General Electric (GE) Case Study

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Submitted: June 26, 2017

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General Electric Case Study

 

Let us discuss the case study of General Electric (GE) which includes the background of GE and its characteristics, innovation and change, why GE bring its manufacturing to USA from China, GE competition, results of change due to the shift in market move, existing market position of GE today in USA. GE is one of the highly innovative companies in the world. GE works on toughest challenges to transform imagination trough creativity into innovations. They find solutions for energy, health and home, transportation and finance. This company differentiates itself by building, powering, moving and curing the world. GE ensures that they invest in their leadership, personnel, and work environment to support the creativity and innovation. (O.M. Ngoie, 2014, Page 5) “General Electric formerly entered a foreign market by either acquiring an established firm or establishing a greenfield subsidiary.” (Hill.C.W.L, 2009, Page 440) There are many reasons behind GE brining the manufacturing to USA from china like many common cost factors such as labor, shipping, and currencies.GE mainly focused on innovation. With respect to competition, GE thinks that global competition from emerging markets is a challenge to face, but not an impossible one. To meet that competition, GE need a strong core of innovation and a stable financial system built around helping small and medium-size businesses and industrial companies to succeed. (n.d, 2013) Moving of manufacturing to USA brought positive impact on USA as it “helped create over 4,000 jobs since 2008, and contributed an additional 18,000 jobs to GE’s US suppliers from increased domestic sourcing.” (Hines.Z,2015,Page 3) With respect to current market, “GE has rapidly expanded its international presence over the past decade. For the first time, in 2007 the company derived the majority of its revenue from foreign operations.” (Page 441) Also, under the leadership of CEO Jeffrey Immelt, GE has adopted aggressive growth goals.

Background of GE Company and Characteristics of Innovation and Change.

General Electric is an iconic American company that has been in business since 1892. GE has continuously innovated leading-edge products since its beginning, and currently produces products for industries such as technology, energy, oil, healthcare, and home appliances. GE employs over 300,000 people world-wide in roughly 140 countries. In March 2012, GE decided to reshore some of its appliance manufacturing to Louisville, Kentucky at a price tag of $1 billion dollars for the newly renovated Appliance Park facility. The main products that GE is reshoring from China and Mexico include a high-quality bottom mounted refrigerators, Geo-spring water heaters, and front-load washing machines. (n.d, 2015) Since the early 2000s joint ventures have become one of the most powerful strategic tools in GE’s arsenal. To enter the South Korean market, for example, GE Money, the retail lending arm of GE’s financial services business, formed joint ventures with Hyundai to offer auto loans, mortgages, and credit cards. GE has a 43 percent stake in these ventures. Similarly, in Spain it has formed several joint ventures with local banks to provide consumer loans and credit cards to Spanish residents, and in Central America it has a joint venture with BAC-Credomatic, the largest bank in the region. (Hill.C.W.L, 2009, Page 440) GE implemented this joint venture strategy because "prices for acquisitions have been bid so high that GE is reluctant to acquire for fear of overpaying. Better to form a joint venture, so the thinking goes, than risk paying too much for a company that turns out to have problems that are discovered only after the acquisition.” (Para 2) “The new reshoring strategy of creating new and innovative products here in the U.S. will have a great advantage over top competitors such as Samsung and LG, leaders of the white goods industry within the USA.” (n.d, 2015, Page 2, Para 2) Also GE implements countertrade agreements in which western firms that are large, diverse, and have a global reach similar profit advantages from countertrade agreements.

What makes GE to move manufacturing from China to USA:

As I mentioned above, the main decision factor of moving manufacturing from China to USA is to reduce costs. “The principal tool that most managers now use to increase the reliability of their product offering is the Six Sigma quality improvement methodology.” (Hill.C.W.L, 2009, Page 470) So GE also introduced the same six sigma manufacturing techniques to help reduce defects, and they started offshoring some of their products to lower their labor costs. “In addition to the lowering of costs and the improvement of quality, two other objectives have particular importance in international businesses. First, production and logistics functions must be able to accommodate demands for local responsiveness and second, production and logistics must be able to respond quickly to shifts in customer demand.” (Page 472) as time-based competition has grown more important. When consumer demand is prone to large and unpredictable shifts, the firm that can adapt most quickly to these shifts will gain an advantage.

