April 16, 2010    Volume 17, No. 6

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GE CEO Immelt Says United States Needs A Reorientation Of Policy And Its Economy In Order To Double Exports


By Richard A. McCormack
richard@manufacturingnews.com

For the United States to live up to President Obama's goal of doubling exports over the next five years, American companies will have to deploy a sophisticated set of capabilities beyond developing and manufacturing products that the rest of the world wants to buy, according to Jeffrey Immelt, CEO of General Electric. U.S. companies will need "exceptional capabilities" in marketing, sales, support and financing.

To double exports, the federal government will also have to move away from an economic policy focused on consumption, finance and services to one that promotes investment in manufacturing and exports abroad. Since 70 percent of all U.S. exports are manufactured goods then "we have to make things here," Immelt told the annual meeting of the Export-Import Bank of the United States in Washington, D.C., held in March. "We have to know how to make things. It's like night follows day."

There are many places in the United States "that are not going to be call centers or finance centers," says Immelt. They have no economic option other than being "a manufacturing center of some kind," he adds. "We've had a generation where manufacturing was undernourished in the United States. There was a macro[economic] misstep that has taken place over 25 or 30 years that we could go gently from being a technology and manufacturing-based economy to a service-based economy and that we could run $1-trillion trade deficits, and nobody fundamentally cared. That's been quite a big misstep that you can't easily put back in the bottle."

U.S. companies and the federal government now are "going to have to go toe to toe with some of our toughest competitors every place around the world, and so competitiveness, technology, capabilities and financing all have to come together," says Immelt. "I'm glad the President has set the goal of doubling U.S. exports. It's very inspirational and it's something people can rally behind. It's bipartisan and we ought to go get it done."

But when President Obama announced his export initiative "nobody outside the United States -- in France and Japan -- nobody believes us," says Immelt. "I think for so long we've just kind of said, 'It just doesn't matter. Let whatever happens happen,' The notion that the U.S. could actually have the kind of will and focus [to double exports] is quite surprising."

Immelt says that he has spent his entire career competing against German companies. Those companies get together with the German Chancellor Angela Merkel and "talk about going out and kicking everybody's rear," he says. "That is what the dinner conversation is like. It's not like, 'You know, whatever happens, happens.' We've got to go out. We've got to export. We've got to hang together." Merkel then takes 20 German CEOs to Beijing "and says, 'Buy from these guys.' " Immelt notes.

When Immelt was recently trying to close a deal for a nuclear plant in Abu Dhabi, "I [went] in after [French] President Sarkozy and the president of Korea," he recalled. "Then [it was] me. I'm not bad, but I don't rule anything. I don't have an army. I can't trade planes and stuff like that."

Immelt was quick to note that not having the U.S. government involved is not an excuse for GE losing contracts. "GE is big enough that we can never use that as an excuse," he says. "We can fight our own way by and large, but for the thousands of small businesses who also want to be global players, a big umbrella of the U.S. is quite powerful and necessary."

It would be nice if the U.S. government had such an orientation. When Immelt was in China selling his company's products, he met with the head of the country's National Development and Reform Commission (NDRC), a huge government agency in charge of energy, infrastructure and healthcare. "The guy became a friend over the years," says Immelt. "We were sitting down and having a meeting and he says, 'You know, Mr. Immelt, your gas turbine pricing is way too high.' I'm thinking, imagine having this conversation with [U.S. Energy] Secretary Chu?' So what you see in China is this incredible unanimity of purpose from top to bottom."

When Immelt was in Sao Paulo on business five or six years ago, in his hotel he encountered a delegation of 30 Chinese businessmen and government officials there to sell Chinese products. "That's when you knew we ought to be investing more" as a country in export promotion, says Immelt. "Something is going on. The ability of a small business person to get to Brazil, Angola, Kazakhstan or Indonesia without some kind of umbrella is quite difficult. There are a lot of countries that have more juice than we do in terms of [having] government and business working as a pack. For the President's initiative [to work], there is something for all of us to think about, which is Germany, a high-cost labor country getting better over recent times and having 47 percent of its GDP in exports. What's ours? Something like 10 percent? That's a step-function difference. This [export] initiative is as important as anything [Obama] has done because in some ways it's a repurposing. It can be a call to arms. In my view, he's 100 percent right. It's hard. This is not going to be easy. We are going to have to try real change in order to make it happen."

Immelt told Export-Import Bank president Fred Hochberg that it will be necessary for that bank's lending authority to double in order to help U.S. companies win foreign contracts. "When you look at Hermes in Germany -- it's probably $30 billion, and you [the Ex-Im Bank] might be $20 billion to $21 billion," Immelt told Hochberg. Germany "has a $3 trillion economy -- ours is $14 trillion. We've just been too timid about it and it's one of those things that if we set our destiny [to] exports, if we think we've got to have a bigger industrial base, if we know our customers are going to be elsewhere in the world then it helps when people think the Ex-Im Bank is in play and that you support it. It's more than just financing. It's the validity of integrity, compliance and in places like Indonesia and Kazakhstan, it's really, really critical."

