Theme analysis 5
Transaction cost theory 5
Product market diversification 5
Geographic diversification strategy 6
Textbook feedback 7
Taper Integration: 8
Diversification premium 9
Forward Vertical Integration 9
Current report sheds light on general electric corporate level strategies towards energy, healthcare and globalization initiatives taken by general Electric Incorporation for the betterment and expansion of the business. Moreover, information about conflict management is also providing to understand how conflicts arise in the company on different issues and policies regarding energy, healthcare and globalization initiatives. Role of transaction cost theory, product market diversification and geographic diversification strategy is discussed which are important consideration in company’s business expansion and growth.
Taper integration, diversification premium and forward vertical integration adopted by the company is an important initiative, which was analyzed thoroughly. Report provides essential and adequate information about diversification and business expansion in different geographical regions of the world. Due these initiatives, General Electric enjoyed increase in revenues and growth. Company’s international sales levels have been increased from 19% in 1980 to 34% in 2000. For the year 2010, sales are recorded for 50%, which is considered as largest recoded growth rate in company’s history.
Current report provides information about different diversification strategies which are followed by the companies to make expansion and business growth. Transaction Cost theory, product market diversification strategy and geographic diversification strategy are important initiatives that taken by General electric and Wall Mart for expansion and growth. Transaction cost theory emphasis on make versus buy decision of the companies. Market diversification theory allows business to be growing within existing markets or establishing new markets. Similarly, geographical diversification theory emphasizes businesses to expand with respect to diversification in different geographical regions of the world. Therefore, these strategies are proven successful for the business to expand. General Electric has taken various steps to ensure energy, health and global expansion. Various renewable energy sources are also employed including wind, solar and water sources. These sources are good alternatives to provide energy for the company and less dependencies on a single source of energy. Wall mart is big business and it has focused on diversification with respect to different geographical locations of the world. This strategy is successful for the Wall mart. Geographical diversification is proved successful for the Wall Mart.
Transaction cost theory
Transaction cost theory explains that all costs of the company should be included while making decision. It is not right to make decision based on market price. Transaction cost theory emphasis on make versus buy decision of the companies. It includes actual cost of outsourcing for the production of products and services (Dietrich, 1994). This cost includes cost of transaction, searching and coordination. Search and information costs for the company are incurred in investigating which raw material or good required is available with minimum cost in the market and its availability. Bargaining cost is also important. It is incurred to bargain the goods and services required to agree upon acceptable cost. It is transaction between bid and risk. Risk factor is important to consider. Huge risk may ruin the investment.
Transaction cost theory describes and answer why companies outsource activities to achieve favorable cost volume. Companies perceive that where outsourcing reduces cost it also lead to utilization of best alternatives within the available resources. Companies weigh cost of exchanging needed for utilization form the external environment. When external costs are high, then firms will be in position to perform better. This indicates that firm is more relying on outsourcing which is a better option to render cost. Environmental uncertainty, risks, opportunism, bounded rationality as well as core company assets are important factors in this regard. Organizations keep focus on these factors to stay competent in the field. Hence, transaction cost theory play an important role in managing overall cost o the firm as well.
Product market diversification
This strategy is form of business development. Companies adopt this strategy to diversify the current line of products. This is dome through modifying existing product or entirely new development of the product in product line. This strategy enables the company to increase its production volume as well (Knecht & Matthias, 2014). This strategy allows business to grow and expand its market. Business can be growing within existing markets or establishing new markets. Diversification can be followed by number of ways. Existing product modification is one of the ways. In this method, company can add new features and specification to already existed products. Customer entice to purchase these modifies products.
They perceive that products’ are better to its previous version because of inclusion of new features. Second method is development of entirely new product. New product is developed to offer entirely new specifications and features. New product development offer customer with entirely new experience to consume an item, which is not previously developed. This strategy is expensive in terms of time and resources. New product development requires extensive resrch and development activities. Prototype development as well as initiation of new product required lot of research activities. Time is required and funding is needed to add new product in existing line of products. That is why; present strategy is not an easy task to adopt. It requires lot of effort and resources to employ.
Geographic diversification strategy
Geographical diversification strategy diversifies its investment portfolio in different geographical market regions. This strategy improves overall investment and reduces risks in portfolio (Ndoro, 2007). This strategy is used to reduce business and operational risk elements in the company. Different regions have different aspects in terms of growth, revenue and cost. Diversification provides opportunities to take different benefits. Economies of scale can be utilized to reap benefits, which are prevailing in different regions of the world.
Markets differ with their economic attributes. Some markets are labor intensive and some are capital. Diversification can be done to reap benefits according to the nature of these markets. Labor-intensive markets provide cheap labor force while capital-intensive markets provide better capital requirements (Anonym, 2013). Therefore, it is dependent on the strategy of the company to utilize what sort of benefits are going to be reaped by the company. Geographic diversification strategy is equally important just like product market diversification and transaction cost theory. Companies consider all these strategies for their betterment.
The GE’s corporate-level strategic initiatives of health care, energy, and globalization reinforce each of its strategy while avoiding the generating conflicts of the company. The significant aspect for any organization is the formulation and development of suited strategies after the assessments of its external and internal environments (Anonym, 2013).
A vital step towards building up the development potential of GE was the transmit of the Ecomagination activity because of developing interest of the company for vivid, effective advancements over a extent of business enterprises including the welfare, energy, and globalization. Innovations were seen as a crucial fixing to effective item development and quality transform by any organization.
Such innovations should be made in the operational capacities as well as in production facilities because innovation is a key driver for GE's potential growth and actualized procedures to get faster its dispersal of new advancement through the involvement or relocation of GE as a leader in commercial center. To accomplish this, the company built up a procedure for indentifying its promising ventures offering allured developments, which were brooded from the normal budgetary perspectives and compared with other organizations as well (Dietrich, 1994). When the combination model was massively disliked in the speculation group of the company, the CEO held that the broadening methodology would be highly beneficial and exhibited its advantages while accomplishing economies of degree by sharing assets and abilities to diverse organizations. (Bucifal, 2009)
The conflicts could not be generated in General Electric because the form of the organization was modular one where all the non-essential or unimportant functions are outsourced. The organization does not have any boundaries or traditional barriers in between its different departments or in between the external and internal environment of the company. The obscuring of limits is another key reason, in particular in terms of opening the cooperative energies from GE differentiated arrangement. Boundary less Organization was a scaffold between GE specialty units that helped the association to catch a percentage of its various learning bases (Wei, Wang, Zhang, & Ao, 2013).
It was contended that a partnership ought to be organized by center skills as opposed to an arrangement of specialty units. For avoiding the lower sale volumes by the company, it could implement the reverse innovative designing. The organization is relying heavily on the decentralization methodologies in order to avoid any clash with the centralized. There is a term called globalization would be adopted by them in terms of delivering high quality products suiting the local conditions as well as scenarios. (Stewart, 2006)
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