GE's joint venture case
General Electric’s Joint Ventures
General Electric (GE) formerly entered a foreign market by either acquiring an established firm or establishing a greenfield subsidiary (which is a wholly owned from ground up turnkey project). Joint ventures with a local company were almost never considered. The prevailing philosophy was that without full control, the company didn’t do the deal. However, times have changed. Since the early 2000s joint ventures have become one of the most powerful strategic tools in GE’s arsenal. To enter the South Korean market, for example, GE Money, the retail lending arm of GE’s financial services business, formed joint ventures with Hyundai to offer auto loans, mortgages, and credit cards. GE has a 43 percent stake in these ventures. Similarly, in Spain it has formed several joint ventures with local banks to provide consumer loans and credit cards to Spanish residents, and in Central America it has a joint venture with BAC-Credomatic, the largest bank in the region.
There are several reasons for the switch in strategy. For one thing, GE used to be able to buy its way into majority ownership in almost any business, but prices for acquisitions have been bid so high that GE is reluctant to acquire for fear of overpaying. Better to form a joint venture, so the thinking goes, than risk paying too much for a company that turns out to have problems that are discovered only after the acquisition. Just as importantly, GE now sees joint ventures as a great way to dip its toe into foreign markets where it lacks local knowledge. Moreover, in certain nations, China being a case in point, economic, political, legal, and cultural considerations make joint ventures an easier option than either acquisitions or greenfield ventures. GE believe it can often benefit from the political contacts, local expertise, and business relationships that the local partner brings to the table, plus in certain sectors of the Chinese economy and some others, local laws
General Electric (GE) formerly entered a foreign market by either acquiring an established firm or establishing a greenfield subsidiary (which is a wholly owned from ground up turnkey project). Joint ventures with a local company were almost never considered. The prevailing philosophy was that without full control, the company didn’t do the deal. However, times have changed. Since the early 2000s joint ventures have become one of the most powerful strategic tools in GE’s arsenal. To enter the South Korean market, for example, GE Money, the retail lending arm of GE’s financial services business, formed joint ventures with Hyundai to offer auto loans, mortgages, and credit cards. GE has a 43 percent stake in these ventures. Similarly, in Spain it has formed several joint ventures with local banks to provide consumer loans and credit cards to Spanish residents, and in Central America it has a joint venture with BAC-Credomatic, the largest bank in the region.
There are several reasons for the switch in strategy. For one thing, GE used to be able to buy its way into majority ownership in almost any business, but prices for acquisitions have been bid so high that GE is reluctant to acquire for fear of overpaying. Better to form a joint venture, so the thinking goes, than risk paying too much for a company that turns out to have problems that are discovered only after the acquisition. Just as importantly, GE now sees joint ventures as a great way to dip its toe into foreign markets where it lacks local knowledge. Moreover, in certain nations, China being a case in point, economic, political, legal, and cultural considerations make joint ventures an easier option than either acquisitions or greenfield ventures. GE believe it can often benefit from the political contacts, local expertise, and business relationships that the local partner brings to the table, plus in certain sectors of the Chinese economy and some others, local laws