Immelt was asked by Hochberg why it was so important to keep manufacturing in the United States. "American companies have to remember that we also have a responsibility to create jobs in our own country and that if we want to be integrated, we can't just think about everyplace else," Immelt replied. GE made 130 heavy-duty gas turbines in Greenville, S.C., last year, but only six of them were sold in the United States. The rest were exported. "As a CEO, if we have to be in Kazakhstan we're going to be in Kazakhstan," says Immelt. "If we have to be in Riyadh, we're going to be in Riyadh. We have no choice for [U.S.] companies other than to globalize and globalize quickly."

Over the past five years, globalization "has moved backwards, not forwards," given that "there is more protectionism today than there was five years ago," says Immelt. This means that it is getting harder to export products from the United States to China and Europe. "Most countries view their clean [energy] technology as a jewel," he explained. "So it is harder to export [to] some places because they have local content restrictions -- China for one and some of the European countries." As a result GE "had to build a complete wind supply chain in China in order to have any way ultimately to play."

The same is holding true of nuclear power. "For all the conversation that goes on about nuclear power in this country, fundamentally nothing is happening," he says. "Fundamentally, we as a country are in the process of giving that industry to somebody else. There's a phrase that we've had inside GE for my whole career, which is in order to do something you have to do something. It's one thing to write an editorial about the nuclear power industry, to talk about it and give a speech, but in order to actually lead in nuclear power, you have to have five or 10 plants under construction here in the next year or so." There are 52 nuclear plants being built around the world today, but not one of them is in the United States. "You're not going to own the supply chain. You're not going to create manufacturing jobs. That's going to leave you in the dust. In some of these areas, we just have to get off our rear and go." The United States must commit itself to "eliminating laziness and just force of will to recapture some of these spaces."

Immelt is becoming more worried about the reaction to globalization taking place in the developed world. "What keeps me up at night is where does an angry developed world population with 10 percent unemployment and big structural issues force their governments to go in a world where my destiny has to be globalization" due to the fact that there are billions more customers overseas than in America, he says. "The next decade is going to be wild, but it's not for the faint of heart and you're going to have to travel to get there."

Immelt says the U.S. government must also commit itself to the goal of doubling exports. Secretary of State Hillary Clinton needs to "talk more about how the State Department can get involved." President Obama could lead a trade mission to China. If he did so "I think people's jaws would hit the ground," said Immelt. "It would be nice if an American president thought that that was part of their role, the way that Sarkozy, Merkel, and the Japanese and Korean prime ministers do. For us to rejuvenate this economy, we have to be tapping into the Chinese consumer, the Indian consumer, the petrodollars that get recycled on a global basis, and also encourage some of those companies to invest in the U.S. so that they can be exporters from here as well."

Success in global markets for individual companies depends on persistence and learning. As companies undertake efforts to boost exports, they will make mistakes but they will learn "1,000 different things about your company and what it takes to be successful," said Immelt. GE committed itself to India in the early 1990s "because we thought the market would be big," he explained. "We believed that there were going to be hundreds of millions of people in the middle class and so we built a lot of factories to support the consumers in India. Horrible failure. Incredible failure, but we discovered that technology was good there, that backroom centers were great there. We completely re-purposed the company over the subsequent decade and we just hung around, we had staying power. The first thrust didn't work. It took the second and third effort to finally get us there."

U.S. companies must build local partnerships based upon trust. They must be compliant with all the local rules and regulations and operate an environmentally clean enterprise. They must build relationships with local governments based upon respect, and they must "not back down to anybody -- compete and win in every corner of the world," Immelt said.

It is also important not to be late to the game. GE learned that lesson because it ignored the South American market through the 1980s and 1990s. By focusing on the financial volatility in Brazil, GE missed seeing that country's underlying entrepreneurial industrial base. As a result, GE has "been trying to play catch up over the last 10 years," Immelt said. "That's why I'm so keen in making sure that in Africa we don't get left behind, that we've got to plant flags there early and often, be willing to make a few mistakes, but take it forward."

The United States government needs to fix its export control regime and it must get back into the game of trade agreements. Not being able to conclude a trade agreement with Colombia "says to the rest of the world that we don't have enough confidence to sign a trade agreement with one of the friendliest countries that we have and wants to do business with us," Immelt said. "That's like a neon sign that says we are not open for business."

http://www.exim.gov/news/annualconf/2010/conversation/Vid1HochbergImmeltTranscript.pdf


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