GE joint ventures

1. Case Study Report:
General Electric Joint Ventures
Course Facilitator:Dr.Ian Cook
Global BusinessEnvironment- BUSS5300
Universityof SouthAustralia
2015
Vipul Prajapati
110166049
Global BusinessEnvironment
12/13/2015

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Contents
Executive Summary ...................................................................................................................... 3
Introduction.................................................................................................................................3
Description...................................................................................................................................3
Advantages of Acquisition............................................................................................................. 5
Advantages of Greenfield Investment............................................................................................ 6
Advantages of Joint venture..........................................................................................................7
Analysis........................................................................................................................................7
Recommendations...................................................................................................................... 10
Conclusion ................................................................................................................................. 10
References................................................................................................................................. 11

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Executive Summary
In today’sworldof competition,companiesare forcedtomeetthe dynamicchange of the economy,
customers’satisfaction, socio-environmental requirements, etc. Companies have to adjust to new
competitions and new ways of doing business. Therefore, innovation is a must in order to sustain
and remain successful. Having a change management control process in place ahead of time may
reduce the cost of hindrances to leading innovation and changes.
Thispaperwill examinethe GE’sinternationalbusinessand describe its preferred entry modes into
foreign countries. It will examine the advantages and disadvantages of GE’s entry mode:
acquisitions,Greenfieldventures, and joint ventures. The paper will look at GE transition from one
entry mode to another and answer the questions and provide recommendations to sustain
profitability and growth through preferred strategies.
Introduction
General Electric (GE) is an American one of the largest and most diversified multinational
conglomerate corporation incorporated in New York and head quartered in Fairfield, Connecticut.
GE believesthatimaginationequalsinnovation.The companyisdeterminedtosolve world’s biggest
problemsbyputtingtheircollectiveimaginationtowork for a better world. GE was founded in 1892
fromthe mergerof ThomasEdison’sElectricLightCompany with the Thomas Houston Company. Its
businessbaseduponexploiting Edison’s patents relating to electricity generation and distribution,
light bulbs, and electric motors. During the twentieth century it became not only the biggest and
most diversified industrial corporation in America, but a model of management – a laboratory
studiesbybusinessschools.GEhas developednew technologies and services that have broadened
and changed considerably the scope of activities. Now, As of 2015, GE operates in following
segments: Appliances, Power and Water, Oil and Gas, Energy management, Aviation, Healthcare,
TransportationandCapital whichcaterto the needsof Home Appliances,Financial services, Medical
device,Life Sciences,pharmaceutical,automotive,software developmentandengineeringindustries
(General Electric, 2015).
Description
General Electric has heavy reliance on international market as the company has presence in more
than 160 countriesandgenerateshalf of itsrevenue from these markets. Because of GE’s presence
around the world their choice of entry is diverse depending on their products and their markets it
wantsto enter.Buthistorically, GeneralElectrichasadoptedchosen entrymodeswhileenteringinto

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foreign market, which are: Acquisition, or Greenfield venture(Sherman, 2010). Later in early 2000s
GE has adopted different strategy to enter into market via Joint venture.
Acquisition: The term acquisitionincorporate fieldmeans,aparentcompanybuysmost/if notall of
the stakes of the target company to assume the full control over.
Greenfield Venture: Green field investment is a form of foreign direct investment where a parent
company starts a new venture in a foreign country by constructing new operational facilities from
the ground.
Joint Venture: joint venture is a business arrangement in which two or more parties agree to pool
their resources for the purpose of accomplishing a specific task. This can be a new project or any
other business activity. In joint venture, each party is responsible for profits, losses and cost
associated with it.
Under its legendary CEO Jack Welch (1981-2001), the company was known for its commitment to
excellence anditsmarketdominance inall the businessareasitwas involved. The basic philosophy
of GE was “if GE doesnothave the full control ontargetfirm, itdoesn’tdothe deal”.If GE wanted to
enter a foreign market, it either acquired an established firm in that market or it established a
Greenfield subsidiary to go alone in the market. Joint ventures with a local company were almost
never considered by GE. For years, GE used to enter a new market by purchasing small business
taking it to the top through its proven technological advances and management approaches.
However, times have changed, GE’s entry modes to entering foreign markets has become difficult
because of shifting market conditions, including the growth of large local competitors. GE also felt
reluctance topay increaseshigheramountsforacquisition as well as adopting problems associated
withthose firmswhichwouldbe discovered after acquisition. During the 1980s and 1990s, GE could
have bought whatever it wanted to enter a market, but those days are over now. If there are
opportunitiestogobble upsmall companies,itisnow beingdone by private equity funds with even
greater money power.
In early2000s GE has adopteddifferentstrategytoenterforeignmarket:Jointventure.According to
new CEO Jeffery Immelt (2001-present), GE could surely buy small businesses to expand but it is
better to partner with the number three company that wants to be number one. Moreover joint
venture let GE share risk capital associated with operations (DEUTSCH, 2007). In South Korea, GE
Money, GE’s retail lending arm, started joint venture with Hyundai owning 43% stakes in Hyundai
Capital andHyundai Card, which provide auto loans, mortgages and credit cards to their customers
(Hill 2010). GE has also formed joint ventures with several Spanish savings banks to provide

