Strategic Approach of General Electric

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Strategic Approach of General Electric

Abstract

Outsourcing is the recent innovation of dynamic Business environment, which is adopted by number of giant companies across the world as many in USA growing companies are outsourcing their services to company or workers offshore. General Electric is a large diversified company who has outsourced the technology and services e.g. India that has highly-skilled English speaking workers, who have the capability and wish to perform the same level of IT related services as U.S. counterparts at a lower cost.

Global outsourcing has become the issue in discussion and debates among critics and supporters. Critics argue that global outsourcing in long run may weak the American economy towards unemployment and jobs that have shifted rapidly in overseas countries while supporters argue that outsourcing will multiply economic efficiency of US thought companies are keen towards outsourcing as they save huge amount of labour cost and increasing profit.

Introduction

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Outsourcing is to letting other companies take over part of your production process. (Ghauri et al 2006, p.)

Offshore or outsourcing is a business term that helps companies reducing cost of labour and increase in profit by employs outside resources to perform activities previously handled by the company’s internal staff. The company’s strategy is to out source non-core job activities to efficient service providers/suppliers that will perform the same level of skills but at a much lower wage. In return, management anticipates a benefit through increased profit margin, competitive cost and more sales, technology has been a main factor in adopting outsourcing.

This report will attempt to emphasise the impact of outsourcing, overview, and organizational structure leadership and production strategy of GE.

In addition to that report will review the impact global outsourcing has on the US Economy and how it will weaken the US economy and its benefits. Although outsourcing played a vital role in businesses of all trade yet there are some objections that came across which report will examine how the outsourcing has impact on General Electric Company by outlining the supporters’ and critics’ views on outsourcing and it benefits to organisations.

GE Overview

General Electric is a multi-billion dollar multinational corporation whose product range from 65 cents light bulbs to billion dollar power plant. Based on revenue, assets, profits, and market value, the company was listed by fortune magazine as number nine in the world in 2003. (Rugman et al 2006, p.279)

The company GE has grown up globally developed a diverse portfolio of businesses. They have evolved into organization with a corporate culture, starting with their philosophy, mission, and values. Navarro P. (2005) defines organizational culture as “the basic pattern of shared assumptions, values, and beliefs considered being the correct way of thinking about and acting on problems and opportunities facing the organization”.

GE is a diversified corporation with over 300,000 employees working in over 100 countries. GE is a diversified technology, media, financial services and manufacturing company with a commitment to achieving customer success and worldwide leadership in each of its businesses. With products and services ranging from aircraft engines, power generation, water processing and security technology to medical imaging, business and consumer financing, media content and industrial products. (www.ge.com accessed 10/09/2008)

Impression of Outsourcing On GE

Outsourcing influence on companies either in profit generation or cutting cost of labour played a significant role in companies such as GE as the affects of outsourcing partnership in GE Company has climbed up and caused hostile response into member of board of company, as they are considering now and revealed the risk and its impact on GE business. GE cited the offshore backlash as a risk for their growth and concerns about the competitiveness of US companies would be badly affected by protectionist climate.

General Electric is selling one third of its equity stake in Genworth to the US public. Through an arrangement with GE, Genworth has a substantial team of professionals in India who provide an array of services to the company's insurance operations, including customer service, transaction processing, and functional support including finance that has enabled GE to reduce its recurring operating expenses and provide funds for new growth and technology investments. GE operates its business process outsourcing business in India under GE Capital International Services, which employs 17,000 employees. (Asia times, 2004)

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General Electric Company has spread its work internationally in manufacturing and services. GE is open the era of offshore outsourcing. According to Stoner and Freeman (1992) that process of planning, organizing, leading and controlling the work of organization members, and of using all available organization resources to reach stated organizational goals.

Global Outsourcing In General

Global economy is a term that emerged after integration and rapid growth of multinational companies and their operations across the world and reliance of one companies to other as in today’s global economy, it is more challenging than ever to improve business performance and processes. In rise of pressures, many U.S. businesses have turned to outsourcing their business processes and information technology needs to offshore operations in order to reduce costs.

