General Electric Medical Systems - Global Product Company concept
General Electric Medical Systems - Global Product Company concept
The Global Product Company concept means ”to concentrate manufacturing – and ultimately other activities – wherever in the world it could be carried out to GE’s exacting standards most cost-effectively”. That means that the production is moving to countries where people are mostly underutilized (the example given in the case study tells about engineers from Eastern Europe, who cost only $1,5/h). There are two major reasons why a company would do that:
a. Maintaining/Raising the margins - One of the most important goals of every company is profit. It can be raised in two ways: either a company has to make bigger revenues or it has to lower costs. When a company can deliver a product with the same quality but at a lower cost it is a great opportunity to raise its profits.
b. Gathering information about the local culture - Countries which have well-educated, but cheap human capital are those countries which have future potential. Those are countries which for the moment can afford mostly low-end products (which contribute to only 20% of global revenues), but in the near future may start switching to middle- and high-end products. By entering the market at this stage a company is able to learn the local culture and find the needs of the customers. After some time this company will have an advantage over its competitors when selling new products on the market. For GE a good example is Japan, which now is the 2nd most important source of revenue.
There are many pros and cons of the Chinese market. “Hospitals’ reputations came to be based on the ownership of high-end equipment”, which shows that there is potential for sales of high-end products which contribute to 45% of worldwide revenues. GEMS has also a very good position in
China (it has a 40% market share which is bigger than Siemens’ and Philips’ together). “China is already the third-largest market for medical diagnostics
The Global Product Company concept means ”to concentrate manufacturing – and ultimately other activities – wherever in the world it could be carried out to GE’s exacting standards most cost-effectively”. That means that the production is moving to countries where people are mostly underutilized (the example given in the case study tells about engineers from Eastern Europe, who cost only $1,5/h). There are two major reasons why a company would do that:
a. Maintaining/Raising the margins - One of the most important goals of every company is profit. It can be raised in two ways: either a company has to make bigger revenues or it has to lower costs. When a company can deliver a product with the same quality but at a lower cost it is a great opportunity to raise its profits.
b. Gathering information about the local culture - Countries which have well-educated, but cheap human capital are those countries which have future potential. Those are countries which for the moment can afford mostly low-end products (which contribute to only 20% of global revenues), but in the near future may start switching to middle- and high-end products. By entering the market at this stage a company is able to learn the local culture and find the needs of the customers. After some time this company will have an advantage over its competitors when selling new products on the market. For GE a good example is Japan, which now is the 2nd most important source of revenue.
There are many pros and cons of the Chinese market. “Hospitals’ reputations came to be based on the ownership of high-end equipment”, which shows that there is potential for sales of high-end products which contribute to 45% of worldwide revenues. GEMS has also a very good position in
China (it has a 40% market share which is bigger than Siemens’ and Philips’ together). “China is already the third-largest market for medical diagnostics