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consumer loans and credit cards. GE has joint venture with BAC-Credomatic, the largest bank in
Central America.Similarly it has a consumer banking venture with Garanti Bank in Turkey, in which
GE and the DogusGroup, parentof Garanti, each own 25.5 percent, with the rest owned by outside
investors.GEhas showngreaterwillingnesstohook up with other companies as much of its growth
in the past few years has come from overseas operations, even if that means taking minority
positionas joint ventures have become most powerful strategic tool. There are also some reasons
that GE hasbelievedJointventuresare the onlywaytoenternew market.GE believedwhereitlacks
local knowledge andthe local lawssystemworks,where the economic and legal systems are in flux
thenit isdifficulttounderstandmarketconditions, e.g.the Case inChina;Jointventuresare the only
way to enter and making it better for an international company to have a local partner as it could
benefit from local partners to gain access of knowledge of market as well as it can bring local
expertiseandpolitical contacts.Now,GEhassuccessful more thanseventyjointventuresin China in
different areas (P. et al., 2009).
AlthoughGE hadjointventuresbefore thattime, nowadaysGE had only option left to enter foreign
market and that is low-risk, high-return strategy. GE has longstanding 50-50 venture with French
state-ownedaircraftengine makerSnecma,andanotherwithFanucof Japanto developcontrols for
electrical equipment. GESeaCO, which was a formulation of GE and Sea Containers of Britain, has
become one of the world’slargestleasersof shipping containers. Also MSNBC started out as a joint
venture with Microsoft, runs digital operations (Deutsch, 2007). But those ventures came about
onlyafterGE hadexplored other possible ways to gain access to a particular market or technology.
GE possessesthe well earnedreputationtobe goodpartnercompany.The growth and achievement
of companythroughitslongtime existence inmarketisveryinfluential toanycompanyandthey are
happier to form venture with GE.
Advantages ofAcquisition
The benefits that can come with a strategic acquisition of another firm include:
o It adds value to the combined entity by eliminating redundancies and increasing
overall revenues
o Takingadvantage of additional distribution channels that a firm can leverage more
effectively with its own products and services
o Acquiringexistingtechnologies and business processes, which would otherwise be
extremely expensive to develop on own

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o Accessingtalentedmanagersandskilled employees without the need to engage in
an extensive search and hiring process
However, there are significant pitfalls a firm encounters when considering acquisition, including
o Possible clashesbetweencorporate culture andthatof the company intended to be bought
o Apprehension among both its employees and those of the firm it acquires. They may feel
that their jobs may be in jeopardy during consolidation and their concern may even be
warranted
o Potential increased debt on its balance sheet if a firm is borrowing money to fund its
acquisition,which could impact its ability to borrow additional funds for other operational
purposes (Bloch, 2015).
Advantages of Greenfield Investment
o Provides maximum design flexibility to meet project requirements
o New facility will reduce required maintenance
o Can be designed to meet current and future needs
o Opportunity to improve corporate image
o Suitable for either lease or own option
However, there are disadvantages of Greenfield investment, include:
o Higher expense
o Competition in these markets can be difficult to overcome
o Entry into markets can take years to happen
o Barriers to entry can be costly
o Governmental regulations may put these MNCs at a disadvantage in the short term
(Billdecker, 2015)
o Some sites are not fully developed and have additional development costs such as head
works costs for sewer and water
o Council approval time frames may be longer for new sites
o High demand of industrial sites may mean that sites available have difficulties

