CHAPTER 1
INTRODUCTION
1.1
Research Motivation
GE has been famous for two things – its global operations and diversified businesses.
With such characteristics, GE has become one of most typical multinational
conglomerates. I feel strongly interested in how GE finances such tremendous operations
and how the company can make it work well. In recent years, a lot of Taiwanese
companies are also trying to globalize their operations and diversifying their businesses.
The study on how GE’s mechanism works should be valuable for the Taiwanese
companies which are growing rapidly and globally.
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1.2
Research Objectives
Diversification and globalization have been become sort of popular trends for many
companies, including many big-scale companies in Taiwan. However, how to properly
manage their resources for these two directions is always a critical issue for these
companies. General Electric, one of the world’s most admired companies, happens to be
a very good example of a diversified and globalized organization. With operations in over
100 countries all over the world and in 11 very little related businesses, GE’s capability
to leverage its resources to drive growth is remarkable. There should be a lot of things
that can be learned, especially for those Taiwanese giants who want to be the top-tier
players in the world.
Therefore, the main objective for this study is to take a deep look at how GE sets up its
strategy for business portfolio management and how the company leverages its financial
resources to reach its goal for business growth. Furthermore, we also compare the major
financial performance of GE with a benchmark company and find out the explanation of
the difference and link it to their different approaches for business development.
Ultimately, we will come up with the conclusion concerning what factors a globally
diversified company has to really look into to achieve outstanding and sustainable growth,
such as GE does. The suggestion for the direction for further studies in the future is also
proposed.
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1.3
Methodology
1.3.1
Review and Analysis on Secondary Sources
Secondary sources, including journal articles, internet, books, industrial reports
magazines, and companies’ public and internal information, etc., have been extensively
reviewed and analyzed, especially in the preliminary stage of this study.
1.3.2
Competitive Forces Analysis
Michael Porter’s model of competitive forces analysis has been used to analyze GE to see
the position where the company stands in terms of competitive elements. GE’s
competitive advantages will be analyzed as well. The analysis is based on the internal
views of some GE senior managers, the company’s internal data and information, as well
as published data and information. Competitive forces analysis generally is a very useful
tool for us to look at the company before any further financial analysis is conducted. We
prove such usefulness in this study.
1.3.3
Case Study – Using GE as an Example
GE is used as the example for this study given that it is considered as one of the best role
model of globally diversified businesses in the world. GE has 11 business units, from
engineering plastics to consumer financial services. The composition of its business
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portfolio is enormously complicated. In addition, as one of the world’s most globalized
companies, GE is a very good example to be used for discussion on validity of some
theories involving globalization in previous studies.
Another important reason for me to choose GE for this study is that I have easy access to
the internal information of the company and the company senior executives. Besides all
the objective data and figures, it is also important to grab a deep understanding of the
company’s underlying business philosophy and strategy. That, in fact, provides me with a
more profound view of how a globally diversified firm works out its synergy, develops
the business strategy and formulates execution plans. The conclusion drawn from the
study will be, therefore, much more powerful than the works done by an average outsider.
1.3.4
Comparative Financial Analysis of GE with the Benchmarked Company
It is hard to conclude the performance of the targeted company (i.e. GE) without
comparing several key indicators, especially financially related ones, with the
benchmarked company. The benchmarked company should have similar characteristics to
GE’s. It should be the one which also has diversified businesses and high global exposure.
In this sense, 3M has been chosen to be the benchmark.
1.3.5
Interview with GE’s Senior Executives
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In order to catch the internally high level view of GE on the company’s idea of growing
its businesses in various fields worldwide, interviews with several senior GE executives
have been conducted. The interviewees all hold important positions at the company in
sales, marketing, finance and operation fields. They are proactively involved in the
formulation of the company’s strategy and execution plans. Their view can fairly reflect
the top managements’ view on how GE can leverage its resources to boost its sustainable
long-term growth and to meet commitments and obligations to its shareholders and debt
holders.
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1.4 Conceptual Structure
The objective of this study is to look into how globally diversified companies leverage
their financial resources and set their financial strategies properly to drive sustainable
business growth. Based on this objective, the related data and information have been
collected, reviewed and analyzed. Related conclusions and suggestions have been drawn
as well. This paper is structured as the following chapters:
Chapter 1 defines research direction and objectives – the motivation, methodology, the
area covered by this research and the structure of the research has also been touched base
here.
Chapter 2 includes the reviews, comparison and analysis of the available literature related
to the filed covered by this research. In this chapter, the papers pertaining to different
theories of diversified businesses as well as global companies have been extensively
reviewed. The importance of research objectives proposed by this study is further
accentuated after reviewing previous literatures.
Chapter 3 focuses on the analysis of General Electric Company, which is used as a case
in this study. In this chapter, the compositions of GE as well as its main business
philosophy and strategy are introduced. Furthermore, Porter’s model of competitive
forces will be used to analyze GE’s competitive advantages and disadvantages. The
analysis in this chapter provides a solid foundation for further comparatively financial
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analysis of GE and its benchmarked company as well as the more detail discussion in the
later chapters.
In addition, Chapter 3 also contains the comparative financial analysis of GE with its
benchmarked company, 3M. The performance of two companies will be compared and
analyzed from various angles, such as short-term liquidity, cash flows, capital structure,
and returns on invested capital. The correlation of such performance difference and the
strategy these two companies undertook will be extensively discussed and preliminary
explanation will be developed. Moreover, the characteristics of GE, a typical example of
a far more conglomerate with both industrial and financial businesses, will be linked with
its different financial indicators and results from 3M’s. The later part of the chapter also
covers GE’s valuation based on various scenarios. It is attempted to understand the
significance of AAA rating for GE in terms of the company’s values. How such
significance is correlated with GE’s strategy in globalization will also be covered. The
chapter will end with some results from interviews with senior executives of the company
to further address the philosophy for such strategy setting and what mechanisms GE
constructs to address integrity in order to ensure minimum concern regarding corporate
governance.
Chapter 4 contains main conclusions from the study and some suggestions for the
company to move forward. Some recommendations for the directions for the research in
related areas in the future are also addressed.
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1.5 Limitations
The major limitation for this study is that the results derived from this case study is
company-specific and industry-specific. It does not necessarily apply to other companies
with diversified structures and global presence. Furthermore, some of the findings from
the interview cannot be used as a theory or a model that is applicable to all situations.
There is no statistical approach behind to test the hypothesis from qualitative observation.
Most of the financial numbers for doing the financial analysis in this study is from the
company’s annual reports and public information. There is limited access to the
company’s more confidential information and raw financial data.
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