ASSIGNMENT-1

1. General Electric Globalizes its Medical Systems Business Shapiro & Moles p.8 – p.9.
a. What advantages does General Electric seek to attain from its international business
activities?
i. GE’s globalization drive now focuses on taking advantage of its global reach to find less
expensive materials and intellectual capital abroad.
ii. In material procurement, GE’s global supply chain does business with over 500,000
suppliers across thousands of entities in more than 100 countries, deriving over $1 billion in
savings on its foreign purchases.
iii. On the human capital side, General Electric has established global research and
development (R&D) centres in Shanghai, China; Munich, Germany; Bangalore, India; and
Rio de Janeiro, Brazil.
iv. By sourcing intellect globally, GE has three times the engineering capacity for the same
cost. For Medical Systems, the ability to produce in low-cost countries has meant bringing to
market a low-priced CAT scanner for $200,000 (most sell for $700,000–$1 million) and still
earning a 30% operating margin.
b. What actions is it taking to gain these advantages from its international activities?
i. Strategic partnerships and acquisitions: GE has formed strategic partnerships and acquired
companies in key markets to gain access to new customers, technology, and expertise. For
example, in 1987, GE swapped its RCA consumer electronics division for Thomson CGR,
the medical equipment business of Thomson SA of France, to strengthen its own medical
unit. Together with GE Medical Systems Asia (GEMSA) in Japan, CGR makes GE number
one in the world market for X-ray, CAT scan, magnetic resonance, ultrasound, and other
diagnostic imaging devices. In April 2003, GE announced that it would acquire
Instrumentarium, a Finnish medical technology company, for US$2.1 billion. A year later, in
April 2004, GE spent $11.3 billion to acquire Amersham, a British company that is a world
leader in medical diagnostics and life sciences.
ii. Access to new markets: GE's international operations allow it to access new markets and
customers, expanding its customer base and increasing its revenue potential. This is
especially important as emerging economies continue to grow and become more important
players in the global economy. For eg, Engineers in India and China were developing low-
cost products to serve markets in Asia, Latin America, and the United States, where there is a
demand from a cost-conscious medical community for cheaper machines. In 2010, GE
Healthcare derived about $3.5 billion in sales to emerging markets, with over $1 billion in
revenue from China alone.
iii. Economies of scale: Operating in multiple countries allows GE to take advantage of
economies of scale in production, distribution, and marketing. By producing goods and
services in larger quantities, GE can lower its unit costs, improving its profitability. For eg,
GE’s globalization drive now focuses on taking advantage of its global reach to find less
expensive materials and intellectual capital abroad. In material procurement, GE’s global
supply chain does business with over 500,000 suppliers across thousands of entities in more
than 100 countries, deriving over $1 billion in savings on its foreign purchases.
iv. Talent acquisition: GE's international business activities enable it to attract and retain top
talent from around the world. This can help the company to develop new products, innovate,
and stay competitive in a rapidly changing global marketplace. The core of GEMS’s global
strategy is to “provide high-value global products and services, created by global talent, for
global customers. “As part of this strategy, “GE Medical Systems focuses on growth through
globalization by aggressively searching out and attracting talent in the 150 countries in which
we do business worldwide.”
v. Knowledge transfer: GE's international operations allow the company to share knowledge
and expertise across borders, enabling it to develop and implement best practices from around
the world. This can help to improve efficiency, productivity, and innovation within the
company. Localization of products and services: GE has customized its products and services
to meet the unique needs of customers in different regions. For example, the company's
healthcare division has developed products tailored to the needs of emerging markets, such as
portable ultrasound machines that can be used in remote areas without access to traditional
medical facilities. For Medical Systems, the ability to produce in low-cost countries has
meant bringing to market a low-priced CAT scanner for $200,000 (most sell for $700,000–$1
million) and still earning a 30% operating margin.
vi. Investment in research and development: GE invests heavily in research and development
to develop new products and technologies that can help the company to stay competitive in
international markets. For example, General Electric has established global research and
development (R&D) centers in Shanghai, China; Munich, Germany; Bangalore, India; and
Rio de Janeiro, Brazil. By sourcing intellect globally, GE has three times the engineering
capacity for the same cost.
c. What risks does GE face in its foreign operations?
