General Electric in Hungary

Group 9Atul AnandAvinashBesimaGanesh BhatSrivathsan

Entry into European MarketAcquisition of Tungsram in 1989 with 51% stake

Driving Factors:To penetrate into European MarketTraditional strength of Tungsram in science and

TechnologyLow operational cost and cheap labourFree Market Economy Condition :Change in political

system from communist to democratic

Hungary Vs USAHungarians Americans

Organization Culture Bureaucratic :Top to Bottom ApproachEmployee waits for the order from the top management

Aggressive management system , communication between managers and employees

Uncertainty Avoidance Unwilling for change and innovation and no strong determination

Risk takers.

Political Nature Communist DemocraticGender differentiation Male Dominance Female-more assertive

and competitive

Tungsram from 1980-1989Insufficient investment in R&D(1-2% of

sales)Poor internal communication and information

systemLow Operating Efficiency :Losses due to wastage and breakage was highProduct Development Life cycle was large :3

yearsHuge Unutilized Inventories.Time between order and delivery was 90 days.

GE

GE-Change Management

DivestmentLarge Scale

Investment in Infrastructure

Work out Sessions(Brain-storming

with Team)

Best PracticesBench marking

Six-sigmaJust in Time

Cost Cut Leadership

Leading Change ..

Divestment (Stay Fit ) : From 1990-1992 Tungsram interest in products other than lighting was divested.

Cost Cut Leadership: (Strategy to increase the Market share)Economies of scale. Huge investment in

Manufacturing and Infrastructure to generate the ability to produce large volumes.

Cutting down the employees.

Leading Change ..

Wor kout sessions (Removal of Bureaucracy): Bring together the people(employees at different levels) who

knows the issue best Challenge them to develop creative solutions Brain storming Make yes or no decisions on the solutions at the instant. Empower people to carry out solutions.

360’ Feedback (Employee Improvement )

Feedback about a employee provided by his subordinates , peers and supervisors .

Includes self assessment. The results are used for appraisal , training and development of

employees.

Leading Change ..

Best Practices : Quality at its bestBenchmarking : Process of comparing one’s business process and performance metrics with

to that of industry bests or best practices from other industry.

Quality Assurance : Six Sigma : Motorola introduced Six Sigma & GE was the first company to successfully

implement with a new sexy LOGO.

Just In Time Approach :(Inventory Management ):Benefits : Improved capacity and output Quality assurance and hence customer satisfaction Reduced waste

Leading Change ..

Effect of Changes1994GE fully bought out Tungsram

Product Development cycle reduced from 3 years to 1 year.

199590% of GE European production in Hungary, GE western

European facilities closed down.Tungsram declared as center of manufacturing excellence.1996Renamed to GE Lightening Tungsram, Invested $600

million in restructuring operationsGEL Market share increased from 5-6% to 16-17%GE posted 7.3 billion profit, increase of 11%

Current Scenario

Leslaw Kuzaj is the Regional Executive for CE (Central Europe)

GE Hungary generated HUF 667 billion revenues in 2008, with 98% exports.

GE Hungary and its affiliates employ 11,000 people.Two core GE businesses –Technology Infrastructure and

Energy – operate four factories in three cities, and also a regional headquarters and two technology centres in Hungary

In 2008, the company ranked third on the list of Hungary’s largest exporters, eighth based on its revenues.

Awards

Aviation - "For Veresegyhaz" AwardEnergy - "For Veresegyhaz" AwardEnergy - Healthy Workplace Award, Corporate

categoryConsumer & Industrial – Generosity Award 2009Business Superbrands AwardEnergy, Veresegyház – Best Workplace for

Women, 3rd place among companies employing more than 250 associates

GE Lighting Global Technology Team – Hungarian Star Award

Questions

1) What does GE’s experience in Hungary tell us about the prevailing political, economical, social, technical factors affecting the acquisition?

2) What can be the alternate strategy GE have adopted for Tungsram ?

 

PESTLE ANALYSISPolitical:

Hungary's Communist government, which was facing an election it ultimately lost to a coalition, offered concessions to GE -- including freedom to choose investments, repatriate profits, and lay off workers. The opening of the Berlin wall in November, 1989 spurred GE to clinch the deal

Environment: Given Hungary's Communist background, GE's David Gadra, 42,

lectured his staff on ''What means profit?''. No sooner had Gadra explained than he found himself back at the blackboard scribbling out graphs and flow charts to answer the next question: ''Why profit?''

Socio-Economic:

To cushion the culture shock for the Hungarians, the company chose as chief executive Hungarian-born George Varga, 54. A college student at the time of the 1956 uprising, he fled to the U.S. Varga has spent 28 years with GE

VARGA surrounded himself with seasoned executives. His managers average 18 years' service.

Says Varga: ''We didn't want the young tigers. We need people with the sensitivity to perform a cultural marriage. We have the ideal team to sell our ideas to the Hungarians.‘’

To help lower costs without cutting people, more than 30 GE manufacturing experts were called from the U.S. Each spent about two months at one or more of Tungsram's seven plants working on one of 82 cost-paring projects.

Economic:Before:Tungsram was in desperate need of investment capital,

new technology, and management expertise.Tungsram got 70% of its $300 million in revenues from the

West, chiefly Europe. Thus it offered a tempting mix of Western European market share and Eastern European wages.

AfterAt Tungsram, labour accounted for one-quarter of the cost

of making a light bulb, compared with one-half in the U.S. GE was booking profits every time it transferred goods

abroad, it kept sending out large quantities of products that the sales companies didn't need right away -- or couldn't sell at all.

GE got a rude shock when it checked warehouses in France and Germany and discovered $3 million of six-watt car headlights, which haven't been used since the 1970s.

Technical:

Bulbs produced were the slow-growth, low-margin end of the lighting business. They were rapidly losing ground to a whole family of costlier, high-tech, energy-efficient products.

One production line, for example, turns out three million outdoor spotlights a year for yards and driveways. But the line also manages to break another half a million or so, causing a large loss in glass, tungsten wire, and other raw materials. The floor is covered with glass shards, and tall trash cans overflow with discarded bulbs.

Legal:

No legal issues as the Democratic coalition government agreed to GE's terms

Alternate StrategyGREENFIELD VENTURE IN EUROPE