep understanding of local language and culture are able to cooperate effectively with governments. Thus, the Chinese government is a major customer, and strong partnership with public officials requires essential cultural sensitivity, which is difficult to be achieved by outsiders (Hill 2008). The company prefers to hire expatriates from the Midwestern United States with foreign accent and strong ethics for work.

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What do you think it means to “internationalise” these ranks?

In previous decades, General Electric hired only American specialists for top positions. In the course of globalisation, Jeffrey Immelt announced that the company should ‘scale globally’, yet ‘connect locally’ (Reus, Eberle, Lee & Mandelz 2009).

To “internationalise” senior management ranks means to hire country managers from the country where the company is located and needs to succeed. It leads to the global strategic dialogue, which helps to build cultural relations within the company and to carry out cooperative efforts for improving the global market power. Thus, managers from the USA increasingly travel abroad to participate in company events and management trainings. A very symbolic gesture is that GE Transportation moved its annual sales meeting of 2008 from the headquarter in Erie, Pennsylvania, to Sorrento, Italy.

What does the GE example tell you about the nature of true global business?

For the achievement of the true global image the company should work in close rapport with the customers. It affects the growth of market share and development of locations with increasing and promising market trends for the company’s goods and services. Investments in foreign expansion, for example, purchasing foreign companies in financial jeopardy, promote quick achievement of a dominant position in the competitive niche. After the considerable increase of revenue, the good step is relocating the headquarters of the company to its business areas. Obtaining cultural sensitivities for outsiders is a lengthy process, and for company it is better to hire employees at top management ranks from people of the corresponding culture. It results in the stronger connections with the government and reduces marketing mistakes.

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