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Published: August 23, 2011
 / Autumn 2011 / Issue 64

 
 

How to Be a Truly Global Company

Many companies will settle on fewer than 20 hubs; each industry requires a different selection of gateway countries to meet differing tastes and needs. Reducing complexity in this way also dramatically reduces a wide range of overhead costs for large global companies, while enabling them to travel the last mile to customers. For example, by trimming back supervisory layers to only those needed by the gateways, companies can cut overhead costs significantly.

GE Healthcare’s story illustrates how expanding through a few gateway countries enabled it to thrive in many locations. Its primary business is high-end medical imaging products. In the late 1980s, GE Healthcare started investing in ultrasound machines, designing separate devices for use in obstetrics and cardiology. Over time, the business became a market leader, with a portfolio of premium products employing cutting-edge technologies, sold primarily to big hospitals in rich Western countries.

Very few devices made by GE Healthcare were sold in China and India in the 1990s, although the medical need was enormous and the region represented a huge potential market. In these large but poor countries, the general population relied (and still relies) on poorly funded, low-tech hospitals and clinics in small towns and villages. None of these organizations could afford sophisticated, expensive imaging machines. There was a significant need for customization: Someone needed to create low-priced machines with basic features that were easy to use. The devices also needed to be portable, so that medical workers could bring the machine to the patient, rather than the patient to the machine.

GE Healthcare started a major effort in 2002 in China to tackle this problem. The initiative was favored by a corporate policy put in place a few years earlier: reorganizing some emerging-market enterprises into semi-autonomous “local growth teams” with their own P&Ls. This meant that GE Healthcare could now create a local business oriented to China’s particular needs and advantages, drawing on local talent and combining product development, sourcing, manufacturing, and marketing in one business unit. The price of a conventional Western ultrasound machine is between US$100,000 and $350,000. GE’s first portable machine for China was launched at a price of only $30,000, and by 2007 a newer machine was on the market for $15,000. Sales took off in China and then in a few other emerging-market gateway countries.

Soon, customization worked in the other direction. Applications were found for these devices in several rich countries as well, at accident sites and in clinics and emergency rooms. Sales rose from zero to more than $300 million in five years. In 2009 — as recounted by GE chief executive officer Jeffrey Immelt and innovation experts Vijay Govindarajan and Chris Trimble in the Harvard Business Review in October 2009 — GE announced that “over the next six years it would spend $3 billion to create at least 100 healthcare innovations that would substantially lower costs, increase access, and improve quality.”

• Uniting around a platform of competencies. This initiative means aligning your entire global company with a common core purpose, a body of proprietary world-class knowledge, and the competencies that distinguish your company from all others.

The core purpose must be understood equally in all functions and geographies of the corporation. Every individual should know the strategic principles of the business — which are the same around the world, but adapted differently in each locale. For example, providing “everyday low pricing” is the core purpose of Wal-Mart Stores Inc. Although that principle remains constant, the implementation varies considerably; Walmart in India is a joint venture wholesale operation, and Walmart in Mexico operates restaurants and banks as well as superstores.

 
 
 
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Resources

  1. Jeffrey R. Immelt, Vijay Govindarajan, and Chris Trimble, “How GE Is Disrupting Itself,” Harvard Business Review, October 2009: Inside story of the GE Healthcare initiative to overcome “glocalization” and innovate within emerging economies.
  2. Jon R. Katzenbach and Jason A. Santamaria, “Firing up the Front Line,” Harvard Business Review, May–June 1999: On Marriott’s strategy.
  3. Paul Leinwand and Cesare Mainardi, The Essential Advantage: How to Win with a Capabilities-Driven Strategy (Harvard Business Review Press, 2011): The capabilities system resembles this article’s unity of platform.
  4. C.K. Prahalad, “The Innovation Sandbox,” s+b, Autumn 2006: Why arbitrage does not mean thoughtless substitution, but rather creative low-cost alternatives that transform conventional business practice.
  5. C.K. Prahalad and Hrishi Bhattacharyya, “Twenty Hubs and No HQ,” s+b, Spring 2008: First publication of the customization concept, with an operating model for transforming the headquarters–local office relationship.
  6. Ellen Pruyne and Rosabeth Moss Kanter, “Pathways to Independence: Welfare-to-Work at Marriott International,” Harvard Business School Case Study 9-399-067: More detail about Marriott.
  7. For more thought leadership on this topic, see the s+b website at: www.strategy-business.com/global_perspective.