Two years ago at NYU’s Stern Business School, Jeffrey Immelt, former CEO of General Electric, addressed a speech on how global companies should define their strategy in an age full of uncertainties where globalization is shaken. His main point was that companies need to take a bold pivot from globalization to localization in order to build local capabilities inside a global context.
He said: “We will localize. In the future, sustainable growth will require a local capability inside a global footprint. At GE, we will always be a strong American manufacturer, but we also have built factories in China, India, South Africa, Nigeria, Hungary, and elsewhere around the world.”
According to Immelt, the term “globalization” has progressively been wrongly associated with outsourcing with low labor costs, which is now an old and declining model. Today, for a global company, digitalization and advanced manufacturing technologies are bringing more productivity alongside local investments, giving easier market access. As its second largest market, China has a key position in GE’s global strategy.
GE’s journey in China
The American conglomerate and the Middle Kingdom first got in touch more than a century ago in 1906 when GE started doing business in China. Known as one of the most active foreign companies at that time, GE built its first lighting plant in Shenyang two years later. Over time, GE continued to consolidate its presence in the Chinese market and in 1991 the first of GE’s joint ventures, GE Hangwei Medical Systems Co., Ltd, was established in Beijing. Today, GE’s presence in China includes 34 joint ventures in more than 40 cities, over 30 manufacturing bases, more than 60 laboratories, 7 R&D centers, and over 20,000 employees. GE is also positioned in strategic and competitive sectors such as power, healthcare, aviation, transportation, and lighting.
With a US $8.1 billion revenue in China in 2015, GE seems to have a favorable perspective. Rachel Duan, senior vice-president of GE and President and CEO of GE China, is confident about the company’s future. Indeed, GE key activity sectors match with the constantly and consistently growing needs of the Chinese market.
Firstly, in terms of energy, China is the largest global power market with an expected annual growth of 5%. GE knows it and has been investing in these sectors.
Secondly, China’s healthcare market is booming with an annual double-digit growth rate and the over 65 population is expected to reach 170 million. By 2020, China’s healthcare spending could account for 6.5 to 7% of China’s GDP, which would be around US$1 trillion. Once again, an opportunity to seize for GE Healthcare China and its 5 global manufacturing sites and 7,000 employees around China.
Thirdly, China’s aviation market is also showing favorable indicators:
487 million domestic and international flights in 2016 according to the Civil Aviation Administration of China (CAAC);
12% growth between 2015 and 2016;
55 Chinese airlines currently operating;
US$1 trillion worth of new airplanes over the next 20 years, including more than 5,100 of the same size as the C919, according to Boeing
According to the International Air Transport Association’s forecast, China could displace the United States as the world’s largest aviation market by 2022. As a leading provider of aviation engines, components, and integrated systems, GE is undoubtedly focusing on this sector as well.
Rachel Duan stressed that, “after the United States, China will remain the most relevant growth market”.
Localization and more
Of course, China offers huge opportunities for multinational companies like GE but the Chinese market is much more competitive and complex than the figures suggest. Companies like Best Buy and Media Markt stepped down and left China years ago. GE understood that it had to adapt to the local market and localize. Dealing with several industry sectors and managing merger and acquisition projects in China requires a company to develop a localized identity. GE had to localize its branding, products, services, and operational processes to shape its reputation in the eyes of customers, employees, partners, and officials. One of the best examples is the 2008 Beijing Olympics sponsorship campaign. GE developed a localized ad strategy mixing Chinese symbols, cultural and linguistic references, and creativity to target its audience.
As a leading localization and global communications provider, we at CSOFT had the opportunity to provide our services to GE and contribute to the local development of the company.
GE’s localization strategy mainly focuses on the priorities and expectations of its stakeholders. For example, for the past 8 years, GE healthcare has developed products targeting second and third-tier Chinese cities. This contrasts with its previous model of massive imports to sell in the larger hospitals of the major cities. The strategy here is simple: meet, in the same market, the needs of different customer segments. The company has established manufacturing sites all over China and even opened its Advanced Manufacturing Technology Center, the first one outside the United States. Indeed, more than just expending quantitatively, GE also intends to invest qualitatively in people to develop the technical and leadership capabilities of their employees and built strong local partnerships.
As this strategy has been bearing fruit for GE, doing business in China is not only about localization. Tight relations with the government and adaptation to new policies are also critical. Sometimes, even ethical policies can affect businesses. For large equipment deals, GE usually goes through the public tender process, but with the anti-corruption campaign in China, the tendering process was interrupted and impacted GE’s sales in 2016. China is a fast-growing and fast-changing market. The government is shifting to new directions like digitalization and green energy, and businesses have to adapt or fail.
China is constantly evolving and bringing new opportunities and challenges for global companies. Therefore, it is essential to develop a localized business strategy to survive and proposer in the Middle Kingdom.
Author: Michael Mutombo, Global Communications, CSOFT Shanghai