General Electric (GE) faces several risks in its foreign operations, including:
i. Political and regulatory risks: GE operates in countries with different legal and regulatory
environments, which can pose challenges to its operations. Changes in government policies,
trade barriers, or new regulations can impact GE's ability to operate and compete in certain
markets.
ii. Economic risks: GE's operations in foreign countries are exposed to economic risks such
as currency fluctuations, inflation, and interest rate changes. These risks can affect the
company's revenue, profitability, and cash flows.
iii. Operational risks: Operating in foreign markets may pose operational risks such as supply
chain disruptions, transportation challenges, and difficulties in accessing raw materials or
labor. GE must manage these risks to ensure the continuity of its operations and avoid losses.
iv. Cultural risks: Cultural differences can affect GE's ability to do business in foreign
markets. For example, language barriers, different business practices, and social norms can
pose challenges to effective communication, negotiation, and relationship building.
v. Reputation risks: GE's reputation can be damaged if it is associated with unethical
practices or human rights violations in foreign markets. The company must ensure that it
operates with integrity and in compliance with local laws and regulations to protect its
reputation.
Overall, GE faces a range of risks in its foreign operations, and the company must implement
effective risk management strategies to mitigate these risks and protect its financial
performance and reputation.
d. What profit opportunities for GE can arise out of those risks?
While risks associated with international business operations can pose significant challenges
for companies like General Electric (GE), they can also create profit opportunities in the
following ways:
i. Political and regulatory risks: GE can capitalize on political and regulatory risks by
leveraging its expertise in managing complex regulatory environments to create competitive
advantages. For example, the company's experience in navigating complex environmental
regulations in Europe has enabled it to develop more sustainable products and technologies,
giving it a competitive edge in the marketplace.
ii. Economic risks: GE can capitalize on economic risks by hedging against currency
fluctuations and other economic uncertainties. Additionally, economic disruptions can create
new opportunities for GE to provide innovative solutions to customers who are facing
financial pressures.
iii. Operational risks: GE can capitalize on operational risks by developing efficient and
resilient supply chains, ensuring the quality of its products and services, and providing
exceptional customer service to differentiate itself from competitors.
iv. Cultural risks: GE can capitalize on cultural risks by developing a deep understanding of
the unique needs and preferences of customers in different markets. By tailoring its products
and services to meet these needs, GE can build strong customer relationships and gain a
competitive advantage.
v. Reputation risks: GE can capitalize on reputation risks by investing in sustainability and
corporate social responsibility (CSR) initiatives that align with the values of its customers
and stakeholders. By demonstrating its commitment to ethical business practices and social
responsibility, GE can build a strong brand reputation and enhance its competitive position.
Overall, while international business risks can pose significant challenges for companies like
GE, they can also create new profit opportunities for companies that are able to effectively
manage and mitigate these risks.
2. Siemens: “Think More Like Visionaries”
"Siemens: Think More Like Visionaries" is a phrase that represents the push for Siemens, a
German multinational conglomerate, to embrace innovation and adopt a more visionary
approach to its business strategy. The phrase is a call to action for the company to think
beyond short-term goals and traditional business practices and to focus on creating new
technologies and solutions that can address the complex challenges of the modern world.
Siemens has a long history of innovation, dating back to its founding in 1847. The company
has played a critical role in the development of technologies such as electrical power,
automation, and medical imaging. However, in recent years, Siemens has faced increased
competition from new players in the technology industry, particularly in areas such as
digitalization, artificial intelligence, and the internet of things.
To remain competitive in this changing landscape, Siemens has made a concerted effort to
adopt a more visionary approach to its business strategy. This has involved investing heavily
in research and development, exploring new business models, and working closely with
partners and customers to identify emerging trends and opportunities.
One example of Siemens' vision for the future is its focus on the energy transition. The
company has recognized the urgent need to shift away from fossil fuels and embrace
renewable energy sources such as wind and solar power. Siemens has developed innovative
solutions for renewable energy, including offshore wind turbines and energy storage systems.
These technologies are helping to drive the transition to a low-carbon economy and position
Siemens as a leader in the energy sector.
Another area where Siemens is taking a visionary approach is in digitalization. The company
is developing new technologies that enable data to be gathered and analyzed in real-time,
allowing for more efficient and effective decision-making. Siemens is also exploring the
potential of artificial intelligence and machine learning to improve its products and services
and provide better outcomes for its customers.
In conclusion, "Siemens: Think More Like Visionaries" represents the company's
commitment to embracing innovation and adopting a long-term, visionary approach to its
business strategy. By focusing on emerging trends and investing in new technologies,
Siemens is positioning itself to remain competitive in a rapidly changing world and to help
address some of the most pressing challenges of our time.
