CUSTOMIZED GLOBALIZATION

CUSTOMIZED GLOBALIZATION General Electric Health’s Expansion into China and India

Guy Babineau

July 2015

CUSTOMIZED GLOBALIZATION

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TABLE OF CONTENTS

TABLE OF CONTENTS ..................................................................................................................................... 1

INTRODUCTION ............................................................................................................................................. 2

GENERAL ELECTRIC HEALTHCARE’S EXPANSION INTO CHINA AND INDIA .................................................... 3

GEH’s Strategy for Globalization: Pros and Cons ...................................................................................... 3

Why MNCs Fail in China and India ............................................................................................................ 4

GEH’s Localization Initiatives in China and India ...................................................................................... 4

HUMAN RESOURCE MANAGEMENT CHALLENGES ....................................................................................... 6

Integrating Disparate Work Cultures ........................................................................................................ 6

GEH’s HR Success in China and India ........................................................................................................ 6

Training American Managers for Assignments in China and India ........................................................... 7

CONCLUSION ................................................................................................................................................. 8

REFERENCES .................................................................................................................................................. 9


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INTRODUCTION

General Electric Healthcare (GEH), a division of General Electric (GE), is an MNC

(Multinational Corporation) employing more than 50,000 people in over 100 companies, with

2014 revenues of $18.3 billion USD. The company produces medical equipment and

pharmaceuticals, investing heavily in R&D and the expansion of its operations into emerging

economies such as China and India (Abraham, 2013) (Chu, 2014). GEH was the first of GE’s

divisions to relocate outside of the United States, moving its head office to London, recently

transferring its X-ray headquarters to Beijing (Badkar, 2011), and developing a notable R&D and

production presence in both India and China as part of GE’s mandate “to adopt new strategies

in the coming years to fit market change” (Du, 2014) via the corporation’s In Country, For

Country plan to leverage local capabilities and resources (GE Healthcare, 2011).

GE performed a comprehensive analysis of the potential to grow its healthcare and

other assets in Asia and realized that by designing, developing and manufacturing new products

in heavily populated India and China, global growth would be two to three times faster than the

implementing same processes in Western centers (Immelt, Govindarajan & Trimble, 2009). It

wouldn’t be easy.

GEH’s growth in India and China is a case study in the challenges facing Western MNCs

as they expand into multiple regions and nations with diverse cultures, varied political

structures and often seemingly incompatible processes for doing business and managing

human resources. This paper exams some of the reasons for GEH’s apparent success in

embracing new strategies for trade in the 21st century’s global economy, with an emphasis on

assessing the obstacles involved in staffing, training and managing leaders and teams in India

and China, and determining possible solutions.


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GENERAL ELECTRIC HEALTHCARE’S EXPANSION INTO CHINA AND INDIA

GEH’s Strategy for Globalization: Pros and Cons

A number of theories exist concerning the most effective ways for MNCs to expand into

foreign markets. These strategies support the idea that it is no longer competitive or profitable

to view globalization as a process of using cheaper labor markets to produce goods or parts of

goods, especially when those labor markets are in large countries exhibiting strong economic

growth and increasing consumer purchasing power (Hill, 2009) (Immelt, Govindarajan &

Trimble, 2009). This old-fashioned view of export-based trade, or mercantilism, contradicts

Adam Smith’s concept of absolute advantage, in which trade is completely unrestricted, nations

with the ability to compete by producing quality goods more cost-effectively are free to

compete, and “world output could be maximised through using factors of production efficiently

and effectively, which in turn increases the wealth of nations” (Vurgun & Metin, 2013). This is

particularly pertinent for healthcare companies in huge markets such as India and China, with

enormous populations requiring homegrown, low-cost and portable medical technology as well

as affordable, accessible pharmaceuticals (Choudhary, Kshiragar & Narayanan, 2012) (Abraham,

2014).

Progressive global companies recognize that developing countries are “extremely

desirable as markets, not just manufacturing hubs” (Malik, Niemeyer & Ruwadi, 2011).

GEH has pursued its objectives for global competiveness by establishing and expanding

operations in China and India via four key strategies: mergers & acquisitions (M&As), foreign

direct investment (FDI) in the form of greenfield investments to development local

ventures/subsidiaries from the ground up, strategic alliances with regional firms, and a

commitment to train a new generation of skilled labor in the host countries (Hill, 2009) (Ietto-

Gillies, 2000). However, each of these initiatives takes considerable time and money. GEH has

had to find ways of realizing its business objectives while achieving local goals, address cultural

roadblocks and changes in the political landscape, consider macroeconomic factors such as

currency fluctuations, and coordinate activities in countries with huge gaps between the rich

and poor as well as inconsistent transportation and communication infrastructures (Hill, 2009)


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(Xiao, 2011) (Elmuti & Kathawala, 2001). An inability to acknowledge these and other factors

are among the reasons some Western companies have failed in China and India.

