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No offense, GE tells India, but China's
better
By Indrajit Basu
KOLKATA - General Electric, the US$126 billion
revenue global giant and one of the world's
largest companies, was once gung-ho on India and entered
the country with a bang almost a decade back. GE now
prefers to make its overseas investments in China rather
than in India, due to better infrastructure and rate of
return there.
According to GE, India has failed
to develop its market as rapidly as China has done in
the past 15 years. "The market here has developed much
slower than what GE expected when it entered India in
1993," said Jeff Immelt, the 46-year-old new GE chairman
and chief executive officer (and former Ivy League football
player of repute) on his first visit to India since
taking charge of the global giant in September 2001.
GE India's president and chief
executive Scott Bayman adds that its investments in
China are larger as that country offers business
opportunities in sectors such as engineering, plastics
and healthcare - and China's market is five
times the size of India's. India's market, according to
Immelt, "is promising, but tough".
Immelt,
speaking during his visit to India earlier this month,
felt that it was probably inconsistency of purpose that
held India back in developing its market as rapidly as
China. "China moves in a straight line and would build
huge roads and ports if it sees them to be a way forward
to develop its markets. But in India, power was a
problem 15 years ago. And it is still so," he said.
He also says that there is a
lack of demand in the local Indian market
and that infrastructure sector growth is slow. Furthermore, investors go
where the returns are, and there are other far more
favorable locations for investments than India. "China
is moving rapidly to develop infrastructure to support
business, but we do not see the same level of interest
in India to develop facilities," said Immelt.
Yet another issue that seems to have frustrated
the new GE chief is the fiasco over the Enron-promoted $3
billion Dhabol Power project, one of the largest power
projects in the country, that has been lying defunct
over the past 18 months owing to a tariff dispute with
the state government of Maharashtra - the state in
which the project has been set up - and the Indian government.
GE and Bechtel hold 10 percent each of the project's
$1 billion equity. Enron holds the balance of 80
percent.
GE, along with
Enron and Bechtel, wanted to sell their stake
initially. However, following the takeover of the project
by Indian financial institutional lenders - that have
lent close to $1.3 billion to it - GE insisted that
the projected be revived. But that, too, has been stuck due
to disagreements on various issues, and GE, it appears,
is now losing patience.
"The unfortunate
experience with Dhabol power project would discourage
FDI in India's infrastructure sector," said Immelt,
adding that without political support and regulatory
enforcement the country's power sector reforms cannot
move ahead.
Immelt thinks that India has
given GE a raw deal over this issue. He says, "My intention
is to enforce the contract. I feel if we had a deal, we
did it in good faith, and I want to be treated fairly.
When I think about GE in India, it is not like we are
just some kind of a lightweight player here. We made a
good investment, we have been a friend to this country,
we have been a good citizen and we have created jobs,
and we have created a billion dollars of exports and we
are a long term player. I refuse to be treated poorly
in this matter. So I have insisted on the contract, and
we are going to continue to fight now." He adds,
"I have seen some progress being made."
Immelt,
however, was all praise for the "incredible local
talent" that India offers to GE for undertaking research
and development and in helping its other businesses all
over the world. "India's capabilities are awesome and
its people are terrific," Immelt said, adding that
despite the difficulties, he does plan to increase
investments and presence in India over the next few
years.
Immelt rejected the suggestion that GE
treated its India operations as a "low-cost factory" and
asserted that India was a great country for software
development because of its local talents and "this was
nothing to be ashamed of".
But he admits in the
same breath that barring medical diagnostic products and
fan motors, no other GE products coming out of its
operations in India were globally competitive. According
to him, GE's businesses in India depend largely on the
expansion in the power sector and in the restructuring
of the airlines, and GE's growth in these segments would
remain limited until there was growth in the power and
the civil aviation sectors.
GE employs 18,000
people in India; in other words, 6 percent of its
employees are in India, although the country accounts
for less than 1 percent - $1 billion - of its global
revenues. Apart from its call centers and backroom
processing units, GE's entire medical research is done
here: it hires over 1,000 scientists. "We make some of
the most sophisticated medical products here," says
Immelt.
In China, meanwhile, GE expects
sales to keep expanding at about 18 to 20 percent a
year from about $1.5 billion in 2001. Growth will be driven
primarily by GE's medical, silicon, plastics and aircraft
engine businesses, a senior GE (China) official said
earlier this year after signing an agreement to set up a
$12 million research center in Shanghai. The center is
expected to begin operations in 2003 and employ 400
staff.
General Electric posted sales of $1.5
billion in China in 2001 and aims to increase that to
between $4 billion and $5 billion by 2004 or 2005. GE is
to provide engines for the 30 Boeing 737 commercial
aircraft China has agreed to buy over the next four
years. Chinese airlines now use about 670 GE engines.
General Electric plans to continue to invest in
a range of industries in China, building on existing
investment of $1.5 billion in plant equipment.
In
August, GE (China) said that it planned to increase
its local procurement and, by the year of 2005, its
annual amount of procurement from China would amount to
$5 billion. The equipment procured will range from medical
systems, lighting, power systems, and aircraft
engines to transportation systems, and will be used in
the construction of projects worldwide.
GE began
trading with China in 1910. GE (China) Ltd was set up in
1994. At first, the company mostly sold commodities to
the Chinese market. GE began to turn China into one of
its global procurement bases in the late 1990s. By now,
GE's equipment suppliers, mostly state and medium-sized
enterprises, are distributed in 21 of China's provinces
and municipalities.
(©2002 Asia Times Online Co,
Ltd. All rights reserved. Please contact content@atimes.com
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