GLOBALIZATION AT GENERAL ELECTRICS (GE)
18th, April, 2013
General Electric (GE) is an international company, therefore, it is expected that apart from the United States, where this company is based, this has other branches in different countries of the world continents. Although this is the case, the rate at which GE is established its other branches in the international market was overwhelming. Nonetheless, the company has embarked on this rapid international expansion due to a number of reasons, which influence the company positively, promoting its growth, productivity, and profitability.
First, GE chose to invest aggressively in foreign expansion for the obvious reason of desire to grow the company. Foreign investment results in more branches of the company, and this is directly linked to increased revenues for the company due to the additional branches, which will generate additional profits for the company (Rugman & Collinson 2008). Therefore, GE bought other companies in various countries, which were in a financial jeopardy, and were on the verge of collapsing. GE bought the financially unstable companies at a faster rate, mainly because, this was the only opportunity it had to acquire those companies and expand, since these would be seized by other companies, if GE would not act fast. This is a strategy, which GE used to ensure that its expansion was rapid.
Aggressive expansion of GE might have been aimed at ensuring that the company moves closer to most of its customers, since this would be easier and cheaper for the company to address the various concerns and needs of its customers, while increasing its total sales revenue. In addition, international expansion by GE was intended for the company to increase its customer base, since this would acquire more and new customers in the new geographical locations that it established itself.
In addition, GE chose to expand because of the company’s wish to deal with their foreign markets on a higher level. By adopting globalization, GE wanted to prove that the relationship between the company and its foreign markets was strong enough to allow the country to directly invest in the foreign countries, while being assured of profits. Rugman & Collinson (2008) argued that it not enough for a company to be shipping its products to foreign countries. Instead, a company should consider getting closer to its customers in the foreign markets, and establish a close relationship with them, to boost revenue and address consumer needs appropriately.
Finally, GE might have chose to expand internationally in order to save on the costs it incurred in the form of wages for its employees. Employees in other countries outside the United States are paid lower salaries and wages, mainly because of the economic status of their country, which is usually lower, compared to the United States. Therefore, most American multinationals choose to expand outside the United States in order to explore these lower wages (Rugman & Collinson 2008).
According to Birkinshaw, Braunerhjelm, Holm & Terjesen (2006), the corporate headquarters of a company plays a valuable role in influencing the relationships between the company and the financial markets, as well as its stakeholders. Stakeholders of a company include customers, as well as the competitors of the company, which are the most important stakeholders of a company. Therefore, by moving its headquarters to foreign markets, GE wanted to influence the relationship with its customers in the foreign countries. This would result in a stronger relationship than the one that existed previously.
Most companies claim that the decision to move their headquarters to foreign countries is influenced by their desire to be in close proximity with their international customers (Rugman & Collinson 2008). In the case of GE, like most companies, this company has moved most of its headquarters of its other businesses from the U.S.A. to other foreign countries. The reason for this could be the high taxes in the U.S.A., which would make the company to spend many resources on taxes, given it has many headquarters, and branches. Most companies realize the high taxes imposed on them in the United States, therefore, most of them seek avenues of exiting the USA market. Currently, top corporate tax for multinationals in the United States stand at approximately 35%, compared to Ireland, where corporate tax rate stands at 12.5% (Devinney, Pedersen & Tihanyi 2010).
Moving a company’s corporate headquarters might benefit a company in various ways. According to Birkinshaw et al (2006), this move might increase the efficiency of a company in terms of financial profitability. However, this is the case, especially where the new headquarter will serve as a financial center, as the company will experience efficient communication with its financial shareholders and investment banks. Secondly, moving the headquarters to foreign countries helps a country to improve its presence in the foreign market. This therefore, makes investors to be more familiar with the company, thereby increasing the company’s stakeholder base (Birkinshaw et al 2006). Additionally, by moving the company headquarters to foreign countries, the company signifies that it is an international player, therefore, no longer confined to its domestic policies and laws (Rugman & Collinson 2008).
By moving its headquarters to foreign countries, GE achieved the element of cultural sensitivity in its interaction with customers in the foreign countries. This helped the country to boost its profits. China is known for its strong cultural base; therefore, for a foreign company to be successful in this country, it must embrace and uphold the cultural standards of the country (Alon 2003). Therefore, by establishing its headquarters in such a country, GE ensured that it conducts business while upholding the Chinese cultural standards, a strategy, which would reduce mistakes in marketing, among other business conduct. This therefore, ensures a harmonious relationship between the foreign market and the company (Hill 2010).
Moving headquarters to foreign market has helped GE to increase its sales revenue and market share. In addition, this has helped the company to cut down on costs previously incurred on shipping products to the foreign markets (Devinney, Pedersen & Tihanyi 2010). Additionally, this move helped GE to establish itself in countries where the demand for its products was higher compared to the U.S.A. For instance, compared to the U.S.A, China and India have a high demand for most of GE’s products, since these have greatly invested in infrastructure. Therefore, shifting the jet engine headquarters to Asia helped GE to take advantage of the highly dynamic Asian market, and high demand for products (Hill 2010).
The decision by GE to move most of its headquarters from the USA to other foreign countries has various implications for the company and for the Unite States as a country. While this will help the company (GE) to realize more profits, the United States might be influenced negatively. Most importantly, this move reduces the level of employment in the United States. This is because; GE will employ the citizens in the countries it relocates to, therefore, reducing the employment opportunities of most Americans. Additionally, this reduces the tax revenue of the U.S.A, since U.S companies in foreign countries are not subjected to same tax rate as those in the U.S.A. Therefore, this influences the U.S economy negatively.