Why MNCs Fail in China and India

When trade barriers were lifted in the 1990s, American MNCs started to pursue global

competitiveness by closing factories at home and outsourcing production to China, India and

other countries where labor was much less costly, thereby maximizing their profit margins, but

that approach proved unstable because as these countries developed, labor costs rose, and

consumers at home became aware of labor abuse and began to demand better labor standards

(Malik, Niemeyer & Ruwadi, 2011). It became necessary for companies to evolve new practices

and policies that entailed “transnational strategies” and “adaptation aggregation trade-offs”

(Immelt, Govindarja & Trimble, 2009), enabling the regional production of goods that met local

needs and also reinforced a company’s reputation with local consumers and governments.

Companies that didn’t change with the times, or chose not to acknowledge that

consumers at home were concerned about poor working conditions, found themselves lagging

behind the competition domestically and unable to tap into the foreign markets they had been

exploiting (Palthe, 2008) (Choudhary, Kshirsagar & Narayan, 2012) (Hill, 2009).

MNCs that tried to manage their operations long-distance through intermediaries could

not build effective business relationships with their suppliers, nor could they benefit from

government programs aimed at developing local industries and expertise, which made them

unpopular, even more so when they insisted on imposing culturally insensitive Western human

resource management methods (Darty-Baah, 2013) (Elmuti & Kathawala, 2001).

GEH’s Localization Initiatives in China and India

GEH’s expansion in India and China was contingent on the development of International

Strategic Alliances (ISAs) based on “policies, procedures and practices that seek to harvest from

the diversity of partners’ cultures while at the same time building effective bridges” (Dong &

Glaister, 2007). GEH, like other forward-thinking international firms, realized early on that there

would be notable advantages to creating R&D facilities in both countries, leading to new


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facilities, new product development, new forms of engineering, and localized adaptation and

extension, and, of course, hundreds of millions of new consumers (Hill, 2009) (Forbes, 2012).

The company leveraged commitment by governments in both countries to support new

initiatives by MNCs, and partnered with local educators and businesses.

For example, the health service sector plays a major role in both India’s and China’s

ongoing economic plan (Hill, 2009). In terms of healthcare, Western nations value performance

above all else while in China and India, price, portability and ease of use are more, as is

sustainability (Immelt, Govindarja & Trimble, 2009). As a result, in 2013, GEH’s Indian facilities

started to export medical devices to the U.S. and were 40% cheaper than available alternatives

(Abraham, 2013). India and China have proven to be beneficial for pharmaceuticals, which can

be developed much more quickly due to large testing populations.

GEH’s Make In India program is aimed at ensuring that India will never be just a

manufacturing hub (Medical Buyer, 2015), and its Spring Wind initiative in China has focused

“on developing high quality, affordable healthcare products, improving the medical distribution

network across urban and rural China, and offering premium services and training for Chinese

healthcare professionals (GE Healthcare, 2011). The corporation’s In China, For China strategy

has committed billions of dollars to R&D with the goal of increasing local sales of health

products (Asia Pulse, 2010).

GEH has joined forces with healthcare and education experts in India to train a 100,000

skilled healthcare workers (Mint, 2015), while its Fast Trak Training Center in Shanghai aim to

increase pharmaceutical production by providing “hands-on practical training in the latest

technologies and strategies for start-to-finish bioprocessing” (GE Healthcare, 2011). As well as

developing skilled workforces in India and China, GEH realizes the importance of developing

autonomous management and executive teams in each country. In 2014, GEH promoted Rachel

Duan from her role leading GEH China [which she continues to oversee] to the position of

General Electric’s first Chinese-born Chief Executive (Chu, 2014), and over 90% of employees at

all of GE’s divisions in China are local.

From factory floor workers, to trained technicians and engineers, to researchers and

management, GEH has had to adapt its HRM to Chinese and Indian work cultures.


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HUMAN RESOURCE MANAGEMENT CHALLENGES

Integrating Disparate Work Cultures

As a Western MNC, GEH has had to tailor its human resource management to two very

different work cultures. While the U.S. is a low-context society that values individuality,

directness, competitiveness, a separation of personal and professional life, and comparatively

egalitarian work environments, China and India are both high-context, collectivist societies

where the workplace is authoritarian, hierarchical and formal, business and social life

intermingle, and people communicate in an indirect manner (Hill, 2009).

