What does General Electric see in India?9 min read . Updated: 02 Dec 2016, 01:49 AM IST
General Electric CEO Jeff Immelt is betting that, after several missed targets and timelines, it's finally payback time for the American conglomerate's century-old India business
New Delhi: For Jeff Immelt, the 60-year-old chairman and chief executive officer (CEO) of General Electric Co. (GE), the world’s largest manufacturing company, India has always been a bit of a puzzle. The individual bits have been all too visible, but try as it might, GE just couldn’t slot them all satisfactorily.
But that may be changing as the company finds its second wind in a resurgent Indian market and pieces of the jigsaw—scale, a relevant portfolio and sheer momentum—finally fall into place.
Immelt was selling refrigerators in India in the 1980s as Jack Welch, the celebrated business leader and Immelt’s predecessor, thought India could be a great consumer market for GE. More than 30 years later, GE is not in the consumer space in the country and, on hindsight, selling refrigerators turned out to be “horrible idea", Immelt admits.
In the 1990s, the American firm was trying to build GE Capital in India, and Immelt describes trying to make a go of the finance business in an India that was still opening up as “brutal and horrible". But, as an off-shoot, GE did get into business process outsourcing (BPO) under GE Capital, which became Genpact—India’s largest BPO company. “So, it’s amazing... You have to continue to stretch your brain in terms of what the country can be," Immelt told Mint on a recent visit, adding that GE believes India is on the cusp of seeing exponential growth and his company has put in place the building blocks to gain the most out of it.
About time, too. Given its 100-year presence in the country, it has so far flattered to deceive. India accounts for a fraction of GE’s global business, with just about $4 billion of its overall $149 billion revenues coming out of India.
At the turn of the 20th century, GE began India operations by building a hydropower plant at the Shivanasamudra Falls near Mysuru in southern India. It completed the power station in 1902. The power plant, which was Asia’s first hydroelectric project, supplied 3 megawatts (MW) of electricity to the Kolar gold mines. The project is still functional. Ever since, it has slowly spread its business into locomotives, jet engines, oil and gas, nuclear power plants, renewables, healthcare, financial services, power equipment and BPO.
While doing so, it has forged valuable partnerships with Indian firms such as Azim Premji-led Wipro Ltd for healthcare and Bharat Heavy Electricals Ltd for compressors and turbines. GE employs around 18,500 people in the country directly.
When it first came to the nation, as a business, it set a very ambitious target: $2 billion by 2K (Year 2000). It never got there, withdrawing most of its services and back-end work, citing lack of domestic demand. Then, it set another target: $5 billion by 2010. It didn’t get there either. Soon after, another fresh target was set, $10 billion by 2015. Needless to say, GE is nowhere near that number. GE declined to share financial numbers for this story.
One of the turning points was Immelt’s approach. On his first visit to India, after taking over as chairman in 2001, he said while it was all well to view India as a resource centre for GE, ultimately, it needed to deliver on its promise as a market.
Another came when John Flannery, now president and CEO of GE Healthcare, was heading the India business between October 2009 and April 2013.
GE has moved to a consolidated P&L (profit and loss) structure for its India business which, earlier had been structured as divisions under its respective global businesses.
Immelt believes his company’s strategy of being a long-term investor in India will start to pay off now as the country is creating an environment that is congenial for its entrepreneurs to do business.
“If the government ever matches the entrepreneurial class in India, there is no stopping this country. I have seen more general progress on macro today than I can remember seeing in the days gone by," he said.
India appears to have turned the corner after several years of somnambulating. Economic growth has perked up in the last few quarters, and it is projected to surpass China’s in 2016 and 2017, providing enough bandwidth to multinationals such as GE to step on the pedal. Campaigns such as Make in India, Digital India and Skill India have given a new impetus to businesses. “We now see a scale in what we are doing in the region and we are seeing scale after sometime... we now have a portfolio which is very relevant to the region, particularly with the acquisition of Alstom. It gives us the additional footprint in coal and on the grid as well," said Banmali Agrawala, president and chief executive, GE South Asia.
Agrawala’s confidence stems from the fact that the company has doubled its sales in the country over the last three years. Its exports from India have been growing 30% year-on-year, which means those, too, have doubled in the past three years. At least 60% of its business is localized and it has a technology centre in India with a view to feeding its entire portfolio globally. It has a huge manufacturing footprint in India, highlighted by its new multi-modal factory in Pune which was chosen from across the 400 factories worldwide as a location for this innovative experiment which involves making complex products from GE’s portfolio in the same factory and sometimes, the same line.
