The idea of a company being global is nonsense. Businesses are global, not companies.
From the time Jack Welch became CEO at GE, he was convinced that significant opportunities existed for company growth by taking its businesses overseas.
OVERCOMING INERTIA
In the early 1980s, few U.S. managers were pushing to globalize. Their businesses had prospered by concentrating on the American market; few saw any compelling reason to change.
The pre-Welch GE, which generated more than 80 percent of its revenues in the United States, was no exception. At that time, only two of GE’s strategic businesses (plastics and aircraft engines) were legitimate global enterprises.
Welch delayed his push into the international arena for several years—while the company went through its “fix, sell, or close” phase—and then he pushed with a vengeance.
By 1999, international revenues had reached $45.7 billion, representing 41 percent of GE’s total revenues. (The figure remained at 41 percent through 2001.)
THE FORMULA
How did this transformation happen? In part, it happened the old-fashioned way: through selective, ground-up investments intended to capitalize on local business opportunities. This reflected Welch’s own experiences in the plastics business in the 1960s:
When I was 29 years old, I bought land in Holland and built the plants there. That was “my land” for “my business.” I was never interested in the global GE, just the global plastics business . . . the idea of a company being global is nonsense.
This perception reinforced Welch’s determination to look for overseas markets with the greatest near-term opportunities. At the time, this was Europe and Japan. Welch was eager to enter other markets in Asia, but he understood that in the near term, those markets were smaller, and success would come more slowly.
So Europe was a clear focus. As of September 1999, GE had paid nearly $30 billion for 133 European acquisitions with 90,000 employees. As a result, GE Europe generated $24.4 billion in revenue, of which only $1.7 billion, or 11 percent, represented imports from the United States. (By 2001, GE had $26 billion in sales in Europe with 70,000 employees in that sector.) But the transformation also grew out of a major shift in corporate mindsets, beginning with Welch himself.
“Jack’s perception of the world changed in the late 1980s,” says Gary Wendt, former head of GE Capital, “from trying to sell things to the world to understanding that GE has to be all over the world in order to sell around the world.”
Inevitably, this meant that good ideas had to come from places other than the United States. And it explains the major step that GE took at the end of the 1990s:
Our insatiable appetite for more advanced technology is being fed not by a new wing on our world-class Corporate R&D Center in Schenectady, New York, but by a soon-to-open Greenfield laboratory in the suburbs of Bangalore, India.
The Bangalore R&D facility opened in September 2000. And it was only a piece of a bigger picture. By that time, GE was drawing on intellectual capital from all over the world: from metallurgists in Prague to product designers in Budapest, Monterrey, Tokyo, Paris, and elsewhere.
A “TRULY GLOBAL” GE
As a result of these changes, GE by the late 1990s was competing successfully in markets around the world. To cite just three examples:
- Aircraft Engines. In 1995, more than half of the world’s large commercial jet engine orders were awarded to GE and its joint venture, CFM International.
- Capital Services. GE Capital Services, which had a minimal presence in Europe at the start of the 1990s, exceeded $845 million in net income in 1999. Global Consumer Finance (GCF), launched in 1992, emerged as the largest international consumer finance company in the world, with more than $35 billion in assets and more than 20,000 employees.
- Lighting. GE Lighting’s operations include joint ventures in China, Indonesia, India, and Japan and acquisitions in the United Kingdom, Germany, Italy, and Hungary. As of 1999, more than 35 percent of Lighting’s revenues came from outside the United States.
Welch pointed out in his 1999 annual report that there were fewer and fewer American GE business leaders located outside the United States. Local leaders, trained in GE’s practices and values, were replacing them.
Our objective is to be the “global employer of choice.” . . . This initiative has taken us to within reach of one of our biggest and longest running dreams—a truly global GE.
WELCH RULES
- Get your house in order first. Make sure your domestic base is solid before venturing abroad.
- Think globally and locally. To compete in the global economy, companies must develop a distinct strategy for each international market. Businesses, not companies, are global.
- Recognize that there are phases in globalization. Exporting often comes first. Local production may come second. Finally, local sourcing (by companies run by local managers) may be your third phase of globalization.