Mindtap electronic version: Go to Chapter 10 -> In the News -> Chapter 10: Emerg
ID: 390134 • Letter: M
Question
Mindtap electronic version: Go to Chapter 10 -> In the News -> Chapter 10: Emerging markets GE innovates from the base of the pyramid: -> Start assignment now. Read the case in Mindtap. Then answer the questions below. (IMPORTANT: Do NOT submit your answer in Mindtap, you need to submit it here on Canvas).
1. What are the advantages and disadvantages of family ownership?
2. Research online and select one family owned company. Describe it briefly. You can select a family company mentioned in the case or another family company. If you select a family company mentioned in the text, your description should go beyond what is written in the case to illustrate that you have done additional research.
Case
EMERGING MARKETS: GE Innovates from the Base of the Pyramid
Multinationals such as General Electric (GE) historically innovate new products in developed economies, and then localize these products by tweaking them for customers in emerging economies. Unfortunately, a lot of these expensive products, with well-off customers at the top of the global economic pyramid in mind, flop at the base of the pyramid (BoP). This is not only because of their price tag, but also because of their lack of consideration for the needs and wants of local customers. Being the exact opposite, reverse innovation, which is from BoP markets, turns innovative products created for emerging economies into low-cost offerings for developed economies.
Take a look at GE’s conventional ultrasound machines, originally developed in the United States and Japan and sold for $100,000 and up (up to $350,000). In China, these expensive, bulky devices sold poorly because not every sophisticated hospital imaging center could afford them. GE’s team in China realized that more than 70% of China’s population relies on rural hospitals or clinics that are poorly funded. Conventional ultrasound machines are simply out of reach for these facilities. Patients thus have to travel to urban hospitals to access ultrasound. However, transportation to urban hospitals, especially for the sick and the pregnant, is challenging. Since most Chinese patients could not come to the ultrasound machines, the machines, thus, must go to the patients. Scaling down its existing bulky, expensive, and complex ultrasound machines was not going to serve that demand. GM realized that it needed a revolutionary product—a compact, portable ultrasound machine. In 2002, GE in China launched its first compact ultrasound, which combined a regular laptop computer with “good enough” ultrasound images. The machine sold for only $30,000. In 2008, GE introduced a new model that sold for $15,000, less than 15% of the price tag of its high-end conventional ultrasound models. While portable ultrasounds have naturally become a hit in China, especially in rural clinics, they have also generated dramatic growth throughout the world, including developed economies. These machines combine a new dimension previously unavailable to ultrasound machines—portability—with an unbeatable price in developed economies where containing health care cost is increasingly paramount.
GE’s experience in developing portable ultrasound machines in China is not alone. For rural India, it has pioneered a $1,000 handheld electrocardiogram (ECG) device that brings down the cost by a margin of 60% to 80%. In the Czech Republic, GE developed an aircraft engine for small planes that slashes its cost by half. This allows GE to challenge Pratt & Whitney’s dominance of the small turboprop market in developed economies.
Such outstanding performance in and out of emerging economies, in combination with GE’s dismal recent experience in developed economies thanks to the Great Recession of 2008–2009, has rapidly transformed GE’s mental map of the world (Table 10.1). In 2000, it focused on the Triad and paid relatively minor attention to the “rest of the world.” Now strategic attention is on emerging economies and other resource-rich regions, and the Triad becomes the “rest of the world.” In an October 2009 Harvard Business Review article, Immelt wrote:
To be honest, the company is also embracing reverse innovation for defensive reasons. If GE doesn’t come up with innovations in poor countries and take them global, new competitors from the developing world—like Mindray, Suzlon, Goldwind, and Haier—will. . . GE has tremendous respect for traditional rivals like Siemens, Philips, and Rolls-Royce. But it knows how to compete with them; they will never destroy GE. By introducing products that create a new price-performance paradigm, however, the emerging giants very well could. Reverse innovation isn’t optional; it’s oxygen.
TABLE 10.1 GE’s Mental Map of the World
United States
Europe
Japan
Rest of the world
People-rich regions, such as China and India
Resource-rich regions, such as the Middle East, Australia, Brazil, Canada, and Russia
Rest of the world, such as the United States, Europe, and Japan
Source: Extracted from text in J. Immelt, V. Govindarajan, & C. Trimble, 2009, How GE is disrupting itself (p. 59), Harvard Business Review, October: 56–65.
Sources:
(1) Economist, 2009, GE: Losing its magic touch, March 21: 73–75;
(2) Economist, 2011, Frugal healing, January 22: 73–74:
(3) Economist, 2011, Life should be cheap , January 22: 16;
(4) J. Immelt, V. Govindarajan, & C. Trimble, 2009, How GE is disrupting itself, Harvard Business Review, October: 56–65;
(5) C. K. Prahalad& R. Mashelkar, 2010, Innovation’s holy grail, Harvard Business Review, July: 132–141;
(6) A. Winter & V. Govindarajan, 2015, Engineering reverse innovation, Harvard Business Review, July: 80–89.
United States
Europe
Japan
Rest of the world
People-rich regions, such as China and India
Resource-rich regions, such as the Middle East, Australia, Brazil, Canada, and Russia
Rest of the world, such as the United States, Europe, and Japan
Explanation / Answer
1) The advantages of family ownership are:-
a) Better control and sense of direction coming from the promoter family.
b) Faster decision making as the promoter can take unilateral decisions which are faster and drive the way forward for the business.
c) The firm can derive value from the brand name of the family promoting the business and can get synergy benefits from the related businesses of the family.
Disadvantages being:
a) Professional management can suffer because of interference from the family.
b) Cronyism can creep in as only the family members would be at the helm of affairs in the company.
c) The family's interest can sometimes take precedence over the business interest of the firm.
2) The family owned business being described is the Reliance Industries of India. It is controlled by the Ambani family and it is in various sectors such as Petrochemicals, Telecom, Power etc. It is one of the biggest conglomerate and the group is divided into two companies each controlled by one Ambani Brother - Mukesh and Anil. The ultimate decision making remains with them and they have professional managers reporting to them. The group is highly profitable thus showing the efficacy of the system of the family controlled business.