Answer the case study question
GE CHINA TECHNOLOGY CENTER: EVOLVING ROLE IN GLOBAL INNOVATION
Haiyang Li and Rebecca Chung wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.
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In mid-2014, Dr. Xiangli Chen, general manager of the General Electric (GE) China Technology Center (CTC), and chief technology officer and vice president of GE China, had just been promoted to GE officer status and was thinking about the next stage of the CTC.
Located in Shanghai, the CTC was formed in 2000 to work with GE’s other research and development (R&D) centers so that it could bring technology breakthroughs and product innovations to the market. It was not only one of the biggest foreign-invested R&D centers in China, but also one of the few enterprise R&D centers with fundamental research capabilities and activities in the country. With its “In China for China” (ICFC) strategy that was initiated in 2008, the CTC specifically launched new projects for the Chinese market, rather than only adapting GE’s U.S. products to the Chinese market. It then disrupted the anti-cannibalization paradigm by bringing innovations for the mid-range market in China back to the developed countries like the United States.
Given the growing importance of China as a market, and as an R&D base, Chen had to consider a few important issues in order to maintain the growth of the CTC: what would the role of the CTC be in the long run? How would the CTC continue its role when China was strategically shifting from being the “world’s factory” to a global innovation powerhouse? How could the CTC effectively coordinate with other GE innovation centers in China and with the rest of the GE Global Research network? GE had been moving very quickly, as was China; Chen needed to act accordingly.
GE AND GLOBAL RESEARCH
Headquartered in the U.S. state of Connecticut, GE was formed in 1892 when the Edison Electric Light Company, which was established by incandescent lamp inventor Thomas Edison in 1878, merged with the Thomson-Houston Electric Company. It had been listed on the Dow Jones Industrial Index since 1896.
Jeffrey Immelt, who joined GE in 1982, became GE’s chief executive officer (CEO) in 2000 and chairman of the board in 2001. The company’s businesses covered financial services via GE Capital and the following industrial segments: power and water, energy management, oil and gas, aviation, healthcare, transportation, appliances and lighting. As one of the largest employers in the United States and in the world, it had more than 300,000 employees working in over 100 countries, with over 10,000 employees who worked in China. In 2013, GE had total assets of US$654 billion, of which 50 per cent were based in the United States.1 It generated revenues of $146 billion, net earnings of $13 billion (see Exhibit 1) and 47 per cent of its revenues came from the United States (versus 70 per cent in 2002).
GE had a proven track record of innovation in many scientific disciplines and business areas and had obtained thousands of patents. Its scientists won two Nobel prizes. In 2012, Forbes named GE one of the world’s most innovative companies. In 2013, the company spent $5.4 billion on R&D (see Exhibit 1).
GE Global Research,2 headquartered on a 550-acre3 site in Niskayuna, New York, was one of the world’s largest and most diversified industrial research organizations. It was positioned to be the growth engine of the company by striving to drive technological breakthroughs and working with business units to introduce new technologies into the product pipeline. In addition to fundamental scientific disciplines such as aero- thermal and mechanical systems, chemical engineering, electrical technologies, materials technologies and software sciences and analytics, it focused on innovating in leading-edge areas such as molecular imaging and diagnostics, energy conversion, nanotechnology, advanced propulsion, organic electronics, security and sustainable energy. GE Global Research used about one-tenth of GE’s total R&D expenditure for fundamental research that was not tied to any specific requests made by the business units, while business units split the remaining budget for their own applied research and product development.
GE IN CHINA AND THE ESTABLISHMENT OF THE CTC
After starting to trade with China in 1906, GE became the first foreign multinational company (MNC) that conducted manufacturing activities in China. In 1979, the year after the advent of China’s open door policy, GE revived its operations in the country and started to develop its technologies in China.
