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Case Study 2 General Electric’s Joint Ventures 1. GE used to prefer acquisitions or Greenfield ventures as an entry mode rather than Joint ventures. Why do you think this was the case? I believe that GE utilizes acquisitions or greenfield entry ventures as an entry mode instead of joint ventures, due to the fact that ●

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These methods would provide GE with high profits and more control over another business it is entering with in the global or local market. The company has always preferred to acquire the majority of ownership of the business and operate it as per company’s style of management. Another reason for preferring acquisition is because a company can immediately begin a business in the foreign country while preventing to share control with another firm. In addition, these methods would allow GE almost total decision-making power within the marketing area in which the acquisitions or Greenfield entry occurred, without having to share this decisionmaking power with a joint venture organization. Acquisitions were thought to be more cost effective and less risky. With GE having total control, they did not have to worry about the internal problems of the company and could enhance coordination all the while gaining immediate market share. While joint ventures offer organisation the opportunity to share operational costs and risks, it also gives joint control to both partners, it Joint ventures have many significant disadvantages. ○ General electric when entering into a joint venture risks giving control of its technology to its partners. ○ Moreover, it would not have tight control over their subsidiaries that it might need to realize experience curve or location economics. ○ Finally Shared ownership arrangements can lead to conflicts and battles for control between the investing firms if their goal and objective change over time if they take different view to what the venture’s strategy should be.

2. 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- 009 might have affected this preference In any way? If so, how? GE started to favor joint ventures in recent years is because it has numerous advantages and benefits. joint ventures offer several advantages to organisation: ● ● ●

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it help to reduce the costs and risks substantially, which is a major cause of concern for every company while selecting an entry mode. Apart from financial reasons, the social and political situations also make the joint ventures more favorable. The advent of global economic crisis, particular that occurred in 2008-2009 With the detrimental occurrences due to the economic crisis, GE became more weary of how much money they were spending. Despite wanting 100% control over a company in a new market, what overpowered that desire was their fear of spending too much for that and the potential acquisition of company problems. Aside from financial reasons, political and social situations make Joint ventures favorable. In some cases, some countries’ political regulations make joint ventures the only feasible entry mode.

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GE could take benefits from the local partner’s knowledge of the competitive conditions, culture, language, political systems, and business systems. Another advantage is when the development costs and risks of opening a foreign market are high; an organisation may gain by sharing the operational costs and risks with the local partner. Another reason is the disadvantages to acquisition ○ The big disadvantage of a Greenfield venture is that they are risky and much slower to establish. ○ in some cases, a company will often overpay for the assets of the acquired company and it might turn out with problems which would be discovered later after acquisition. ○ An acquisition can also be failed due to cultural clashes. Joint ventures may not have given GE all the control it wanted but it did lessen the cost and risk associated with global ventures. The use of joint ventures provided GE access to knowledge of local markets to expand business.

3. What are the risks that GE must assume when It enters Into a Joint venture? Is there any way for GE to reduce these risks? There are many risks associated with joint ventures ,but The most obvious risk GE encounters when entering a joint venture is the sharing of costs and risks with their partner. Partnering with another business can be complex due to several reasons ● ● ● ● ● ● ●

Problems may occur including the objectives of the venture are not totally clear and communicated to every party involved in venture. Partners May have different objectives for the venture. Companies may experience an imbalance in levels of expertise,investment or assets brought into the venture by different partners. Varied cultures and management systems can result in poor integration and cooperation. In Some cases the partners do not provide leadership and support in the early stages and moreover they might be focusing on their personal growth. If the objectives of the venture are not totally clear and communicated to everyone involved problems are likely to arise. Any imbalances whether It be In knowledge and expertise or In assets brought Into the venture, increase the possibility of risks and problems.

General Electric has run into some problems with its joint venture approach. For example, General Electric could not reach an agreement with potential British partner Smiths Group, and ended talks with the company. General Electric has also had to settle for minority stakes in some ventures when it would have preferred to have a majority position. The success in a joint venture depends on thorough research and analysis of aims and objectives. It should be followed up with effective communication of the business plan to every party involved. 4. The case mentions that GE has a well-earned reputation for being a good partner. What are the likely benefits of this reputation to GE? If GE were to tarnish its reputation by, for example, opportunistically taking advantage of a partner, how might this impact the company going forward?

GE is having a well earned reputation for being a good partner which can be more of a benefit for the firm.GE’s positive, friendly, welcoming reputation makes for a friendly partnership with other companies. It Creates an impression of being a low-risk and trustworthy company to work and share assets with well compromised nature.GE’s partners find the firm’s innovative management techniques and strong management development program particularly Attractive. In the past, GE has accepted deals where they get less than 50% sharing which proves they are not looking to take advantage of the partner. They are seeking relationships and long term Investments, not for the power and immediate monetary reward. With this reputation, GE is more likely to find success in other markets through Joint ventures. If HE were to tarnish its reputation by taking advantage of a partner there would be far less companies willing to work with GE. In fact, the bad reputation may cause current partners to find a way to end partnership. Future ventures may insist on GE putting up more money and taking on more of the risks. Because the firm now relies on joint ventures for a significant number of its investments, such a situation would be detrimental to the firm’s future growth. 5. In addition to its reputation for being a good partner, what other assets do you think GE brings to the table that make it an attractive Joint venture partner? Along with GE having a reputation for being a good partner they also ● ● ● ● ● ● ● ● ●

can assure stability a new partnership have vast experience in doing business in other countries. has a long history of being able to deal with different currencies, different political systems, and different cultures that should help it be successful in new ventures. historically known for making profits, a well-established firm always seems less risky to work with, and it has a way better understanding of doing business. in addition to the company’s size is also attractive to partners because of the financial strength it implies it appears to be a flexible partner – another asset that would make it attractive to partner. GE’s technological and management know-how provide a high degree of international business and knowledge in business affairs to manage the situations in a profitable way GE’s preferred entry modes allowed GE to have more control over the businesses but it also produced a high degree of risks. GE now forming joint ventures for it international expansion will benefit them by assuming the half risk and gives them better business knowledge and can invest their sources to benefit the new operations....