GE plays a bet in China (post 1 of 3) - Event Planners Forum - Booking Entertainment

admin4653 · #1 (**permalink**) 06-20-2008, 09:53 PM

General Electric: Challenges of Developing Leaders in China

Five Minutes of Fame
I was quite nervous. On November 11th, 2007, I was asked by some of the school administration of the University of Texas at Austin to ask a live question “on the air” to the CEO of General Electric, Jeff Immelt. The special “podcast” event was held at Cornell’s Johnson School of Management, and was also simulcast across the United States especially for MBA students at US universities. The question I would ask him would be: “GE is known for the development of great leaders. How has globalization affected how you identify and develop leaders knowing the Western culture may not necessarily translate to emerging markets?” (See Jeff’s response here GE Podcasts | Innovation)

When I thought about this question, I had China in particular on my mind. With a population of more than 1.3 billion people and a government that was increasingly opening up its policies to free the economy more and more each year, China would play an important future role for any major corporation wanting to establish a strong global presence. China’s size alone is mind boggling - the massive market is among the largest in the world. Inexpensive labor and abundant resources also make China attractive to multinational firms that are seeking to generate growth and reduce costs. The challenge for firms doing business in China will be “breaking in” to build the right relationships to get things done, as well as developing and training people to help build the key businesses of the next century. General Electric has had a wildly successful past as an industry leader by developing talent to build each new business they create into a market leader, but will this past success continue in China?
Background on GE
Starting in 1876 with Thomas Edison, General Electric (“GE”) is a multinational American-based firm that operates in several different businesses, including consumer and commercial finance, infrastructure, plastics, and technology. In the 1960’s, aspects of US Tax laws made it beneficial for several companies to come together and act as several different conglomerates. GE is one of the first conglomerates before this trend even began, and has consistently been the model of how a conglomerate can operate successfully, even though the company is large and well diversified. GE has been able to do this, in part, due to its excellent ability to train and develop leadership talent. This capability is one of the key reasons that GE has outperformed its peer group of firms. One example of GE’s training is found in its famous leadership training program, which allows emerging business leaders to take on different rotational assignments all over the world every six months to be groomed to run GE businesses. GE was the first company of its size to implement such a program, and even today this program is viewed as the hallmark of all corporate leadership rotational training programs. GE was particularly successful under the leadership of Jack Welch as CEO, who helped grow GE’s revenues from $30 billion USD to over $140 billion USD in less than ten years. While doing this, Welch made GE’s training programs legendary and even built a “university” owned by GE. GE used this university to train top talent from all over the world. The university was called “Crotonville”, and is approximately 40 miles north of New York City. Crotonville was designed by several architects of other prominent universities, who designed the campus to mirror an ivy-league school. This is just an example of the commitment for GE to train the best and brightest to become future leaders within GE to help the firm stay competitive and drive future growth opportunities in the future.
Growth doesn’t come easy
As a large firm, it is hard for a company of GE’s size to maintain a high level of growth. Smaller companies have an advantage as they are more nimble and can move faster to try to take advantage of emerging opportunities. GE had grown astronomically under Jack Welch, as he took the firm from $30B to $140B in revenue in less than ten years. In doing so, Welch gained legendary status and was even considered one of the best CEO’s of all time. But for GE, all eyes turned to the new hand-picked CEO, Jeff Immelt, who would try continue this strong growth and to leave a new legacy all of his own. Shortly after taking over for Welch, Immelt told the press that his goal for GE would to continually “grow faster than the US economy” and to grow at a rate of 5-6% each year. GE is a $150B USD Revenue company, so this means that the company would have to create a new company, like the size of Nike, each year. To do this, Immelt knew that he could not rely on the US markets alone to achieve this growth. Immelt would have to look overseas. In 2007, over half of GE’s revenues came from outside the US. With the new contracts in place and emerging businesses in China, India, Brazil and Africa, this trend looks like it will continue well into the future. But what challenges will GE face to keep this trend moving forward? How does it continue to leverage what it does best, namely develop talent and leadership, in different cultures that may not appreciate or be receptive to the GE culture and the GE way of doing business? Would GE be able to just enter into China and assume all of its policies and practices would be able to immediately translate over to the Chinese market? Clearly this is GE’s challenge of the future.
Chinese Market: Hard nut for Multinational firms to crack
Specifically in China, the market is vastly different from that of the west. Formally a communist regime, the PRC government is no doubt in control of the Chinese market and closely monitors businesses in China, as well as multinational firms that seek to do business in China. The government is still ripe with corruption and often times when Chinese companies select leaders, it is not the most qualified candidate that earns the leadership role at a company, but the most connected. The culture is also vastly different. In China, the concept of “Guanxi” is crucial. Business transactions only take place between two parties only after a significant period of time that is invested to build relationships. Often times, this means entertaining clients, gift baskets, and showing honor and respect to family and friends of the business contact for a prolonged period of time. The concept of Guanxi means that relationships must be reciprocal, and that each party provides a benefit to the other. In contrast to this, the US tends to favors results over relationships. Therefore, it is of paramount importance that the US business leaders not force western business practices in China, and expect them to work. In China relationships are critical (especially relationships with the PRC government). There is no “fast track” to building these relationships and it takes time, energy, resources, and “know how” in order to build the network of contacts within China that would help enable a business to be successful. GE is not the first firm that has attempted to enter the attractive Chinese market only to find it more difficult to enter and understand than they thought at first. In the late 1990’s and early 2000’s, technology firms such as Yahoo! and Ebay tried to enter Asia with hopes to capitalize on the attractive market. These firms spent tremendous financial capital in an attempt to saturate their brand into the Chinese market, only to find that the Chinese consumers were not as easy to win over as they first thought.

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