In 1999, GE Global Research set up its first overseas technology center in Bangalore, India. The main reason for using this location was that Jack Welch, the former CEO and chairman of the board of GE, who had initiated globalization, was very impressed by the low-cost talent there and was attracted to the country’s outsourcing potential. In 1999, China spent 0.76 per cent of its gross domestic product (GDP) on R&D, while India spent 0.71 per cent.4 At that time, even though the Chinese government had encouraged foreign MNCs to set up R&D centers in China, most of these centers did not actively carry out fundamental research due to concerns about the lack of an innovation infrastructure, weak intellectual property protection and the lack of experienced scientists. Siemens founded a small R&D center in Beijing a year earlier, while Philips was planning to set one up in Shanghai the following year.
Chen believed that GE should also set up a technology center in China. He saw the market potential of China and the benefits of having a local technology center, such as the opportunity to cooperate with local government, universities and research institutes. He gained support from several pro-China colleagues, including the head of GE China, and then volunteered to perform the due diligence and to investigate the feasibility and benefits of such a center. He talked to many colleagues and went to China to speak with numerous people who ran R&D centers there. With enthusiasm and determination, his task force was able to convince the top management to approve a small investment of $200,000. Chen reflected, “At that time, the focus was on India. But I asked the business units whether they thought the availability of technical talent in China would help them grow. Based on their positive response, I asked the top management to let me try, even with a small budget.”
In 2000, Chen was relocated back to Shanghai to establish the CTC in order to conduct technology research, develop new products and support manufacturing and sourcing. As the most cosmopolitan city in China, Shanghai had the highest number of foreign R&D labs in the country and also had a relatively good talent pool. The CTC rented space in Caohejing Hi-Tech Park. Building a capable local team was challenging for Chen, and initially, he was given a team of only 10 people. According to a McKinsey report:5
China has 1.6 million young ones, more than any other country we examined. Indeed, 33 per cent of the university students in China study engineering, compared with 20 percent in Germany and just 4 per cent in India. But the main drawback of Chinese applicants for engineering jobs, our interviewees said, is the educational system’s bias toward theory. Compared with engineering graduates in Europe and North America, who work in teams to achieve practical solutions, Chinese students get little practical experience in projects or teamwork. The result of these differences is that China’s pool of young engineers considered suitable for work in multinationals is just 160,000 [people] — no larger than the United Kingdom’s. Hence the paradox of shortages amidst plenty.
Chen realized that, although China had a large supply of technical talent, most of these individuals lacked global communications skills. Thus, Chen had to relocate a few experienced colleagues from the GE Global Research headquarters and hire Chinese returnees. He also had to train new local recruits, who were either engineers from related industries or fresh graduates, by assigning them to international project teams.
At the initial stage, the priority for the CTC was to solve the specific local technology problems and support local businesses to develop products and suppliers. In 2001, Immelt, who was the CEO of GE Healthcare and who had successfully developed business in China, became GE’s chairman of the board. He aimed to develop multiple businesses in China. In support of the development of the CTC, Immelt invested in building facilities for the CTC. In late 2002, Michael Idelchik, who joined GE in 1978, took the role of managing director of the CTC. A few months later, Chen also moved to GE Healthcare China in Beijing to focus on developing new products for this business unit. In May 2003, the CTC’s own facility, a 47,000 square meter (m2) premises at Zhangjiang Hi-Tech Park in Pudong, was inaugurated.6 In 2004, Idelchik left, and Bijan Dorri, who joined GE Global Research in 1983, took over.
At the CTC, each R&D employee needed to report to multiple leaders: the head of the CTC, the global technology leader, who coordinated various laboratories for that technology and the leader of a special project that involved product development staff working in a business unit. In addition, scientists and engineers from the headquarters would come to the CTC on assignments to collaborate with the CTC. Their contribution was not immediate, however, because they needed to first understand the differences between the environments in the United States and China — such as the workflow in hospitals. Chen stated:
It’s only when you know the value-creation process well, [that] you can localize by changing the design and qualifying the supplier, etc. For example, the difference between wind speed in the [United States], and that in China, has a huge impact on the product design of our wind turbine.