This approach allows an organization to focus efforts on the processes that differentiate the firm from the competition and outsource the other processes to providers who specialize in those areas of operations by minimising the tasks of existing staff and shift them to providers.

Outsourcing decisions as a way to increase quality and lower price, some other prospective add to outsourcing’s strategic role. Outsourcing is one of the benefits of globalization. From developing countries prospective, outsourcing is also way to global business to get into its future markets while they are still developing. Such early presence can build a kind of first mover advantage product loyalty from the consumer and more market knowledge for the producer. (Hill 2008, p.461)

Barrar and Gervais (2007) define “One of the most significant techniques to which companies and organizations have turned to improve service delivery and reduce costs has been outsourcing”.

Innovation of business dynamics and environment i.e. outsourcing has been adopting by many companies getting involved in the practice of outsourcing that has led to a point where different results came across as different companies experienced in a different way. Some companies have done very well and recognized large benefits and others have found the experiences as costly mistakes.

According to study of Neilson et al 2003 with 100 U.S. companies showed 80 percent of satisfaction of companies that outsourcing decision and 94 percent stated that they would outsource again. A select few large corporations have been able to outsource that their internal cost structures savings of up to 30 percent e.g. General Electric, General Motors, Proctor & Gamble, and Hewlett Packard. The study also showed that outsourcing has not expressed on its full power.

Many companies surveyed weak cost saving, reasonable standardization, and insufficient responsiveness to changing business needs as some of the challenges that remain. Potential risks must be in knowledge and evaluated so assessment can be made before going into an off shoring arrangement.

According to Hill(2008) Outsourcing decision pose plenty of problem for purely domestic business but even more problems for international business .there decisions in the international arena complicated by the volatility of countries political economies ,exchange rate movements, changing in relative factor costs and the like.

Multiple partnership of Outsourcing by GE

China

GE started business in China in early 1906 and considered one of the most active foreign companies in the country at the time. In 1908, the first light plant was built in Shenyang. It opened GE Hangwei Medical Systems Co. Ltd in Beijing, which is its first joint venture in China in 1991. (www.ge.com.cn)

According to case study, GE invested in china about $5.1 billion and employment more than 12000 and forms many joint ventures those were in high technology industries i.e. medical system, plastics, and lighting products, and in aircraft engine maintenance facilities, training, and component manufacturing.

All of GE’s businesses have set up operations and established over 50 legal entities in China with more than 12,000 employees. Its financial services sector is also seeking business opportunities as WTO opened China market. In 2006, the sales profit of GE in China was $5.4 billion. (www.ge.com.cn)

China is a biggest country in the world that has played the robust role in all businesses and environment, china is enriched and combined with highly skilled labour and low skilled labour with the efficient quality of production. Chinese labour is six times cheaper than Mexico. Chinese has low cost and high quality of production. China has number of advantages that have made more attractive for GE those are low labour, and electricity costs. GE in china had global revenue four times higher than those of India.

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According to GE Chairman Jeff Immelt’s (CNN, 2008) expects the company business in China to double by fiscal 2010 to $10 billion a year. He also expects 15% to 20% annual sales growth for GE’s clean-energy technology which will get generated from China’s effort.

Mexico

Mexico has been a main hub for GE as it’s been working in past 108 years and had expanded its production to over 30 plants and the employment of over 30000 people. Mexico Language (Spanish and English) and the distance facilitated in business of GE in USA as with compared to China. GE another advantage was Mexico domestic market with income of more than $6000 per capita and population over 100 million. (Case study)

Partnership outsourcing of GE Mexico with compared to china was less favourable in operation that are wages, turnover costs, costs of land, construction, water , gas, and electricity were high with compared to china. The FDI of Mexico was not suitable due to currency fluctuation and GNP growth was in decline in 2000-2001, but 4.2% for 2004 it was still low than Asian markets. Mexico provides protection of intellectual property, transparency of regulation, administration, banking, and legal system that has been less attractive for GE. (Case study)

Advantage of being close to US and same time zone The efficiency gains from working close to the US mean near shoring in Mexico costs about the same as off shoring in India GE still outsource 90% of its IT work to India, sending just 6% to Mexico, according to Steve Morrison, GE's London-based head of Global IT outsourcing as India's costs rise, Mexico will look better and better.

