October 2, 2013

How GE Does Business in China

GE China’s CEO comes clean about partnering with SOEs, protecting intellectual capital, and the value of home-grown talent.

Sharon Kahn

Mark Hutchinson, president and CEO of GE China since 2011, doesn't sugarcoat the challenges that China faces — or the difficulties his company continues to slam up against in the government-directed marketplace. A native of England who graduated from the University of Queensland in Brisbane, Australia, Hutchinson calls the tasks faced by the current government “herculean.” But he’s also counting on the direction the country has mapped out to help double GE China’s revenues over the next three years. Hutchinson, 52, recently spoke with Chazen Global Insights about lessons learned — and what he plans to do next.

What advice would you give other CEOs about how to do business in China?

When one of our customers thinks about coming to the Chinese market, I say, look, don’t do it alone. Talk to people who have been here a while. It could be the US Embassy, it could be agencies like the Export-Import Bank, it could be us or other multinationals. Most people are willing to talk about the pitfalls. We'll give you some ideas of who you should be partnering with or where you might locate.

Also, you have to breathe China. I would encourage newcomers to send someone for a year to really get a feel for the place, and maybe not to Shanghai or Beijing but to another big cities undergoing major growth. GE has been in China 100 years but we’ve become more of a local company in the last 10 years. Of our 20,000 employees, 99 percent are local.

GE is known as being a leader in R&D. How have you approached R&D in China?

We realized early how important it was to innovate to China, with Chinese needs in mind. GE employs 4,000 engineers in the country.

Much of our focus is making products more affordable. Rather than strip down high-end machines and get rid of the bells and whistles, we’re designing from the ground up. For example, in healthcare devices, we have worked with local doctors to make a CT scanner smaller in size so that it can fit into the rural hospital room and be a lot more cost effective. To extract shale gas, the technology used in the US doesn’t work with the Chinese geology, so we’re working quite hard on designing equipment appropriate for here.

The Chinese market is huge but innovations we make here eventually will creep into GE products in the United States and Europe.

Is securing talent in China a concern?

Ten years ago all Chinese wanted to join a big multinational. Now we have to have the right value proposition to attract talent — GE China hires 2,000-odd people a year. We have relationships with 12 universities throughout China. We are also stepping up our recruiting of Chinese students at foreign universities. I’m very excited about that talent, which has some global experience having lived in the United States or the UK or Australia. And I’ve been very happy with the quality of foreign-educated students.

Has being both a competitor and partner with state-owned enterprises made doing business in China difficult?

Our relationships have evolved. We don’t partner in everything. We don’t joint-venture our core technology — our engines or healthcare devices. Instead we think about where we want access in China and where we can team up with a Chinese company that can contribute to global markets. We have some 27 joint ventures with state-owned enterprises. Take avionics in aviation, where a local partner gives us access to the Chinese market and, since GE is not number one or two globally, enables us to go global together. In another area, we make high-voltage transmissions — a narrow range of the product — and our partner does the rest. Teaming up gives us a broader product catalog to offer our customers.

Creating joint ventures in China hasn’t been without pain and agony. But we’ve gotten to the point where we’re comfortable with our partners. Joint ventures are long-term — they’re not something you jump into and out of. They’re hard because you bring two majorly different cultures together, especially when you’re dealing with a state-owned enterprise where you might have alignment at a senior level, but dealing with the day-to-day stuff down in the weeds is a different animal. Aggressive competition happens if there’s a commodity aspect of the business, which is why we push joint ventures where we can contribute high-end, value-added technology. An example is wind. We compete heavily with local wind producers. But they do the lower-end commodity products and we do the more technically advanced turbines, maybe tying in with smart grids and auxiliary power. We have a different client base.

How do China's growth plans fit in with GE's focus?

The government’s five-year plan that came out in 2012 focused very much on clean energy, universal health care, and universal transportation. Those three themes are kind of what we do, between our work on renewable energy equipment, healthcare devices and engines. The economy in China is slowing down, but the three areas that we are in mean we'll grow 20 percent this year.

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