GE to shift output from US
By Francesco Guerrera in New York
Financial Times
Updated: 7:41 a.m. ET July 27, 2006
General Electric will make the majority of its products outside the US within three years, marking an historic shift in the global industrial base towards low-cost, fast-growing developing markets such as China and India.
The move by the conglomerate, which follows similar decisions by multinationals such as IBM, could reignite the US political backlash against globalisation, seen by many politicians, trade unionists and commentators as a threat to domestic prosperity.
GE, whose products range from jet engines to microwave ovens, derives more than half its $150bn revenues from the rest of the world, but it is still regarded as a bellwether manufacturer in the US, where it employs more than 160,000 people.
However, the company's plan to increase earnings by at least 10 per cent every year has prompted Jeffrey Immelt, chief executive, to launch an overhaul of its business practices aimed at improving margins and reducing costs.
On Wednesday, GE executives told Wall Street analysts the target increase in the proportion of non-US production from the current 41 per cent to more than 50 per cent was dictated by the need to drive higher revenues, lower costs and be closer to customers.
"We are trying to take advantage of the global factory," Keith Sherin, finance director, told the Financial Times. "We are a global company; we should have a supply chain that reflects our customer base."
The shortage of US engineers and their high salaries, coupled with the huge talent pool in countries such as China and India, have prompted GE to increase its manufacturing base outside the US by nearly half over the past three years.
Lloyd Trotter, GE's executive vice-president for operations, said making GE's products in developing countries yielded an average cost saving of about 20 per cent.
Skilled staff in India, where the company employs 3,500 engineers, had helped GE reduce costs by $1.5bn since 2000.
Mr Trotter added that, although some businesses, such as those involving military technology, could not be moved from the US, others, such as domestic appliances, were relying heavily on manufacturing in developing countries.
GE executives said the company was looking to expand beyond China and India into eastern European countries, and other Asian markets. However, they warned that Mexico – a traditional manufacturing location for US industry – was rapidly losing its appeal because of rising production costs.
The company reiterated its target of extending margins by 1 per cent each year between 2007 and 2009 – an increase that should translate into at least $1.6bn of additional annual profits.
Last year GE reported net earnings of $16.3bn. Part of the margin improvement is expected to come from a plan to reduce administrative expenses by merging the headquarters and back-office functions of the various businesses.