As the recent changes in business environment remains same as they are now, India eventually will be charging the same unit cost as Mexico, furthermore Morrison points to another advantage Mexico has over India due to U.S. legislative restrictions, some projects involving military aircraft and energy technology are most probably go to Mexico as compared to India, a nuclear-power nation.

India

In 1902, GE started India's first hydropower plant. Now days, GE's global businesses are in India. (The Economic Times, 2007). The company participates in services, manufacturing and technology businesses in the country. GE's revenues in India are approximately US $ 2.8 billion. It exports over $1 billion in products and services. Employment across India exceeds 14,500. (www.ge.com)

Hill (2008) explained that the recent trend to outsource information technology jobs to India due to the presence of significant number of trained engineers in India which is the result Indian education system.

Wide range of operations and services that works from jet engines to power generation, financial services to medical imaging, and news to information, GE people worldwide are dedicated to turning imaginative ideas into leading products and services that help solve some of the world's toughest problems. GE was one of the first American companies that outsource in India for back office work to save costs and increase in profit. India has a pool of English-speaking skilled workers with expertise in services such as, insurance, claims processing, accounting and information technology at low cost. (BBC News, 2004)

Skilled labour of India are also willing to work for comparatively low wages GE is one of many American and European firms which moved its call centres and back office work to India in the late 1990s to take advantage of the country's low-wage English-speaking workforce that is far cost reducing than in US.

Strategic Approach of General Electric

According to Morrison (2002 p.51) in the new era of post-fordist industrial restructuring, the global corporation has effectively ‘localized’ its strategy. The corporation strategies of the multinationals rely on their ability to coordinate production in their various geographical centres, seeking the greatest efficiency in each.

The availability of abundant cheap labour in some countries and regions has given these locations favoured status where as economic development in less endowed parts of the world by providing them enriched resources and vibrant working environment.

Being a pioneer in the world GE has committed the breadth of GE to support Chinese customers. It has more than 1,700 sales and service people on the ground. According to GE strategy, the whole world is as a market for it. GE has many responsibilities in the pursuit of global trade.

First and foremost is to set high standards for behaviour everywhere and satisfaction of customers everywhere and the products and services that fit their needs. GE continues to give employees everywhere the investments in technology and management training that makes them competitive. (www.ge.com)

Effects of Outsourcing on US economy

Outsourcing caused success for some and costly mistake for few by bringing number of its benefits of trade. It is one of the positive outcomes of globalization. Global and leading companies in the world doing some business in their markets can locate their production in the every market into which they are selling.

As India, the Philippines and china develop a knowledge based labour supply, companies like dell and EMC. There is cost savings especially on labour, but long term, such savings may be secondary. (Hill 2008, p.158)

At one end the extreme benefits of outsourcing sand cost of the emerging global economy are being hot debate among business people, economist, and politicians. The debate emphasize on the impact of globalization on jobs, the environment, wages, working conditions of US. According Forrester Research Since 2001 in US approx. more than 2.5 millions have gone overseas such as china and India that caused big challenge for business as well as US government as companies emerged more towards saving labour cost by shifting jobs to countries providing cheap and skilled labour.

In last few decades, practice of relocating jobs in overseas was in practice but today Outsourcing term became popular. Outsource sector were manufacture industries, automobile and, textile. In the late 1990's, many U.S. companies started to outsource their IT jobs to overseas workers. Over the past two years because the number of jobs gone to overseas, outsourcing has became hot issue for media and political.

According to case study, in the 2004 President Bush and Senator Kerry have different point of views on outsourcing. President Bush supports outsourcing that outsourcing is a win-win situation and in the long run will develop the U.S. economy by increasing revenues and bringing in newer and better paying jobs.

But; Senator Kerry, supports keeping American jobs in the U.S. according to his believe outsourcing has lead to the drainage of jobs that belong to the U.S. middle class and it should be stopped at any cost.