The other decision factor for moving to USA “was access to an experienced and youthful work force. Workers in Kentucky have adapted to the new technology and processes quickly, which has helped to increase long-term efficiency.” (n.d, 2015, Page 2, Para 4) GE’s new method of collaboration and empowerment between engineers, designers, and assembly workers has become quite effective. These teams work together with management to decide how to reduce manufacturing hours per unit. For example, the dishwasher division has been able to reduce production time per unit by 68% and reduced the space needed by over 80%. “Incentives also played an important role in the decision process for GE. These incentives totaled over $20 million for the initial effort.” (Para 5) GE negotiated a new starting wage, and made it possible to cross train and move employees to different manufacturing lines depending on demand. Changes in relative economics are part of the reasons for the change. Oil prices are three times what they were in 2000. Natural gas in the US is a quarter of what it is in Asia. Chinese wages are five times what they were in 2000 and are expected to keep rising rapidly. And labor is a steadily decreasing percentage of the cost of manufacturing. (Denning.S,2012, Para 6)

GE Competition:

As mentioned above, to meet that competition, we’ll need a strong core of innovation and a stable financial system built around helping small and medium-size businesses and industrial companies to succeed.  The firm's strategy is very clear to be the top in every industry they are in among the competitors. “Foreign companies have entered many formerly protected industries in developing nations, increasing competition and driving down prices.” (Page 6) The number of strengths in the above table indicates that GE Company is growing and enhancing its profitability. Its global recognition, strengths strategies and competitiveness allow GE to be in a favorable position as compared to its competitors, in the same sector. The use of business units for management presents an effective way to manage the sprawling company. This situation not only reduces the possibility of overpowering senior management with work but likewise promotes productivity based on accountability expected from the business unit managers. The company undertakes multi-activities which highly contribute to effectiveness. This is enhanced by the mergers and acquisitions that have diversified the company's product range and in turn leading to improvement on profits incurred. (O.M. Ngoie, 2014, Page 11) Usually the competitors include commercial banks, investment banks, leasing companies, financing companies associated with manufacturers, and independent finance companies. Competition related to our lending and leasing operations is based on price, that is, interest rates and fees, as well as deal structure and terms. GE competition in our equity investment business is primarily based on price, and competition in our lending business is primarily based on interest rates and fees, as well as deal structure and term.

Results of this change:

As mentioned above, this move showed a positive impact on USA as it brought multiple job opportunities. This reshoring effort helped create over 4,000 jobs since 2008, and contributed an additional 18,000 jobs to GE’s US suppliers from increased domestic sourcing. GE has also invested over $1 billion in property, plant, and equipment within the Louisville plant which further helped stimulate the economy. (Para 4) This change not only provide the job opportunities, but also it has drastically reduced environmental impact through new production processes. Also this change contributed to the environmental sustainability, is utilizing energy-efficient light bulbs in the facility that will save GE over 5 million Kilowatts per year. The utilization of lean manufacturing in Kentucky helps to reduce costs such as excess inventory and waste. The lean approach eliminates any form of waste that does not add value to production or the supply chain. An underlying method of lean includes Just-In-Time inventory, which largely helps to reduce warehousing costs and increases cash flow. (Para 7) Other underlying benefit of reshoring is being able to modify existing products on the market much more efficiently without having to create new designs, and communicate with contract manufacturers in China. GE’s reshoring efforts have paid off. Though Kentucky is GE’s flagship manufacturing facility in the United States, they also have manufacturing facilities in Alabama, Tennessee, and Georgia that manufacture other products, which helps stimulate the American economy.(Para 9) The other major good result was when GE decided to bring manufacturing of its innovative GeoSpring water heater back from the “cheap” Chinese factory to the “expensive” Kentucky factory the material cost went down. The labor required to make it went down. The quality went up. Even the energy efficiency went up. GE wasn’t just able to hold the retail sticker to the ‘China price.’ It beat that price by nearly 20 percent. The China-made GeoSpring retailed for $1,599. The Louisville-made GeoSpring retails for $1,299. (Denning.S,2012,Para 10) Time-to-market has also improved, greatly. It used to take five weeks to get the GeoSpring water heaters from the factory to U.S. retailers four weeks on the boat from China and one week dockside to clear customs. Today, the water heaters and the dishwashers and refrigerators move straight from the manufacturing buildings to Appliance Park’s warehouse out back, from which they can be delivered to Lowe’s and Home Depot. Total time from factory to warehouse: 30 minutes. (Denning.S,2012, Para 12)