ICFC STRATEGY The CTC’s New Leadership
In August 2007, Chen rejoined the CTC to head up its operations, replacing Dorri. At that time, China’s central government had just announced that R&D was the country’s top priority, with a focus on areas such as energy, environmental protection, healthcare and transportation. In 2007, China’s R&D expenditure increased to CNY¥371 billion — 1.4 per cent of its GDP (versus ¥68 billion, 0.76 per cent of its GDP, in 1999). Chen noted:
I realized that China had become a good place for innovation, particularly in the healthcare industry. Healthcare innovation depends on user experiences and customer demands that are so different between developed countries and emerging markets. Immelt supported GE Healthcare China to develop new products suitable for the Chinese market.
To benefit from economies of scale and to start localizing, GE adapted its products that were designed for developed markets to China. The CTC, together with the business unit’s development staff, used a “partial re-design” approach to incrementally modify these upscale products. It typically took two to three years to complete a local development cycle.
However, local Chinese competitors were growing very fast and they were quickly moving up from the low-end market to the mid-range segment. Chen, and other senior executives in GE China, realized that the CTC had to originate projects that specifically met China’s unique needs as a means of speeding up its penetration. Yet, GE headquarters had never given real consideration to budgeting for China, partly because revenue generated from China was still relatively small to GE (less than 4 per cent). They did not see the immediate payoff of innovating “down” or “differently” for the low-end segments, and they worried about potential cannibalization. Nonetheless, Chen and several other executives at GE China decided to collectively approach Immelt to obtain his support. They proposed the initiation of ICFC R&D projects and received Immelt’s special funding of $15 million for 25 projects in the first year.
Project teams, however, faced various challenges. For example, initial products, developed from projects that were typically led by engineers and salesmen, did not sell well because these products were still too expensive in China. To solve this problem, the business unit adjusted the price and distribution channel. To ensure that the team understood the business unit’s marketing roadmap and customer needs, the CTC invited a product manager from a relevant business unit to join each project team, as well as to sell the innovative products back to headquarters. After implementing this solution, the CTC executed the ICFC strategy smoothly and continued to receive additional funding for more projects. Skeptical people also came on board in regard to this strategy. The CTC began to play a key role in working with business units in China and in developing goods and services that could meet the unique needs of this market.
Healthcare as an Example
History of GE Healthcare and Its China Operations
GE’s involvement in healthcare started in 1896, when Elihu Thomson built electrical equipment to produce X- rays, which manufactured images for diagnosing bone fractures and locating foreign objects in the body. X-ray technology was discovered and introduced only a year earlier.7 The company established GE Healthcare,8 headquartered in the United Kingdom, to provide medical technologies and services, including medical imaging and information technologies, medical diagnostics, patient monitoring systems, drug discovery, biopharmaceutical manufacturing technologies and performance improvement solutions. With more than 50,000 employees (by the end of 2014), GE Healthcare had sold its products to hospitals, medical facilities, pharmaceutical and biotechnological companies as well as life sciences research institutes worldwide.
In 1991, GE set up a joint venture, GE Hangwei Medical Systems, in Beijing to start manufacturing in the country. GE created two more joint ventures in 1996, and later combined these two with GE Hangwei to form GE Healthcare China. Its primary sectors included medical imaging, which covered ultrasound equipment9 and more technologically advanced equipment, such as X-ray, magnetic resonance imaging (MRI), computed tomography (CT) and positron emission tomography (PET). Its main customers were sophisticated hospitals in major cities.
In 2000, GE Healthcare China established an applied R&D and manufacturing base in Wuxi, Jiangsu Province, to develop and produce affordable ultrasound products. In 2001, by using the latest technologies developed at GE Global Research, it launched its first compact ultrasound product,10 the LOGIQ Book. This product was 30 to 40 per cent less expensive than the traditional console-type devices. Using the country’s low-cost advantage, the Wuxi plant started to manufacture the product and then export a significant portion of its production. In 2003, 80 per cent of the products made in Wuxi were exported.
