GE India plans ‘reverse innovation’ strategy6 min read . Updated: 16 Apr 2010, 12:13 AM IST
GE India plans ‘reverse innovation’ strategy
GE India plans ‘reverse innovation’ strategy
The Indian unit of General Electric Co. (GE) is actively looking at India as an export base for its range of products, banking on lower input costs incurred in manufacturing. The US-based company, which reported a 14% decline in its global revenue at $157 billion (Rs6.97 trillion) for 2009 over 2008, has tied up with Triveni Engineering and Industries Ltd through its Indian arm to manufacture steam turbines in the 30-100MW range, which will be exported to markets in West Asia, Indonesia, Europe and Latin America, besides being sold to captive and utility power plants in India. John Flannery, president and chief executive officer, GE India, who recently took charge of operations in the country, spoke in an interview about his plans. Edited excerpts:
You have mentioned looking at India as a manufacturing hub with low input costs. Could we expect some more announcements?
What we are trying to do in India is both grow our local business but also localize it—to make sure that we’re developing products for the Indian market, engineering them, designing them, manufacturing them here but the expectation is—and we call this reverse innovation—to develop models and business models in India that we can take across the globe. So that’s very much the expectation with Triveni: We build the business base here but we’ll use the GE global distribution to sell this product to other markets. So, I think it is a template for future activity and can really be applied in any sector of the business we participate in.
You already have a low-cost innovation model—in healthcare systems. How far have you been successful in replicating that?
I think it’s early days for us; so, right now it’s very much an India-specific concept but we fully expect this to expand across a number of other countries. But the healthcare products and research activity transpired in the last 12-18 months and came to fruition this year with products coming into the market and we think we are going to end up with a really disruptive product that delivers a lot of features to customers at very different price points.
What will be the equity stake in the venture?
It’s 50:50 but one holds 50 plus one, for Triveni, and one holds 50 minus one, for GE. It’s, from a governance and day-to-day activity (point of view), an equal board representation, shared management structure, so that the decision-making is going to be very collaborative and shared.
Any figures on your investment for this venture?
I think the real investment, in terms of financial dollars, will come as the venture grows and requires working capital and investment capital to expand. So it’s a significant tie-up today but the financial stakes will increase over time and certainly we and Triveni have no limits or caps on what we will invest in the venture.
Is the company satisfied with its growth in India?
I know there’s a lot of discussion about targets we had in the past and how do we feel about that. I think, a couple of things, and as a newcomer maybe I have a different perspective, (but) we have accomplished a lot in India over the last 10 years. I am very proud of the business we have developed here. We have got significant partnerships, we have got good positions in infrastructure, healthcare and financial services. We have got a lot of technology here, very large capability in technology and engineering in Bangalore and Hyderabad. We have a very large presence in the outsourcing business.
That said, we want to be much bigger in India and from an aspirational point of view, we look forward and I am looking forward to having a business that’s several times larger than it is today.
So are you looking for a faster pace of growth?
Faster pace of growth, broad growth, as I said before, we take it in the context of GE, commercial results, developing technologies here, developing cost advantages here, for the benefit of the whole company.
So, broadly in that sense to grow it, but I think most importantly in terms of a mandate for me right now is to localize it—localize the products, the engineering, the supply chain, the manufacturing. We have not done a lot of supply chain and manufacturing here and so we have got aspirations to grow and especially make it a local company.
So, was the pace and scope of growth the reason for the leadership change?
No, as I said, we have been very happy with the business overall in India, you know, for a long period of time. So it’s not a corrective action in any sense.
What may have changed in the last year or two, obviously with the global financial crisis, the trends that were already emerging before that in terms of higher rates of growth in India, China, Middle East, Brazil, markets like that, that was a pretty strong trend a couple of years ago that really accelerated in the aftermath of the financial crisis.
So you saw here obviously, and in China and other places relatively untouched by the financial crisis and much higher rates of growth. So I think if anything our focus is more on continuing this sense of importance of India to the overall picture of our company and maybe heightened sense of that as we see growth in the more developed markets slowing down.
What are your plans for tapping the wind power turbine market?
Wind is a very significant opportunity for us and the most immediate right now. We are quoting on a number of contracts right now, there’s a lot of activity in the space, a lot of independent private companies getting into the power generation sector there. So a lot of opportunity, it’s a global phenomenon, we see it here and it’s a business that we have a tremendous global position in. So we want to do that business in India.
Will you be setting up a manufacturing unit in India, for wind power turbines?
Definitely, we have people on the ground in India developing the market working with customers, working (on) proposals. We have already a timeline and footprint to put a manufacturing capability in here of certain components and assemble other components here.
What is the timeline for setting up the manufacturing unit?
The timeline is now, we are doing all these things right now. So orders will be coming in the next year. I think you are going to start seeing some significant orders coming out of India I think a lot of these things that we are talking about, we have activity on many fronts simultaneously right now. We have teams on the ground, we have customer relationships and I badly want to win some contracts and show our capability.
Will GE be also looking at solar power generation equipment?
We are, I would say, in fairness, more developed in terms of our overall capability in the wind business right now. So I’d say the technology in that business is mainstream. The solar business is going through early days of different technology models. We are interested in that, we are putting in investments in that but we don’t have anything specific in India of material note right now.
What is the progress on your nuclear power project for which the Maharashtra government allotted a site?
Things are at a very preliminary stage and I think the pacing on it right now is the finalisation of the legislation, making sure that ends up in a way that’s satisfactory to all the parties involved and I think once that completes its process you’ll see a much more direct level of activity.