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Advantages ofJoint venture
o Jointventuresprove accesstonew andcomplementaryexpertise,skilledstaff,skill sets, and
technology
o Easy access to expertise without hiring more staff and save resources
o Helps gaining new technological knowledge
o Benefit of sharing financial and operational risks
o Avail flexibility and new opportunities
o Increase chances to adopt new technologies and patents developed
o Establish international opportunities with low barriers
Analysis
1. Historically, GE used to prefer acquisition or Greenfield ventures as an entry mode rather
than joint ventures. Why this was the case?
o There are some reasons that GE adopted acquisition and Greenfield venture as an
entry mode rather than joint ventures.
o The basic philosophy of GEwasif youdo nothave full control,youdon’tdo the deal.
GE wantedtopossessfull control over the target company it is entering with in the
global or local market.
o While joint ventures offer organisation the opportunity to share operational costs
and risks, it also gives joint control to both partners.
o Joint ventures have many significant disadvantages.
o General electric when entering into a joint venture risks giving control of its
technology to its partners. Moreover, it would not have tight control over their
subsidiaries that it might need to realize experience curve or location economics.
o Finallyshared ownership arrangements can lead to conflicts and battles for control
betweenthe investing firms if their goal and objective change over time, or if they
take different view to what the venture’s strategy should be.
o GE has foundthatas much as it would like majorityownership, or even 50/50 splits,
sometimes it has to settle for a minority stake to gain access to a foreign market.
2. Why General Electric has come to prefer joint ventures in recent years? Does global
economic crisis of early 2000s might have affected this preference in anyway? If so, how?

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General Electric came to favor joint ventures in early 2000s because joint ventures offer
several advantages to organisation.
o GE could take benefits from the local partner’s knowledge of the competitive
conditions, culture, language, political systems, and business systems. Another
advantage iswhenthe developmentcostsandrisks of opening a foreign market are
high; an organisation may gain by sharing the operational costs and risks with the
local partner. In some cases, some countries’ political regulations make joint
ventures the only feasible entry mode.
o The disadvantages to acquisition can be that a company will often overpay for the
assetsof the acquiredcompanyanditmightturn out withproblems whichwouldbe
discovered later after acquisition. An acquisition can also be failed due to cultural
clashes.The bigdisadvantage of aGreenfieldventureisthattheyare risky and much
slower to establish.
o The global economic crisis of 2008-2009 probably had a major impact on GE’s
preferences.WhileGEhad jointventures before that time but also GE had this only
lastoptionleft.Jointventuresmaynothave given GE all the control it wanted but it
did lessen the cost and risk associated with global ventures. The use of joint
ventures provided GE access to knowledge of local markets to expand business.
3. What are the risksthat GE mustassume whenitentersintoajointventure?Isthere anyway
for GE to reduce associated risks?
o There are many risks associated with joint ventures. Partnering with another
business can be complex. Problems may occur including the objectives of the
venture are nottotallyclear and communicated to every party involved in venture.
o Partnersmay have differentobjectivesforthe venture. Companies may experience
an imbalance inlevelsof expertise,investmentorassetsbroughtintothe venture by
different partners. Varied cultures and management systems can result in poor
integrationandco-operation.Insome cases the partners do not provide leadership
and support in the early stages and moreover they might be focusing on their
personal growth.
o The success in a joint venture depends on thorough research and analysis of aims
and objectives. It should be followed up with effective communication of the
business plan to every party involved.

