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General Electric’s Expansion in the Middle East Case Study

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Updated: Jun 13th, 2020

As it is known today, General Electric (GE) was set up in 1878 by Thomas Alva Edison when he invented the light bulb in his laboratory in Menlo Park, New Jersey, and set up his company and named it Edison General Electric. Later, in 1892, he merged his company with Thomson-Houston Electric to establish a General Electric Company as it is today. In the early going, the company specialized in light bulbs, toasters, and motors. Still, it grew to become a global conglomerate offering a variety of products and services such as power-generation equipment, aircraft engines, financial services, television programming, healthcare solutions, etc. (Mark, Safieddine and Rhayem 2). Today, GE is a global company with a market cap of more than $250 billion, more than $148 billion in revenues, and 305,000 employees (“General Electric” par. 1). It operates all over the world.

When in the mid-2000s, the developed countries started to slow down, General Electric did not want to slow down with them, so the CEO of that time, Jeffrey Immelt, decided that the company should operate in the emerging economies. GE set a course on expanding influence in the MENAT region – the Middle East, North Africa, Turkey, and Pakistan. Even though developing countries as the whole and the MENAT region, in particular, are known for political instability and high level of corruption, they are of great interest to the global companies. It can be explained by the fact that these countries are usually rich with natural resources. At least, it was true about the Middle East region that GE chose as the platform for further growth in 2004. It was a decision that was a key to remaining a global leader as the whole and a market leader in the emerging economies in particular.

Presence in the emerging countries of the Middle East region is attractive for many reasons. First of all, these countries are rich in natural resources, which means that it is easy to generate wealth in this region. Second, presence in these countries is beneficial for the region itself because the wealth generated from natural mining resources can be reinvested in projects aimed at developing the region and meeting the needs of its population. But what is of most significant importance is that being a company offering everything that was needed to realize the projects mentioned above (infrastructure and various services including water, power, etc.), GE could achieve high rates of growth of income (Mark, Safieddine and Rhayem 3).

Even though cooperation with General Electric was promising from the growth of the MENAT regions, the company nevertheless faced barriers to entering the emerging countries. Among such barriers, there was risk aversion, scarce corporate resources, and the fact that the competition was already established in the region (Mark, Safieddine, and Rhayem 4). Speaking of risk aversion, it means that the company wanted to enter the region known for political instability, affiliate relationships, high institutional corruption, and frequent events of facilitative payments and bribery. Together with that, most of the time, the customers came from the government, so it meant that playing by the rules would become complicated and that GE was forced to meet the requirements of the governmental customers.

Moreover, the company had to overcome a barrier to the established competition because Siemens was already present in the region and offered services for building communication networks throughout the region. At the same time, Siemens was the historical leader in the region because it was building its presence in the region for long years by getting close ties with the MENAT governments and playing a significant role in the development of infrastructure while General Electric was a completely unknown company. There was no local executive presence of GE in the MENAT region, so all the decisions were made at the headquarters in the United States. That meant that the company treated the region as a remote site, and investments in infrastructure were minimal.

Having little investments in infrastructural projects and risky securities played a significant role in reorientating the company’s policy in 2008 at the outburst of the Global Financial Crisis that affected developed countries. At that time, GE saw the MENAT region as a haven for investments. What was even more attractive is the potential for robust development during the coming years because those countries have not felt the impact of the financial crisis. In 2010, General Electric focused on the MENAT region as the priority platform for the company’s further development. It launched the Global Growth Organization (GGO) to carry out growth tasks and initiatives.

A newly created GGO was set up to achieve the company’s primary targets, including “accelerating all efforts to meet customer needs, achieving more localization and decision-making decentralization, and having more local business development, customer support, research and product development” (Mark, Safieddine and Rhayem 6). In practice, it meant that the company was to sign the so-called growth agreements with particular countries and shift decision-making procedures from the headquarters to regional representatives. Moreover, General Electric decided to participate in infrastructure, transportation, energy, water, and healthcare in the region.

The company developed several tools for reaching the set targets. First of all, GE chose joint ventures with local firms as the instrument to carry out infrastructural projects built based on two models: minority interest under which GE held no more than 20 percent of the ownership and had limited operating rights and management interest according to which the company had an almost complete influence on the decision-making and held almost all assets of the joint venture.

Second, GE decided to build its presence in the MENAT region based on company-to-country (C2C) agreements that were signed with the country’s government and were aimed at “building and developing infrastructure, satisfying social needs, like job creation and establishing a local manufacturing base and the ability to export” (Mark, Safieddine and Rhayem 8). And finally, the company decided that its business should be localized, so it established a regional headquarters to shift decision-making from the United States to the regions. Together with that, GE focused on detecting local talents to work with the company so that the decisions were made by people who knew the specifications of the region and did not come from another part of the world.

So, General Electric developed a brilliant strategy for inclusive growth in the MENAT region with maintaining the company’s high corporate standards. Nevertheless, GE should remember that to carry out all primary targets mentioned above. It should bear in mind that the problem of corruption in the region is not solved yet. The company is still a newcomer to the region, so the barrier to the established competition has not been overcome as well.

Works Cited

. 2015. Web.

Mark, Ken, Assem Saffieddine and Shadi Rhayem. General Electric’s Expansion in the Middle East. London, Ontario: Ivey Publishing. 2015. Print.

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