3. Tata Steel Acquisition of Corus
In 2006, Tata Steel’s production capacity wasn’t enough for it to be ranked among the Top 50
steel companies in the world. But driven by the ambitions of its chairman Ratan Tata it aimed
to be among the global leaders in the sector. In pursuit of that goal, it targeted Corus, the
Anglo-Dutch steelmaker nearly four times its size but with much lower profitability.
The steel industry and the global scenario in the 2000s
The world’s crude steel output increased by 7-8 per cent a year from 2002-2006 owing to
rapidly increasing Chinese auto manufacturing, shipbuilding sectors and the major
infrastructure growth, including key projects, such as the Beijing Summer Olympics facilities
in 2008. After 2004, steel prices went up and the global steel demand continued to rise until
the emergence of a global economic crisis. The costs of production depended mainly on
manufacturing and access to power and raw materials for production. Steel industry all over
the world was witnessing mergers to pool their resources, especially that of raw materials and
manufacturing technology.
In the mid-2000s, rapid growth in China’s economy and other developing countries, like that
of India’s, also created a growing steel demand. China was unwilling to depend on its
domestic supplies so it relied on international markets to satisfy their growing demands for
steel. During that time, China, the world’s largest steel manufacturer, was expected to expand
its steel capacity, which could lead to lower global costs for steel. At the time when Tata
acquired Corus Steel, there weren’t many options for steel companies other than to acquire
companies or be the target for acquisition. These mergers and acquisitions were made so that
they would create even bigger giants in the steel industry, eventually resulting in instability in
pricing and higher profits for the companies that produced steel.
About Tata Steel:
Established in 1907, Tata Steel is Asia’s first and India’s largest integrated private sector
steel company with 2005/06 revenues of US$5 billion and crude steel production of 5.3
million tonnes across India and South-East Asia. It is a vertically integrated manufacturer and
is one of the world’s most profitable and value-creating steel companies. In 2005, Tata Steel
acquired a 100% equity interest in NatSteelAsia in Singapore and in 2006 acquired majority
control of Millennium Steel in Thailand, now Tata Steel Thailand.
About Corus:
Corus is Europe’s second-largest steel producer with revenues in 2005 of £9.2 billion
(US$18 billion and crude steel production of 18.2 million tonnes, primarily in the UK and the
Netherlands. Corus provides innovative solutions to the construction, automotive, packaging,
mechanical engineering, and other markets worldwide. Corus has 41,100 employees in over
40 countries and sales offices and service centers worldwide. Combining international
expertise with local customer service, the Corus brand represents quality and strength.
The Acquisition Process:
The acquisition process started on September 20, 2006 and completed on July 2, 2007. Tata
acquired Corpus steel, the two steel giants together possessed a lot of potential for both the
Indian and global steel industry. Tata Steel, the auction winner for Corus, declared a bid of
608 pence per share, which was higher than the final bid of 603 pence per share from
Brazilian steel company Companhia Siderurgica Nacional (CSN). Tata Steel was required to
deliver the consideration within two weeks after the date of completion of the proposed
transaction according to the regulations in the scheme. Tata Steel and Corus were interested
in the M&A deal before the start of the deal for a variety of reasons. According to the official
press releases made by both the companies, the combined entity will set up to have a  crude
steel production of 27 million tonnes in 2007, with 84,000 employees spread across the globe
and a joint presence in more than 40 countries. The merger possessed a huge threat to its
competitors.
Deal Financing:
To complete the acquisition, Tata steel incorporated an indirect subsidiary called Tata Steel
UK. As part of Tata Steel's contribution, the Company invested the following as part of its
equity commitment by 17th April:
a) Internal Generation - Rs.3,000 crores (USD 700 million).
b) External Commercial Borrowings - Rs.2,170 crores (USD 500 million).
c) Funds from the Preferential Issues of equity shares to Tata Sons Ltd.
The following proposals have now been approved by the Board:-
i) A Rights Issue of equity shares to the shareholders in the ratio 1:5 at a price of Rs.300 per
share (of Rs.10 each) which would involve issue of equity shares of the face value of Rs.122
crores and would provide an amount of Rs.3655 crores (USD 862 million).
ii) A simultaneous but un-linked Rights Issue of Convertible Preference Shares in the ratio of
1:7 having a coupon rate of 2% with conversion into equity shares after two years at a price
in the range of Rs.500 to Rs.600 per share as may be determined at the time of the issue. This
issue would provide a total amount of about Rs.4,350 crores (about USD 1000 million).
iii) Tata Sons Ltd. would stand-by to take up the unsubscribed portion of both the above
issues in fulfillment of its support to Tata Steel for the Corus acquisition.
iv) A foreign issue of an equity-related instrument upto an amount of upto USD 500 million
(about Rs. 2,100 crores including the premium) in such form as may be considered
appropriate. This issue would be made on an ex-Right basis and on terms as may be
determined at the time of the issue subject to approval of the shareholders.