In 2006, China’s total expenditure on healthcare was 4.6 per cent of its GDP, versus 15.9 per cent in the United States, and its total expenditure on healthcare per capita was $213, versus $7,110 (see Exhibit 2). Most of the hospitals and clinics in China were still poorly funded and equipped. However, there was market potential due to rising incomes, an aging population, increasing health consciousness and augmenting government expenditure. Domestic consumption of GE products made in Wuxi increased from 20 per cent in 2003 to 35 per cent in 2006.
GE Healthcare’s main competitors were Siemens Healthcare, Philips Healthcare and Toshiba Medical Systems. In 2006, these four players had a combined share of over 60 per cent of the high-end medical equipment market in China. Other foreign companies, such as Varian Medical Systems, Hitachi Medical Systems and Carestream Health, were niche players in several product categories.
Challenges from local Chinese competitors were also growing. Among them, Mindray Medical International Ltd. (Mindray) was the market leader for black-and-white scanners (see Exhibit 3). In 2006, Mindray launched its first color ultrasound scanner to target the mid-range market and was listed on the New York Stock Exchange. That same year, it made net revenues and a net income of $194 million and $46 million, respectively, growing at a five-year compound annual growth rate (CAGR) of 50 per cent and 58 per cent, respectively.
Of its net revenue, 49 per cent came from over 140 overseas countries, including growth markets that GE also targeted. Mindray had 30 per cent of its net revenue generated from the medical imaging sector that GE focused on. The company spent $19 million (10 per cent of its net revenue) on R&D (see Exhibit 4). Using an extensive network of third-party distributors in both urban and rural areas, Mindray sold medical devices to approximately 27,000 community hospitals and clinics in China.11 It also established service centers in every province to provide training as well as prompt, low-price repair and maintenance services. In contrast, GE’s third-party distributors were located primarily in large cities and provided limited after-sales services.
Moving Down the Pyramid and Reversing Innovation
In 2008, inaugurating its China headquarters next to the CTC in Zhangjiang Hi-Tech Park, GE focused on healthcare, energy and aviation in the country. The CTC started to develop technologies that helped GE Healthcare China target the mid-range market (see Exhibit 5). Historically, GE sought choices and precision when developing products. Using the ultrasound scanner as an example, GE tended to upgrade product performance by adding imaging modes, increasing picture resolution, specializing probes12 and improving ergonomics. The China project team made a great effort to understand customer needs by regularly visiting community hospitals and clinics, talking with administrators and doctors as well as observing their workflow. From these visits, the team realized that many of the features were not relevant to these healthcare institutes, which were often overloaded with patients and had limited space or were in remote locations. Instead, these customers preferred products that were affordable, compact, portable, easy to use and durable.
By the end of 2013, the team developed more than a dozen healthcare products which were well received not only in China, but also in emerging markets and even in developed countries. For example, with the ICFC funding, the China team developed the Brivo CT 315/325 scanners, which were more compact, less energy consuming and 30 per cent less expensive than imported products with similar functionalities. In the first six months after launch, 100 units were sold in China. Over two-thirds of its clients had not previously owned a CT scanner. After that, an increasing number of clients from countries in Southeast Asia, Latin America, Africa and Europe bought this product. GE was even getting regulatory approval to sell the product in the United States. Furthermore, with ICFC funding, GE collaborated with Shanghai Pulmonary Hospital to develop a computer-aided detection tool for X-ray imaging that would screen for pneumoconiosis (occupational lung disease). This tool increased the screening efficiency by 70 to 80 per cent, making fast screening possible during times of high patient inflow.
In addition, colleagues in Norway, Germany, the United States, and China (mainly in Wuxi) worked together to develop the Vscan handheld ultrasound scanner, which allowed for diagnosis at the point of care. Moreover, the tele-ultrasound remote healthcare system13 allowed doctors at a remote location to seek medical opinions from experts who were far away. This usage was in line with China’s Ministry of Health’s advocacy for having sophisticated hospitals support primary healthcare institutes. Thus, the Vscan enabled GE Healthcare to penetrate the mid-range market and even address customer needs in the bottom-of-the- pyramid market. Indeed, the Vscan sold well in emerging markets, such as Indonesia, and it was also adopted in the United States (though in different contexts) (see Exhibit 6).