“That’s a vote of confidence for India as a manufacturing hub as far as GE is concerned," Agrawala said.
The timing helped.
India has been a difficult market for heavy equipment makers, largely due to regulations and also the inability of multinational firms to decide if India is worth the risk. For long, domestic demand was low, although it was offset by the sheer potential of the Indian market. But, as the Chinese economy started to slow, the momentum has started to build in favour of India.
GE knows it.
“Around 10-15 years ago, we thought China would be the most productive in terms of manufacturing in the world; now we find making things in India is as productive as making things in China or in other places. We would not have thought about that 10 years ago," Immelt said.
The company’s technology centre in India now works on seven programmes relevant to India. “This is the best example of how all of GE comes together on a horizontal basis," Agrawala said.
“The good thing about our business is that it is not based on one large order or one particular business that’s firing. We see growth in almost all of the verticals. Our business is broad-based and we feel it is more sustainable in the long run," he added.
There are several elements to GE’s growth strategy in India.
Healthcare is an important business for GE in India. Significantly, Terri Bresenham, president and chief executive, sustainable healthcare solutions, GE Healthcare, is based out of India. GE’s venture into healthcare in India began under a partnership with Wipro. Agrawala now wants to boost it further. He has outlined a strategy, along with Wipro, that seeks to double the size of the healthcare business in 3-4 years.
“It’s around the elements of localization and innovation and penetration of the market. Some of this may also go down the path of public-private partnership," Agrawala said.
The industrial Internet (or GE’s own version of Internet of Things) is still in its infancy in India but GE is on a mission to transform itself globally. So far, it has been about building world-changing machines. Now, machines that can also communicate digitally is the new, new thing for the conglomerate.
As much as $7 billion in revenue for GE comes from its software business. The firm’s aspiration is to be a top 10 software company by 2020. That would basically mean $15 billion of revenue by 2020. India has a significant role to play there.
Agrawala said at one level, the company’s strategy is to tap the opportunity to address the inefficiencies that exist in India. “That’s a massive opportunity. When we had our dialogue with people such as Reliance, L&T (Larsen and Toubro Ltd) and the Tata group, I think all of them like to improve productivity with another industrial company such as GE as opposed to talking to people who do not have any industrial background," he said.
At another level, people that are required to build the code, write the platform, the programmes for the solution, that talent is available in abundance in India, he explained.
“So, we clearly will be leveraging India big time to address our digital needs for India but for the world as well. It is an extremely crucial country for GE’s digital journey," Agrawala said.
On the information technology (IT) side, GE now wants to cut down on outsourcing and wants to focus on in-sourcing.
“We will not in-source everything but we have taken back a lot of the things that we were outsourcing earlier," Agrawala said.
“That’s more of a play. We feel we want to keep a lot of know-how and expertise within the company, as opposed to outsourcing it. Maybe it was coming to a point where we were losing some of the capabilities that we should have in any case within the company," he said.
Hopefully, “we will be able to impact our profitability by in-sourcing stuff," he said.
As significant as the opportunities are the challenges. For example, in renewable energy, which Prime Minister Narendra Modi’s government is promoting heavily.
“GE is not so much into solar. It does not manufacture solar panels, which comprises 50-60% of solar business. It has a robust inverter portfolio but that needs to be developed," said a consultant who asked not to be identified.
“In wind, GE has a better product but the government of India has diluted the requirement for certification. If the dilution results in Chinese companies coming in, GE will be in a spot," this person added, citing a recent move by the ministry of new and renewable energy (MNRE) that has done away with a crucial committee which used to approve turbine models before these could be sold. Henceforth, turbine makers will need to only provide details of their products online to MNRE to obtain necessary certification to sell, and if the products satisfy the specifications, they will automatically be included in the ministry’s revised list of models and manufacturers.
More so, traction in the renewable space has moved to solar largely due to states not paying even after signing power purchase pacts and making a transmission corridor available in order to protect the viability of their age-old power plants.
Defence is another focus area. India has allowed 100% foreign direct investment in defence via government approval. GE engines power India’s only indigenously built fighter aircraft Tejas and the opportunities that have opened up because of the current government’s focus on manufacturing critical defence equipment locally should help the company. But there is a catch.
“For GE, it is also a function of certain export licences that we need from the US government because there are pieces of technologies, which are export controlled. That’s a dialogue that is going on between government to government," Agrawala of GE said.
Even as things have started to look up in India, there are massive challenges in the economy with respect to taxation, labour laws, port clearances and infrastructure. Ultimately, though, much depends on how a company wanting to do business in India sees the country. “I feel really good about India," says Immelt.