China has had to wean itself away from a Communist system that assigned people jobs

for life, established clear roles for everyone, and harnessed a productive albeit unquestioning

Confucian work ethic, and Westerners have had to adapt to a work style and business culture

that is based on building personal relationships and emotional ties, and, on a darker note,

endemic, systemic corruption (Wu, 2008) (Xiao, 2011). India’s work culture is similar, although

it is also affected by the country’s ingrained social stratification, wariness of deadlines due to

belief systems that stress the dominance of fate in people’s lives (Hill, 2009). As in China,

corruption is a problem in India.

Any Western MNC setting up policies and procedures for HRM in India and/or China is

advised to consider integrating best-of practices from each culture, as well as effective cross-

cultural training, to create a new kind of workplace cultures “whereby new systems, rules and

procedures, as well as norms are created” and “attention should not necessarily be paid to the

existing cultures of the stakeholders but rather efforts must be directed more towards the

creation of a new culture with the strategic intent of enabling the multinational business to

attain its long-term goals and objectives” (Darty-Bahh, 2013).

GEH’s HR Success in China and India

GEH seems to have integrated the HRM of its existing organizational culture with

methods more suitable for its workers and management in India and China. Employees in both

countries are suspicious of absentee managers and executives, therefore GE’s top executive,


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CEO Jeff Immelt, visits both countries twice a year to “meet separately with dozens of people in

the company’s local business operations and just let them talk about what they’re working on”

(Immelt, Govindarja & Trimble, 2009). As mentioned above, the firm is working closely with

government and educators to build a workforce that will be its main source for talent at all

levels. The company uses a Local Growth Model (LGT) to “shift power to where the growth is”

and “build new offerings from the ground up” (Immelt, Govindarja & Trimble, 2009). GEH has

supported technology transfers to each country because “host countries now demand more in

the way of technology transfer” (Elmuti & Kathawala, 2001), as well as the accompanying

training.

Using GE’s nine-block model to asses performance and establish values, GEH’s global

human resource strategy advocates “people or talent management practices that facilitate the

improvement of leadership bench strength and employee engagement in an organization”, and

stressing methods that allow employees from all backgrounds to share their stories and

knowledge on an ongoing basis in a way that is tied to performance and organizational

objectives (Taylor, 2013). This includes a commitment to cross-cultural understanding,

something that many company’s HR departments struggle with, contributing to the failure of

American MNC expatriates on assignments in foreign countries.

Training American Managers for Assignments in China and India

Before preparing American managers for overseas assignments, it is essential that the

right candidates have been selected through a process that establishes their suitability in terms

of attitudes, cultural fit, personality traits, ability to adapt to new situations, and willingness to

change (Stiles & Trevor, 2006). Otherwise, all the cross-cultural training in the world will be

purposeless. This can take the form of in-depth surveys, and prompting their responses to

unfamiliar cultural situations using a mixture of visual clues and hypothetical scenarios.

Cross-cultural training is the single most important aspect in training American

managers for assignments in China and India, and its outcome should be more than an

understanding of cultural differences; the outcome should be the ability to adapt one’s

behavior to those differences (Molinsky, 2015). It is a multi-faceted process that includes


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cognitive, affective and experiential approaches, as well as well as an ability to speak local

languages. In other words, managers must learn about the host country’s history, culture and

customs, have first-hand experiences of the host country’s culture, and exercise their

responsibilities as managers in the host country viscerally, through simulations (Ko & Young,

2011).

As well as simulations, role-playing, intercultural workshops, site visits [if possible], and

socializing with people from the host country are methods of experiential learning (Ko & Young,

2011). Subtitled movies and documentaries would be effective as tools for cognitive training, as

would a video training series on gestures, body language, greetings, etc. Connecting managers

to employees and managers in the host country via social media would also be a good idea.

There is also a psychological component to cross-cultural training that incorporates how to

interpret meaning in cultures where communication indirect, conflict resolution, and

acceptable ways to acknowledge employee performance.

Finally, it would be advisable to have a Buddy system in place, whereby a local

employee teams up with the assigned manager upon arrival in order to facilitate what could be

a difficult transition. This calls into question the need for local employees to receive cross-

cultural training in the ways of Western work cultures.

CONCLUSION

GEH provides a good example of a company that has developed a successful strategy for

competitiveness in a world where emerging economies such as India and China have become

local markets for locally designed and produced goods that can compete globally, and sources

of skilled talent and management. Adaptation to this new reality requires MNCs to directly

invest in these countries, establish homegrown facilities and education centers from the ground

up, set responsible labor standards, and support the communities in which they operate. In

order to achieve their objectives, they will have to initiate effective cross-cultural training that

addresses how people adapt to cultural differences and collaborate productively.


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