The following important points of this total financing scheme of USD 4.1 billion
(about Rs.17,750 crores) may be noted:-
a) For the acquisition, Tata Steel will be utilising additional debt of only USD 500 million
(about Rs.2,170 crores) which represents only 12% of the total amount required.
b) Apart from the preferential issues of equity shares of Rs.56 crores allotted to Tata Sons (at
prices which were higher than the then prevailing market prices), Tata Steel would be raising
additional equity share capital of the face value in the range of about Rs.250 - 280 crores
depending on the final pricing of the various issues. This increase in the equity capital will
come into effect only in stages during the three financial years 2007-08 to 2009-10 which
will therefore ease the burden of servicing.
c) The post-tax cost of this total financing package on completion is expected to be around
4.3% per annum.
The above-mentioned issues and the details thereof would be subject to such approvals as
may be required and such modifications as may be considered necessary in the course of
implementation.
The long term financing pattern for the net acquisition consideration of Corus would be USD
12.9 billion and Tata Steel UK would be funded in the long term from the following sources:
 

Equity Capital from Tata Steel Ltd USD 4.10 billion

Long-term debt from consortium of banks USD 6.14 billion

Quasi - Equity funding at Tata Steel Asia Singapore USD 1.25 billion
 Long term Capital funding at Tata Steel Asia Singapore USD 1.41 billion

Total USD 12.90 billion

a) Tata Steel Ltd will provide USD 4.1 billion from the various sources indicated above and
will invest the above quantum through its wholly-owned indirect subsidiary Tata Steel UK.
b) Nonrecourse debt financing arranged by a consortium of banks of USD 6.14 billion
directly at Tata Steel UK
c) The balance amount of USD 2.66 billion has presently been raised in the form of bridge
finance in Tata Steel Asia Singapore, and discussions are underway to raise these funds
through appropriate instruments.
What went wrong with the deal?
The main reason for the failure of the operations lies in the failure to pass the high cost of raw
materials with the customers due to the weak steel demand. The other reasons are mentioned
below:
1. Bad Economy
Since the takeover, European Tata Steel operations had been stagnant. Steel manufacture in
the UK collapsed in July 2011 with a flat line in seven months. Steel production in the
Netherlands was increasing and recovered much faster from the fluctuations of the market. 
2. High Energy costs
High energy costs in the UK have adversely impacted energy-intensive businesses like steel
mills in comparison to other neighboring countries. In 2015 these companies had to pay
around 9.55 ppm a kilowatt-hour, compared to a low of 6.7 pence an hour per kilowatt-hour
in 2010. The environmental policies of the UK along with the green tax substantially
increased energy costs for heavy manufacturing sectors since 2010.
3. Paying too much for the acquisition
Tata’s acquisition of Corus, like many of its earlier purchases, was motivated by a desire to
execute bigger deals, although it could not add much value due to the huge cost of
acquisition. Tata paid far more than Corus was worth in the transaction. Tata paid 608 pence
per share in cash for Corus, which was 34% more than the previous offering of 455 pence per
share. The total settlement amount was $12 billion, with $6 billion being a debt.
The reason Tata’s acquisition was overvalued is simply that the transaction was far too
lucrative at the time, and Tata’s management went along with the spirit of competition and
paid more than they’d like. They overlooked the fact that the connection between both the
cost and the performance was proportional.
4. Cultural issues
Corus steel is a company based in the UK and Tata steel is an Indian company. To get the
best results from the acquisition, the cultural dilemma which would impede the integration of
the company has to be fixed. These cultural difficulties are deeply embedded in the
management of a company but have been complicated due to the cultural differences between
the countries.  These issues had to be addressed before any integration.
5. Lack of control after the acquisition
The success of any merger or acquisition could be ensured only after taking control of the
new entity. There must be a plan to take control and sustain the business operations as a
going concern. Tata continued its activities in Europe with Philippe Varin, Chief Executive
Officer of Corus since 2003. Corus recorded a loss of £458 million in 2002 only a few weeks
before his arrival.