GE focused on internalizing its senior management due to various reasons, which were meant to increase the productivity of the company. Nonetheless, the main reason for internalizing its senior management ranks was to respond to the cultural demands of specific markets. This way, the company ensured cultural sensitivity in its business, thus, addressing the needs of customers in each country in the most appropriate and specific manner, which conforms to their culture (Adekola & Sergi 2007). GE achieved internalization of its senior management ranks by hiring its managers basing on their virtues of strong work ethics and knowledge of the local language (Hill 2010). In most of the countries in the Midwest, where GE has formed new business bases, people value strong work ethics, thus internalizing of the senior management rank basing on the values of the local community allowed for an easy penetration of GE into the market of foreign countries.
Internalizing the senior management ranks mainly involves the hiring the senior management employees from within the foreign country, among the local citizens, and not outside the country. In the past, GE only hired Americans for the senior management positions. However, with globalization and rapid international expansion, GE was forced to leave out some senior management positions for the citizens of foreign countries, which GE planned to explore. For example, when GE expanded into China, internalization of senior management ranks occurred when the company hired only Chinese people to fill the top management positions in the company in China. Chinese people are in a better position to understand the local people and collaborate with their government, unlike foreign nationals. GE employed this strategy as a way of boosting its cultural sensitivity, which foreign managers would not achieve (Hill 2010).
The case of GE and globalization teaches various lessons and provides an insight into the global business. First, GE has shown that it is important for a company to move closer to its customers, in order to address their needs effectively. However, a company should only move and establish itself in a foreign country after assessing and evaluating its global market share and identifying the most promising foreign markets, which show an increasing market trend. Therefore, a company might then move its headquarters to the identified foreign countries, with a goal of providing quality services to its consumers, and satisfying their needs in the market. Additionally, GE has shown that, in order to win the trust and loyalty of consumers in the new market, a company should consider internalization of its senior management positions. This ensures cultural sensitivity on the side of the company, while dealing with local citizens.
Prior to the beginning of this module, I had great expectations, and looked forward to gathering vast knowledge in the area of international business and management. In addition, I looked forward to being knowledgeable in how to conduct business outside the comforts of one domestic country. Therefore, through this module, I knew I would get useful insights in how different multinational companies conduct their business outside their countries, and learn what it took these corporations to adapt to the new market environments. In addition, I expected to learn about challenges in international business, including the factors that might lead to the collapse of a multinational company in foreign markets.
Nonetheless, this module has been instrumental in helping me gather wide knowledge in the area of international business, thus, bringing to reality most of the expectations I had, Today, I am quite knowledgeable in the theoretical area of international business, which I have no problem translating into practice. Therefore, this module has been helpful and increased my knowledge.
During the module, I did not experience many challenges as I had expected. However, the main challenge I experienced, which became of great concern to me, was with the subject of Finance. I had problems focusing on this subject, owing to my perception that this was quite complex, compared to other subjects. This assumption had made me to have difficulties in grasping major concepts in this subject. This therefore, prompted me to respond appropriately, when I realized that this would affect my overall mark in a detrimental manner.
Nonetheless, self-determination helped me to address this challenge. Although I experienced challenges in this subject, I did not give up hope but instead, I was convinced that with appropriate measures, I would turn Finance into one of my best subjects. Therefore, I embarked on immense practice in this area. I devoted a part of my free time to studying this subject. In addition, I took class tutorials more seriously, and addressed any finance concept I did not understand, immediately after a tutorial. All these efforts, which I put in place later helped me to improve my understanding of the subject of Finance.
After this module, I believe I have all it takes to start my Master’s programme. So far, the module has been instrumental in preparing me for greater tasks, and more knowledge ahead. This is through building my knowledge base in international business and management. I am prepared to learn more complex concepts of international business at the Master’s level. This module has already exposed me to quite complex aspects, thus I would not experience any major difficulty at my Master’s level. In addition, this module has taught me vast theoretical concepts of international business and management, therefore, at the Master’s level, I would be more excited to put these into practice by applying them to real business cases in the real business environment. Nonetheless, this module has influenced positively on my knowledge of business, and I am thus looking forward for an opportunity to apply this knowledge in solving real-life business problems
Adekola, A. & Sergi, B 2007, “Global Business Management: A Cross-cultural Perspective,”
Ashgate Publishing, London.
Alon, I 2003, “Chinese culture, Organizational Behavior, and International Business
Management,” Greenwood Publishing Group, London.
Birkinshaw, J., Braunerhjelm, P., Holm, U. & Terjesen, S 2006, “Why do Some Multinationals
Corporations Relocate their Headquarters Oversees?” Strategic Management Journal, 27: 681–700, Viewed 17 April 2013 <http://faculty.london.edu/jbirkinshaw/assets/documents/37why_relocate_hq_abroad.strategic_management_journal.2006.pdf>
Devinney, T., Pedersen, T. & Tihanyi, L 2010, “The Past, Present and Future of International
Business & Management,” Emerald Group Publishing, New York.
Hill, C.W.L 2010, “International Business: Competing in the Global Marketplace,” 8th Edition,
McGraw-Hill, New York.
Rugman, A.M. & Collinson, S 2008, “International Business,” 5th Edition, Financial
Times Prentice Hall, Harlow.
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