Ge Medical Case Study: " in China for China"
Ajaya Tachajanta 2011 General Electric Medical Systems, 2002 Overview GEMS is the world’s leading manufacturer of diagnostic imaging equipment and part of Milwaukee-based GE - Ge Medical Case Study: " in China for China" introduction. It is the leader in MR and CT imaging in all regions. According to Immelt’s strategy, GEMS evolves from taking joint-venture and acquisition as the first step where business’s size is matter. Secondly, Global Product Company (GPC) concept is introduced aiming at cutting cost by shifting the manufacturing activities from high-cost based to low-cost based nations, allowing GEMS to earn more margin.
Last but not least, investing in developing marketing and sales organization is emphasized to position GEMS as a more than Equipment Company i. e. to differentiate itself from the competitors with services. However, with the recent China opportunity, GPC concept has been shaken by “In China for China” policy. Hence, GEMS has to consider whether to modify GPC by adopting the new policy to directly focus on Chinese market or not.
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Company’s Strategies Manufacturing strategy; According to GPC concept, it is focused on creating a cost competitive advantage by shifting manufacturing from high to low cost nations. Center of Excellence would assembled the product which later be shipped globally, allowing economies of scale to be reached. Hard and soft technologies and skills have to be transferred through the move using pitcher-catcher concept. The attempt to purchase from supplier in low-cost based nations is executed as to save input cost.
In order to build a quality supplier meeting GEMS’s standard; GEMS would help in reengineering, training, and developing local suppliers. To make GPC work, supply chain management is critical. Even though GPC does incur inventory, logistics, documentation, and import duty cost, its benefit of saving material and labor cost (30% in the first year) seems to overwhelm the cost. R&D and product design strategy; It is highly focused on developing the best technology while tightly control cost.
According to GPC concept, it moves towards countries where talents are underutilized. This allows GEMS to employ low-cost talents. Since different markets would share different need and structure in medical industry but they still have some common needs and principles on product features, hence, R&D and product design are partly centralized to effectively utilize human capital and cost, and partly localized to meet the different needs and structures of medical industry in different markets.
Ajaya Tachajanta 2011 Sales strategy; Sales is treated as local operations since different markets would have different healthcare demands, structures, and regulations. GEMS focuses on the wholly-own direct sales where the market is large enough to support the infrastructure as to reduce the intermediary providing GEMS to fully enjoy the margin. Product differentiation is established on product itself and highly on the services.
The value added service contract sales is focused with the move towards in-house service as GEMS’s superior technology contributing differentiation competitive advantage of GEMS over its competitors. Marketing strategy; Since the per capita income referring to the purchasing power, and demographics and the structure of the market itself referring to the products demanded varies across countries, thus the need of localizing marketing is important.
GEMS tries to customize its products in respond to demand while GPC concept is still hold. The marketing of used product has been implemented as an option for low purchasing power clients which GEMS has 30% market share in reused market. GEMS tries to differentiate itself by service which yield a higher margin than equipment. It also tries to introduce new product generation as to shape the usage pattern that would provide GEMS’s competitive advantage.
Managing the regulatory interface; It uses “Defense – ensuring the compliance in rules and regulation of particular nations and its competitive position over the competitors, and Offense – trying to influence the evolving rules and regulations” Acquisition strategy; Acquisition starts with joint venture to partnership and then fully acquire. Acquisition is aiming at obtaining a new product line, associating technical expertise to its own product offering, and accessing to new market. GEMS in China and its options To adopt “In China for China” or not, the pros and cons has been used for the conclusion.
Let’s start with pros; 1) could avoid the problem of joint venture and renegotiation arising form being cutting out, 2) could enjoy the market size of China which is the third largest medical diagnostics market where GEMS has 40% market share, and the largest low end medical product market, moreover the growth of medical market in China is the fastest, 3) the low cost based countries of production could be hold while domestic production would have greater demand since localized product tends to create the perception of better matched, 4) with the adoption, GEMS would utilize China s the base production both for domestic and export.
Hence, GEMS’s competitive advantage in cost and differentiation could still hold Ajaya Tachajanta 2011 while the fierce penetration of China market could be conducted, 5) the adoption of “In China for China” would provide a next step of GEMS on globalization i. e. hink global act local by not only localization but also being a local citizen in the major geography or market like China On the cons side; 1) adopting the policy would violate the GPC principle since it is the move from the already low cost base to another low cost, the modification of GPC would require the adjustment in GEM’s current supply chain 2) it requires additional fixed cost and 2% increase in variable cost for the implementation of In China’s, 3) due to managerial and talent limited resources, the adoption of GPC’s modification would make GEMS to suspend or pay less attention and effort to the development of genomics and health care IT for awhile. However, the payback period of genomics and health care IT would take a longer time, comparing to adopting the In China’s policy which is more immediate. However, only the qualitative analysis would not enough to justify the decision.
Some quantitative analysis has to be done for more precise decision. The possible sale in China increased should be calculated to observe the incremental benefit from the adoption. On the other hand, the incremental cost incurred should be analyzed. As a result, discounted back the net cash flow with opportunity cost of the project would NPV of the adoption which could be used to see the profitability of the project. Some scenario analysis should be used to see the possible outcome. Hence, it should take all analysis into account to find the best solution. In this case the qualitative analysis yield a sound result, if the quantitative sound the same then go for modification of GPC, vice cersa.