General Electric Medical Systems

1. Q 1. What is the underlying logic behind the global product idea? What are the costs and the benefits that are expected? Global Products Company(GPC) strategy is based on the following underlying logical premises: a. Markets for medical equipment are systems are becoming increasingly global in nature. They are no more restricted to only the developed First and Second World countries having advanced healthcare systems. The burgeoning market is that of emerging and developing economies. Thus, there is a need to meet the growing demand for affordable medical equipment in these economies and retain its market leadership b. Needless to say that low-cost leverage is the only way to win a large chunk of this new pie and therefore GEMS has to shift to a cost-efficient strategy c. GEMS realised the potential of tapping production & sourcing centres where there was parity in output quality and labour skill-sets but overall cost was much lower. d. The GPC strategy involved sourcing quality components from the most cost-effective suppliers and establishing the manufacturing bases in most cost-effective geographies. e. As most of the GEMS manufacturing involved sourcing complicated components from across the globe to two-three manufacturing/assembling centres and then distributing across the globe from these centres, the challenging aspect of GPC was in the development of intermediaries along the supply chain to ensure un-interrupted supply & production flows. The following are some of the costs and benefits of the above mentioned strategy of globalizing production to facilitate a low cost production: Benefits: 1. As materials form 80% of the manufacturing cost, sourcing of materials from low-cost countries would enable a significant amount of saving. The key would be to develop long-term relationships with local suppliers and once that is done, it means unparalleled cost savings in future. 2. Having manufacturing centres in low-cost-labour countries would also enable a substantial cost reduction as labour formed 20% of the manufacturing cost. 3. Now, as labour and materials form almost 85% of the total variable cost, substantial reduction in both would enable GEMS to have a cost reduction to he tune of approximately 30% in the total cost. It has to be noted that the incremental fixed cost in case of GEMS was close to nil (Exhibit 7). Costs: 1. In addition to the fixed costs that had to be incurred additionally to enter into the low-cost countries, other GPC-specific costs included inventory, logistics, documentation, and import- duty costs relating to moving materials and products around the world. 2. Developing a long-standing relationship with new suppliers in these low-cost countries was another area that required considerable allocation of time and effort. . Reducing investments in developed countries, from where bulk of their demand came, meant deteriorating relationship and loss of concessions from these countries. 4. Costs related to hiring less experienced workforce in these new locations, and human toll on the workforce as a result of long trips from home for the employees from both old locations and headquarters. If we analyse GEMS’s strategy mentioned in the body above using the AAA model, we can conclude that it is primarily using the arbitrage strategy of globalization with some elements of aggregation. Q. 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 choice between continuing with the current Global Product Concept(GPC) and adopting â€Å"In China for China† for the low end products is a very difficult call for GE managers. On one hand there are several advantages of adopting â€Å"In China for China† such as: In China there is a huge growth potential for medical diagnostics and as of now it is the world's third largest market for the same. By adopting â€Å"In China for China†, GEMS can design and customize products according to local needs in China and further the GE managers believe that China being a nationalistic country, domestically produced products will have greater demand than imported ones. There are other factors like low incremental fixed cost for moving facilities to China, avoidance of duties and tariffs, availability of cheaper local labor and low transportation cost all of which would help in cost saving for GEMS. On the other hand in order to adopt â€Å"In China for China† strategy GEMS will have to break the GPC concept which may result in ecreased quality due to lack of readily available skilled labor and reduced cost cutting efficiency. Also the management will have to address the challenge of development of suppliers which may result in inefficiency. GEMS do not have good history of managing joint ventures because of the unethical practices of the partner which eventually lead GEMS a cquiring the partners. As understood from the case there are two different market segments in China namely the high end markets served which is served only through imports and the low end markets which is served through domestic production. The adoption of â€Å"In China for China† strategy will result in the company distancing itself from high end customers which will end up in losing the revenue for the business to high end customers. Considering all these factors we suggest that it is better for GEMS not to adopt â€Å"In China for China† strategy and to stay with Global Product Concept. Q3. 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? No doubt, being third largest healthcare market with tremendous growing potential in future, China is a lucrative market that GEMS can’t easily neglect. But at the same time, with the growth of technological advancement in the field of healthcare, genomics and healthcare-IT related products and services going to have an important role in the coming decades and the companies having those expertise will bound to dominate the global healthcare market in future for sure. So we think that GEMS should take both the China opportunity and the genomics and Healthcare –IT related opportunities seriously. We believe that GEMS has the capacity to look at both the opportunities simultaneously obviating the need to sacrifice one for the other. The company’s strong financial condition along with its strong emphasis on R&D would help the organization in meeting both the objectives. China Opportunity : But in doing so GEMS should initially put more focus on the China market than the R&D on genomics and healthcare-IT projects. Because it is very important for GEMS to catch hold of the China’s market before other competitors like Siemens, Philips. Also the gestation period of genomics and healthcare related projects are too high usually 5-10 years and in such a situation to maintain a good balance sheet GEMS should have a good market share in China. The low end product accounts for 20% of the global sales and to succeed in the low end , presence is Chinese market is a must for any company. Secondly, The China opportunity requires GEMS to shift the production from the other parts of the world to China. The incremental cost associated with that shift in production process is a mere $1 million which should not be an obstacle in GEMS China policy. So GEMS can easily do that without worrying too much about the financial aspects. Genomics and healthcare-IT related opportunities Genomics and preventive health care is going to play a deciding factor in coming decades. But these projects are far more complex than what GEMS did till now. Genomics requires not only technological know-how but also expertise on biomedical science which presently GEMS lacks off. So for better output from these R&D, Tie-up with pharmaceutical companies that develop viruses and chemical reagents would help GEMS to understand and increase their expertise on bio medical science. Collaboration with leading universities around the world on researches on topics relevant to these projects would also help GEMS. Funding for these researches, Supplying machines and tools to support those researches would help GEMS in getting good responses from R&D teams around the world. So with the steps mentioned above and few modifications to the present system, GEMS can take both the opportunities