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o GE should have a strong business strategy before committing to any joint venture.
Analysing what other businesses do, which operate in a smaller market could help
GE choose the best approach for their business. Being aware of the potential risks
may notalways be enough. Efforts should be made to protect each firm. Adequate
research, negotiation and compromises are necessary when developing shared
objective goals in a joint venture.
4. GE has well earned reputation for being a good partner to work with. What are the likely
benefits of this reputation to GE? If GE were to tarnish its reputation by, for example,
opportunistically taking advantage of a partner, how it might impact the company for
growth?
o GE ishavinga well earnedreputationforbeingagoodpartnerwhich can be more of
benefitfor the firm. As with the strong market reputation other companies will be
more willingtomerge businesswithGE.Itcreates an impression of being a low-risk
and trustworthycompanytowork and share assets with well compromised nature.
o If GE were to tarnishitsreputationby taking advantage of a partner there would be
far less companies willing to work with GE. In fact, the bad reputation may cause
currentpartnersto finda way to end partnership. Future ventures may insist on GE
putting up more money and taking on more of the risks.
5. What other assets GE can bring to the table that form an attractive joint venture partner in
addition to its reputation?
o Along with GE having a reputation for being a good partner they also can assure
stabilitytoa newpartnership.GEis a huge company that has been around for quite
a while. GE is historically known for making profits, a well established firm always
seems less risky to work with, and it has a way better understanding of doing
business. GE’s technological and management know-how provide high degree of
international businessandknowledgeinbusinessaffairstomanage the situations in
a profitable way (Leahcui, 2013).
o GE’s preferred entry modes allowed GE to have more control over the businesses
but it also produced high degree of risks. GE now forming joint ventures for it
international expansion will benefit them by assuming half risk and gives them

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better business knowledge and can invest their sources to benefit the new
operations.
Recommendations
There are several disadvantagesassociated with joint ventures such as; involved parties might end
up with different and unrealistic objectives that joint operation has be bear the consequences. It
also finds hard to cope with different cultures, management styles, and working relationships. It
generallycreatesmisunderstanding between partners and as a result they might end up with poor
decisions which will eventually affect company’s growth and profitability.
Thisreportpropose the recommendationsthat GE must consider to avoid such problems caused by
various aspects of joint venture to sustain an international business with other firms to make
profitable andlongterm.A firmmust lookfor the strongbusinesspartnersthathave significantskills
and resources that GE lacks or it requires the most for new operations. Market analysis and
knowledge extractionof targetfirmcan surelyprovide answers to this question. Organisation must
have clearly defines agreements terms system which not only describe basics of agreements, but
alsoincludesgoals,financial contributions,humanresourcesandexpectedlengthof deal that works
on a developedprojectplans. GEmustmaintainstrategicalignmentwhile enteringviajointventure,
in which both parties are agreed to a specific process for making strategic decisions, and maintain
regular communication of changing thoughts and ideas. Company can use resources to determine
the value of othercompanyto avoidtrust issuestoprotectitsknow-how,andshould avoid partners
it discoverlesstrustworthy,moreoverinthe initial timethe scope of venture should be limited and
can extend it as trust and relation increases with the other hand firm. Establishment of clear
protocolsat the beginningof venture helpsfor amending or unwinding the relationship if it fails to
meetexpectations.A littleinvestmentinMarketresearchandbusinessintelligence can be beneficial
to analyse targeted company’s conditions better to avoid such long term losses occurring in joint
ventures and it will help creating sustained business relationship.
Conclusion
In thisreport,GE’s preferredentrymodeshave been used as a case study on organisational growth
and international expansion. Different strategies used by company over the time to enter foreign
markethave beenanalysedanddiscussedindetail aswell as the problems encountered during that
time period which ultimately led GE to switch its entry mode to maintain sustainability and
profitable growth of the firm. The innovative process and strategies allowed GE to reinvent their

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ideas and develop new products and services over the international market. In order to be more
effective,efficientandfastergrowth considerable recommendations are proposed associated with
external factors. Additionally leaders and individuals within the company have to work in
collaborations in order to achieve goals of the organisation, and to avoid potential threats coming
fromcompetitorstoovercome financial orsustainabilitychallengesthe companyGEfacesovertime.
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