internationalbusinessemergingecono International Business 2012 mycompetitiveadvantagegeneralelectr icmedicaldiagnosticsgenomicschinainf rastructurectscanningcustomisationin International Business ternationalbusinessemergingeconomy General Electric Medical Systems, 2002

competitiveadvantagegeneralelectric medicaldiagnosticsgenomicschinainfra structurectscanningcustomisationinte rnationalbusinessemergingeconomyco mpetitiveadvantagegeneralelectricme dicaldiagnosticsgenomicschinainfrastr ucturectscanningcustomisationinterna tionalbusinessemergingeconomycomp etitiveadvantagegeneralelectricmedica ldiagnosticsgenomicschinainfrastructu rectscanningcustomisationinternation
19 June 2012
Group 5; Section D SUDHANSHU LADDHA TANVEE GUPTA (GL) PGP/15/186 PGP/15/189 CHETANKUMAR GOVINDRAO BAGADE PRIYANK SHARMA PGP/15/214 PGP/15/241 JAYKRISHNAN PARAMESWARAN SAURAV AGARWAL PGP/15/282 PGP/15/319

International Business 2012

1. What is the underlying logic behind the global product idea? What are the costs and the benefits that are expected? The Global Product Company (GPC) concept focused on improving production efficiency by shifting manufacturing, engineering and design activities from high-cost to low-cost countries where the products would be manufactured in Centers of Excellence and then be shipped elsewhere. Such a strategy is likely to yield cost savings of around $3 billion initially and $1 billion annually subsequently. Sourcing from low-cost vendors would save them 10-30% on materials and 50% on labor. The talented but underutilized human capital could be utilized for product development and design responsibility which would save them high expenditure on human resource while maintaining the quality. The associated fixed costs would also be lower as the plant and equipment could be sourced from low-cost vendors. Also, the GPC was considered by GEMS to be an innovative way to ingrain the company in countries that are perceived to be xenophobic of foreign multinationals to a certain extent. The major costs associated with this strategy related to relocation of employees from headquarters and old locations to new ones as the Budapest example cited in the case. This process took a human toll on employees as well who were forced to repatriate for months on end from their home country. To better manage the transfer of production, GEMS employed the pitcher-catcher concept and an efficient parts organization. Another disadvantage of the perceived GPC system was the associated inventory costs as well as the relevant logistics, documentation and import-duty costs related to moving materials and products around the globe. Moving to lesser developed countries also meant losing the concessions developed nations provide to encourage export-generating investment. One of the biggest challenges in the transition is related to building long-term relationships with the local suppliers to ensure matching quality standards.

General Electric Medical Systems, 2002

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International Business 2012

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? The future demand potential in China is very high due to the high population. Domestic production would lead to greater demand in China. As Chinese customers are price sensitive, a drop in price of 10% could probably raise the sales by 50%. From the case, In China for China policy involves moving the plants from the low cost country to China. It is duplicating the existing infrastructure from the low cost country. The per captia medical device expenditure is $174 in USA and multiplying it with population of USA as 0.3 billion, total medical device expenditure=174*.3= $52.2 billion While per capita medical device expenditure is $1 in China and multiplying it with population of China as 1.23 billion, total medical device expenditure=1*1.23=$1.23 billion. Hence the market size is bigger in USA in comparison to China. As per the case, 70% of GEMSs china productions were exported. China has the highest demand for the low end medical diagnostic products and low end products accounted 20% of the worldwide revenues. From exhibit 5 the total sales worldwide in 2001 is $8400 millions 20% of the world wide sales = 8400 * 0.2 = $1680 million. Also, sales from Asia are $1660 million. Taking the example of the economics of Patient Monitoring device from exhibit 8, the incremental fixed cost for moving the plant from Mexico to China is $1 million. Variable Margin per unit is $730. No. of units for breakeven = 1000000/730 = 1369 units. As the expected total number of units manufactured from the plant will be 800 units (which is less than the breakeven quantity), it looks economically unviable to change the global product philosophy for China market.

General Electric Medical Systems, 2002

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International Business 2012

3. Should GEMS be aggressively pursuing genomics and healthcare-IT related opportunities in addition to or instead of the China opportunity? What priorities would you suggest? Explain your reasoning carefully.

Pursuing genomics and healthcare-IT related opportunities are economically viable for the following reasons: 1. GEMS is positioned as a market-innovator and would end up diluting its image by focusing entirely on low-cost focus in China 2. The developed markets present a sizeable market of around $16.85 billion much higher than that of the Chinese opportunity despite increasing medical expenditure in these regions 3. The ageing population of developed markets are likely to support huge sales in the region

The China opportunity could be pursued by continuing with the GPC policy which would be advantageous for the following reasons: 1. China is the third-largest market for medical diagnostics and is growing fast. Its much larger population and improving healthcare expenditure is likely to bring huge revenues to GEMS 2. The equipment manufactured in China could also be exported to countries like India which are also developing and seeing an improvement in the health-consciousness of consumers.

Thus, considering the advantages of the two opportunities, both should be captured by GEMS. However, genomics opportunity could precede the China opportunity due to its relatively better potential.

General Electric Medical Systems, 2002

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