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General Electric Medical

Systems
International Business- Assignment

7/14/2013




Submitted By
Group 6
JAYASHREE LANJEKAR - PGP/16/024
HEMANT KUMAR - PGP/16/083
NISHANTH. S - PGP/16/096
T DURGALAKSHMI - PGP/16/115
ARKAPRABHA DEBNATH - PGP/16/133
UMESH KUMAR (GL) - PGP/16/174

1. What is the underlying logic behind the global product idea? What are the costs and the
benefits that are expected?

Global Product Company concept essentially involves carrying out manufacturing and other
activities wherever in the world it could be done to meet GEs standards cost effectively. The
GPC concept primarily aimed at utilizing the benefits of aggregation, arbitrage and
adaptation. Activities like manufacturing, R&D were carried out on an aggregated basis,
while sales and marketing were adapted to suit countrys needs. GEMS believed that on a
fundamental level the requirements of patients and doctors from medical equipment were
similar across countries. However, differences in culture, income led to different usage levels
and hence required customization to a certain degree. This was the rationale behind adopting
the GPC concept.
Some of the key benefits of GPC include:
Cost savings: Inputs purchased from vendors in high cost countries accounted for
nearly 74% of the variable manufacturing cost. A significant reduction in cost was
expected by shifting the sourcing of these inputs to low cost countries. It was seen
that first year cost savings of shifting to a low cost country were about 30% and were
further expected to go down annually by 10%. Manufacturing is carried out in an
aggregated fashion in the centres of excellence resulting in economies of scale.
Global talent acquisition: GPC helped to carry out activities like R&D in countries
which had talented but underutilized capital. In a technology intensive industry like
health care, soft resources such as knowledge base and talent are more likely to
provide a source of competitive advantage. Also, with technology continuously
changing a talent pool will help easily tap emerging technologies.
It helps to make GE insiders in countries that have considerable nationalistic pride.
The centres of excellence at different locations often compete for gaining the
attention of the central management and this would produce superior quality work.
Secondly, best practices developed in any country can be implemented in other
regions as well.
Key costs involved in implementing the GPC concept:
Development of high quality suppliers in low cost economies would require
considerable investment of time and effort in developing long term relationships. For
instance, GEMS quality personnel spent 50% of time with BEL in the initial stage of
relationship.
Supply chain assumes great importance due to the very high movement of materials
across the world. Investment would be required to develop an efficient and high
performing supply chain, so that an emergency in any one country does not affect
global operations.
Shifting of operations to a low cost country would involve investment of fixed costs
for development of land, equipment
Logistics cost, import duty and transaction costs in the form of documentation will be
incurred while moving material around the world.
Training and development costs for the less experienced workforce in the new
location
Concessions provided by the high cost countries towards export generating
investment are lost out

2. Should the global product philosophy be changed or altered to suit the China market? Please
identify both sides of the argument and take a position explaining the rationale behind your
stand. Does it make economic sense?

GEMS has got two alternatives. Either go with Global Product Company (GPC) concept or
In China For China strategy. Both strategies have their own advantages and
disadvantages as following

Global Product Philosophy:

If GEMS go with GPC in China, it will have the benefit of maintain its quality and
reputation worldwide. As product manufactured in COE in low cost countries were shipped
anywhere in the world, GPC proved to be a major source of revenue in high cost,
industrialized countries. Also the pitcher and catcher philosophy of GEMS for knowledge
transfer would be more advantageous if GEMS stick with GPC philosophy in China.
There are downsides of going with GPC in China also. GEMS may lose the opportunity to
have customized products. Percentage GDP spending on healthcare and healthcare
expenditure per capita was very low 4.0% and $27 respectively. High end products were
not affordable in China.

In China for China strategy

China is the third largest market for medical diagnostics worldwide, growing at the fastest
rate. Also, the largest demand in China was from the low-end medical diagnostics products.
As per statistics a drop in price 10% could probably raise sales by 50%. To cater to this low
end segments it is quite rational to change the GPC philosophy of GEMS and customized
their product for the regional need. Also the customized products produced as per Chinese
market requirement can be used all over the world, even in some part of rich countries.
This strategy would require already established manufacturing facilities and workforce in
the low-cost countries to move to China partly duplicating the infrastructure. Also there
would be numerous other costs involved like Inventory, logistics, documentation and
import duty cost.

Economics of strategies

Moving to China would require additional incremental fixed cost of $1 Mn.
While 2% variable cost be reduced by moving the facility to China
As per exhibit 8
Variable cost per unit in Mexico for Chinese market = $2570
Variable cost per unit if produced in China = $ 2518
Variable cost saved per unit = $ 52
Assuming 50% of Asian market sales to be fulfilled by China ie $830 Mn (Exhibit5 in
2001) which meant 2,51,000 unit (assuming sale of one unit to be $3300 for a unit as per
Exhibit 8)

Variable cost saved in a year = $ 13.1 Mn (52X251000)

That is much higher than incremental fixed cost of $1 Mn.
Going ahead demand for low end GEMS products will increase which will further add to
the savings of GEMS. Also demand for low end products will increase not only in China
but also in other developing countries. GEMS should alter its strategy rather than going for
GPC.

3.