The Shift in GE’s Strategy Towards Joint Ventures

Why do you think that GE has come to prefer joint ventures in recent years? Do you think that the global economic crisis of 2008-2009 might have impacted upon this preference in any way? If so, how?

General Electric (GE) never really considered the option of joint venture with any of the local company when it wanted to make entry in the foreign market. The viewpoint of the company was not to confirm deal with any company in which the GE did not possess full control. Since the year 2000, one of the most crucial strategic tools for the General Electric was joint ventures. For example, GE money, the financial service provided by the GE by retail lending, formed a joint venture with the Hyundai which is a South Korean automotive manufacturer, by offering auto loans, credit cards, and even mortgages. GE thus entered the South Korean Market but with 43 percent stake in the venture. GE had numerous reasons to prefer joint venture and change its strategy. (Carew, 2014) One of the reasons is that GE had always successfully acquired the majority ownership in any business but sometimes the price for the possession were too high for GE and so it would become reluctant to acquire that company and prevent overpaying. GE then took the decision that it is better to enter a joint venture than to acquire expensive companies which may create problem in the future. (The Key Benefits Of Forming A Joint Venture, 2015)

Another reason that enabled GE to prefer joint venture is that it helped the company to extend to foreign markets where it does not have any local knowledge. GE is of the opinion that with the formation of the joint venture it can get the benefit from the local political contacts, expert advice from the locals, and expand and improve the business relationships that the partner brought forward. GE finds the joint ventures an added advantage in terms of building a business in areas where it does not have sufficient knowledge. Under the guidance of the CEO of GE, Jeffrey Immelt, the goals of aggressive growth was adopted by the company. He was of the philosophy that forming joint ventures with companies and entering such foreign markets where it had no access would help to attain the growth goals. GE also found the joint venture beneficial in those countries where other types of entry are prohibited and with the joint venture it can easily enter that foreign market. (Hill, 2005)

The global economic crisis of 2008-2009 had impacted the GE. For the GE the economic crisis played a very important role in accelerating the rate of future investment and its decision by the company. Through the joint ventures, GE could not acquire full control of the business or full ownership of the business what it established during economic distress is that it was able to reduce the shared cost and risk regarding the global venture. Thus we see that GE was initially reluctant to enter joint venture with any local company but with lower amount of risk and cost, the joint venture became one of the most important strategies for GE to attain growth in the company. With the economic crisis of 2008-2009, the preferences of GE changed in favour of the company. (Nytimes.com, 2015)

References:

Carew, R. (2014). GE Weighs Stake Sale of Korea Finance Joint Ventures. [online] WSJ. Available at: https://www.wsj.com/articles/ge-weighs-stake-sale-of-korea-finance-joint-ventures-1414645677 [Accessed 17 Mar. 2015].

Hill, C. (2005). International business. Boston: McGraw-Hill/Irwin.

Nytimes.com, (2015). GE bringing joint ventures to life – The New York Times. [online] Available at: https://www.nytimes.com/2007/10/04/business/worldbusiness/04iht-venture.5.7759031.html?pagewanted=all [Accessed 17 Mar. 2015].

The Key Benefits Of Forming A Joint Venture. (2015). 1st ed. [ebook] Available at: https://www.gibsondunn.com/publications/Documents/La-Lande-Key-Benefits-Joint-Venture.pdf [Accessed 17 Mar. 2015].