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Posted on April 25, 2011
By MEGHA BAHREE
BANGALORE, IndiaAs General Electric Co. assessed the lingering impact of the global financial crisis, it saw that some emerging marketschief among them Indiahad come through the trauma better than the developed world.
The Fairfield, Conn., company has been in India for more than a century, but it revamped its operations there only a few years ago to tap into the country’s large consumer market and its economic growth, which rose 8.5% in the year ended March 31.
GE Healthcare employees work on a portable electrocardiogram device they designed and made in Bangalore.
Now, the effort is beginning to pay off. GE makes an MRI scanner and a baby warmer in India that it sells there and elsewhere. And sales for GE’s health-care unit there rose 20% last year to $300 million, and it expects them to rise to $400 million this year and hopes to reach $1 billion in the next five years.
The key for GE was to focus not just on sales and marketing but also on using India as a hub for designing low-cost products for India, other emerging markets and, ultimately, the developed world. GE isn’t alone in taking that tackauto makers have developed similar strategies. But its moves come as foreign investment in the country is dropping.
“We were in India not doing as well as we wanted to do commercially,” John Flannery, GE’s president and chief executive in India, said in an interview. For a company that derives more than 60% of its overall revenue from outside the U.S., India’s contribution of $1.8 billion was a tiny fraction of GE’s $150 billion in revenue last year.
Chairman Jeffrey Immelt “came to the conclusion that part of the problem was that we just weren’t very local,” Mr. Flannery said. In late 2009, GE set up a separate profit-and-loss statement for India, GE’s first for a country other than the U.S. (It has since established one for Germany.) A year later, it brought in Mr. Flannery, a 23-year GE veteran, to run the operation.
The idea was to figure out what products people in India wanted and how much they would pay for them.
GE’s health-care unit identified the most frequent causes of death in India, focusing on cardiac diseases and maternal and infant mortality. It also ran pilot programs with nonprofit organizations and hospitals to understand their needs and the conditions under which they operated. And it identified opportunities among the rural population of roughly 700 million people who couldn’t afford most cardiac or maternal and birth services.
Among the obstacles identified by researchers: power outages and fluctuations; a lack of funds and space for big, expensive equipment; high levels of dust and pollution; heavy use of equipment; and layers of bureaucracy that made it particularly difficult to replace parts.
GE’s confidence in India isn’t shared by some investors. After corruption scandals and negative publicity over preparations for the Commonwealth Games in October, foreign direct investment dropped 22% in the year ended March 31.
But other multinationals have ramped up investment. After selling luxury cars there for several years, Japan’s Toyota Motor Corp. and Honda Motor Co. are entering the small-car segment, targeting the large middle class. Germany’s Volkswagen AG and Japan’s Nissan Motor Co. have begun making cars there.
Others have faced problems. U.K.-based Vodafone Group PLC has been fighting Indian tax authorities over a demand for up to $2.5 billion related to the company’s 2007 purchase of an Indian mobile-phone operator. A Vodafone spokesman said India’s unpredictable tax policy could raise concerns among potential investors in India. Britain’s SAB Miller PLC is also embroiled in a tax dispute.
GE has faced frustrations as well. Mr. Immelt said on a recent visit that his “self worth would be diminished immensely” if the company didn’t get an order for 1,000 diesel locomotives that it has been trying to sell Indian Railways for years amid bureaucratic delays. The company also recently lost out on an aircraft-engine order from Indian airline IndiGo, which instead agreed to buy 300 engines from the Pratt & Whitney unit of United Technologies Corp. GE declined to comment on the engine contract.
GE has also had to contend with an insufficient talent pool for mid- and upper-level management positions. “A decade ago, it was more typical that top Indian talent might want career experience” working for a multinational, Mr. Flannery said. “But now, many see the action is right here in India, and we need to have a story that is competitive with Tata, Reliance” and other major Indian companies.
Still, GE’s example shows how it is possible to retool operations. Overall, orders from customers in India last year were up nearly 50% from 2009, GE says, and the company expects similar growth this year. And it is spending $50 million on its first multipurpose manufacturing facility here, which will make products for the energy, aviation and health-care industries.
GE’s Lullaby line is a prime example of how GE is doing things differently in India. Maternal and infant care is a large potential market in this country of 1.2 billion people with its infant-mortality rate of 55 children for every 1,000 born. (The U.S. rate is 6.3.)
GE’s baby warmer, designed and built in India and also known as the Lullaby, is aimed at this market. Eighty percent of Indian hospitals use baby warmers, which provide direct heat in open cradles and are usually intended to help newborns adjust to room temperature. (The use of incubators, which are primarily for premature births, is less common.)
The sales pitch for the Lullaby is that it is free of bells and whistles that could intimidate someone not used to sophisticated equipment. Except for the GE and Lullaby logos, its display board uses only buttons with pictographs, indicating their function. The Lullaby is also built to be hardy, an important attribute in a country where most products get heavy use.
“We’re targeting the bottom of the pyramid because that’s where the masses exist,” said Ravi Kaushik, GE marketing director for maternal infant care.”I have the technology, and I need to get it to the lowest market.”
The Lullaby warmer, priced at $3,000, was introduced here in May 2009 and is now sold in 62 countries, including Brazil, Russia, Egypt, Dubai and Italy. The standard GE warmer sold in the U.S.which includes software to monitor a baby’s pulse and a digital scale to monitor its weight, as well as LCD monitors to display the data and a pressure-diffusing mattress that adjusts according to the size and weight of the babystarts at $12,000, while incubators start at $20,000.