Current trend of GE in USA:

The result of this shifting change brought GE with reputed marginal revenue of profits.GE is spending some $800 million, according to Charles Fishman in a great article in The Atlantic, to re-establish manufacturing in its giant facility—until recently, almost defunct—at Appliance Park, in Louisville, Kentucky. In February 2012, GE opened an all-new assembly line to make cutting-edge, low-energy water heaters. In March 2012, GE started a second assembly line to make new high-tech French-door refrigerators. Another assembly line is under construction make a new stainless-steel dishwasher starting in early 2013. Also, there are other few factors for acquiring profits in USA like “for example, GE is not just concerned with hiring people who have the skills required for performing particular jobs; it wants to hire individuals whose behavioral styles, beliefs, and value systems are consistent with those of GE.” (Page 531) The other success factor is GE deals with the non-convertibility problem by engaging in countertrade. This can make sense when a country’s currency is nonconvertible. “For example, consider the deal that General Electric struck with the Romanian government when that country’s currency was nonconvertible. When General Electric won a contract for a $150 million generator project in Romania, it agreed to take payment in the form of Romanian goods that could be sold for $150 million on international markets.” (Page 334) The third success factor is General Electric is involved in so many strategic alliances that it would not pay the company to trample over individual alliance partners.  This would tarnish GE’s reputation of being a good ally and would make it more difficult for GE to attract alliance partners. (Page 410) As we discussed above, GE’s joint venture also can be considered as a success factor. So all the above critical success factors helped GE to establish good and stable market in USA.

Conclusion:

In conclusion, General Electric is one of the world's most successful companies of all time, is an American Multi-national organization spreading its wings into various lines of businesses including Technology, Infrastructure, Finance and Consumer and Industrial segments. As we discussed above, the use of Six Sigma for managing quality, cost and process which boost the company profits through an improvement in process and quality made an asset to GE Company. This not only reduced the cost of production but also controlled errors in manufacturing. GE’s goal in 2008 was to stay focused on growth, no matter how tough the environment. GE needed to plant seeds so it would be poised when recovery happened. That meant investing in new opportunities and encouraging new ideas. The result of moving the manufacturing to USA resulted has the strongest company in the United States and the most valuable company in the world, as measured in market capitalization. Today, General Electric succeeds in dozens of diverse businesses, and is continuously at the vanguard of change.

 

 

 

 

Reference:

Ngoie, O. M. (2014). GENERAL ELECTRIC COMPANY CASE STUDY (Unpublished master's thesis,2014).ArgosyUniversity.Retrievedfrom https://www.researchgate.net/publication/261097811_GENERAL_ELECTRIC_COMPANY_CASE_STUDY.

Hill, C. W. L. (2009). Global Business Today. (7th edition) Toronto: McGraw-Hill Ryerson.

N.A. (2013). Sparking an American Manufacturing Renewal. Retrieved June 24, 2017, from http://www.twsproject17.org/the-ceo-of-general-electric-on-sparking-an-american-manufacturing-renewal/

Denning, S. (2012). Why Apple And GE Are Bringing Back Manufacturing. Forbes. (2012, December 7).Retrieved from https://www.forbes.com/sites/stevedenning/2012/12/07/why-apple-and-ge-are-bringing-manufacturing-back/#3e0d4e4f6c4b

Hines, Z. (2012, December 12). General Electric’s New Reshoring Efforts. Retrieved from https://www.reshoringinstitute.org/wp-content/uploads/2015/05/GE-Case-Study.pdf


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