Table 1. Number of U.S. Service Sector Jobs Projected to Shift Offshore by Occupation Group Through 2008

(Numbers in thousands)

Occupational

Group

2003

2004

2005

2006

2007

2008

Administrative

146

256

410

475

541

616

Computer

102

143

181

203

228

247

Business and financial operations

30

55

91

105

120

136

Management

3.5

15

34

42

48

64

Sales

11

22

38

47

55

57

Architecture

14

27

46

54

61

70

Legal

6

12

20

23

26

29

Life sciences

.3

2

4

5.5

6.5

9

Art, design and related

2.5

4.5

8

9

10

11

Total

315

540

830

960

1,100

1,200

Source: Adapted by John C.McCarthy, Near-Term Growth of Off shoring Accelerating, Forrester Research, Inc., May 14, 2004

Hill (2008) discussed that Supporters of global outsourcing argue that free trade will result in countries specializing in production of those goods and services that they cannot produce as efficiently. By outsourcing the country lost textile jobs e.g. Harwood and lost call centre jobs e.g. Dell, but the whole economy is better off as a result.

According to Hill (2008) by importing e.g. textiles from china leads to low prices of clothes in the United States, which enable consumer to spend more money on other goods and it will also increase the income level in china, which will enable Chinese to buy more products produce in US.

The recent fear between the economists is, if this current situation continues US would help would help third world countries to grow and US will gradually become third world country, as cheap labour cost has been the main advantage of Outsourcing. US face long term threat if this trend of outsourcing continues. That will impact on US economy and its ability to provide job opportunities.

Global Outsourcing Good or Bad

Although outsourcing has helped many companies in many ways such as reducing the cost of labour, thought many failures came across as well, that has caused heavy loss of companies outsourcing in other countries leads to lack in communication because of difference in languages, different cultural awareness, poor management, lack of product knowledge etc. failures in these areas has been responsible for some companies those experienced outsourcing negatively. In addition to that yet various other drawbacks are not cleared that will emerge gradually with the time.

Conclusion

After having a thorough research it is concluded the point that outsourcing is indeed good for corporations but not for US workers and economy, as none of the ordinary worker in US likes the idea of moving jobs to other countries, from technology to research, customer services to technical support, some corporate executives have mentioned that US organisations has no choice to remain competitive in this globalised business environment by bringing the cost down.

The interests of US corporations might not be the same as of the country and its citizens. Recruiting staff in India could help companies like IBM, Dell, and Microsoft , etc to lower costs and increase their revenue, but it hurts the workers in US who lose jobs and the prospect of jobs. Outsourcing is same as letting mass immigraton of workers willing to take responsibility at ultimately low wages.

This differene in incomes can lead to inequalities within the citizens. As many research have shown that American peoples would expect the government to take a firm stand against companies that send jobs overseas or outsource them . An research organization has revealed that 71% of Americans believe that outsourcing of jobs offshore hurts the US economy, and 62% believe that US government should tax or legislate to stop the job going offshore.

In US where employees have started fearing job losses. This fear rises to low motivation and decline in services. Apart from that Lack of coordination between people having different cultural backgrounds and different time zones can also lead to time losses. Difference or lack of skills in languages among the outsourced employees can lead to misunderstandings, lost credibility of organisation, customer service complaints and missed opportunity as well as data protection issues in countries where business is being outsourced.

The argument over outsourcing is full of miscommunications, government should stay away and let markets decide where companies hire their employees. Companies are hiring offshore and firing inside the U.S. by this activity these companies are entering into overseas markets.

Furthermore to that there is no chance to reverse the laws of economics.The countries were getting free trade by trading in the goods or services. David Ricardo proposed the theory for free trade by laying out the idea of comparative advantage almost 200 years ago. If one country is specalized at making one product and the second is in in other product, both countries should come out ahead to trade with each other.

Outsourcing is mostly trading services, instead of goods movements across international borders. US government should consider some factors to protect American workers and their fear of job loss. US government should start some educational programme to train the people for the highly skill work espacially in IT field.

Reference

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Accessed on 20th September, 2008