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OM in the News: Why GE Builds More Factories Overseas

July 9, 2017

The GE factory under construction in Marhaura is scheduled to produce 1,000 locomotives for Indian Railways.

GE could hardly have picked a less hospitable spot for its new locomotive factory—but then again, it didn’t have much choice. The land in Marhaura, India regularly floods in the rainy season. The facility required concrete pilings poured 82 feet below ground, on account of earthquakes. When finished, the factory—the centerpiece of a $200 million investment—will sit 600 miles southeast of Delhi in the state of Bihar, a place with a rich history of government corruption scandals.

“To win big contracts, GE is trading a global footprint designed for maximum efficiencies of scale for one that means greater face-to-face exposure in local markets,” writes The Wall Street Journal (June 30, 2017). The remoteness of the Marhaura factory adds cost and complexity to the locomotive project. This is GE in the age of localization—a series of factors that are forcing manufacturers to put down deeper local roots to win business.

Once-impoverished nations such as India, China and Indonesia are becoming economic powers and demanding that companies not just ship them goods, but invest/build locally, teach local workers new skills and share technological know-how. GE has established engineering and research centers in nations such as Poland, Mexico and Qatar, and flexible factories in countries such as Brazil and India, which can easily switch production lines in case political winds or market preferences change.

In 1982, 80% of  GE’s revenue came from the U.S. Today, it’s only 30%. Back then, GE operated 135 factories in 25 foreign countries. Now it has 325 plants across 40 countries. Jobs have followed the changes. GE employs 104,000 workers in the U.S., compared 261,000 workers in 1982. In China, GE’s workforce has doubled in the past decade to 22,000.

Classroom discussion questions:

  1. Discuss GE’s decision to locate in Marhaura–plusses and minuses.
  2. What factors should a firm consider in global location decisions?
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