In 2013, over 70 per cent of new products launched by GE Healthcare China were developed for primary healthcare institutes in China and other emerging markets. GE Healthcare China expected that the revenue contribution of primary healthcare institutes would increase to 50 per cent by 2015. Dai Ying, chief technology officer of GE Healthcare China and technology leader of Diagnostics and Biomedical Technologies of GE Global Research Center, added: “GE’s Healthymagination initiative really pushes us to deliver the customer value proposition of decreasing costs, improving quality and increasing access” (see Exhibit 7).
THE CTC: IN CHINA FOR THE WORLD
Achievements
By 2013, the CTC had accomplished more than 100 R&D projects each year, some of which were cross- business initiatives. GE Global Research’s headquarters and Europe Center led approximately half of the international projects, while the CTC led the rest.14 When other centers were leading the projects, the CTC performed only certain specific tasks. The choice of the leading center depended on factors such as expertise and export constraints. Chen explained, “We aim at leveraging each other and minimizing duplication.”
By the end of 2013, GE had spent over $250 million on ICFC projects, leading to over 40 new technologies and products, such as the non-thermal brine concentrator for water recovery. Two-thirds of the production coming from these projects was for local use, while the remainder was for exporting primarily to emerging markets and secondarily to developed markets.
By using this global-local project approach, the CTC continued to receive funding for ICFC projects. Technology centers in India, Brazil and even Germany followed the same approach. Since its establishment, inventors at the CTC have been named on over 1,000 patent applications. For three consecutive years (2012 to 2014), the CTC had an executive, including Chen, named as one of the “Top 50 Innovators in China” by CBN Weekly business magazine. In 2013, the CTC also received, from Scientific American (the Chinese version) magazine, the prestigious “Top 10 Leading R&D Centers” award for its research spending, commercialization and talent training and management.15 Chen noted:
In the past, [the] CTC focused on technology localization, adaptation, re-design and then local market-driven innovation. I hope [the] CTC will become a center of excellence in key areas of business to move the global network’s center of gravity to China.
New Role
While the CTC was evolving, GE made several breakthroughs in its R&D strategy, both in China and worldwide. In 2011, GE planned to invest $500 million, as part of its annual R&D expenditure to establish five innovation centers across China. These five innovation centers, together with the Healthcare R&D sites in Wuxi and Beijing, worked closely with the CTC to constitute an R&D staff of 3,000 people (mostly Chinese nationals) and to build a network of over 150 laboratories. These centers aimed at co-creating new technologies and products with local customers as well as sourcing and supporting local suppliers. Rather than using third-party distributors, GE also deployed staff to each center for marketing and sales, as well as customer services (e.g., training, installation, repair and maintenance) to directly build customer relations and loyalty. The first two centers were opened in Chengdu and Xi’an in 2012 (see Exhibit 8).
Located in the inner region of China, the Chengdu Center was dedicated to developing products for primary healthcare, especially for residents in rural areas. By closely observing rural customers, project teams were able to develop insights into their specific needs. For example, team members observed that it was very time- consuming and inconvenient for the nurses to disconnect and reconnect a patient’s monitor wires every time they moved a patient from his or her bed to the surgery room. Thus, they recommended the development of wireless monitors. There was also a usability laboratory where the team could test the prototypes by watching how doctors and nurses used these devices. Every quarter, the senior management of GE Healthcare China visited the Chengdu Center to listen to the project team’s innovation ideas and review their progress.
Recently, GE Global Research established GE Software to focus on software development and analytics, which could be applied to different businesses, such as the management of medical equipment and cross- institute patient records. Headquartered in California, GE Software hired approximately 1,000 developers and analysts in 2012. GE Global Research was also establishing its first sector-focused center in Oklahoma (with a focus on the oil and gas industry) and launching two other small centers in Michigan and Israel (see Exhibit 9). The center in Israel — a nation renowned for its high-tech start-ups — was aimed at facilitating the introduction of advanced technologies to GE through partnerships with local technology companies and academia. In addition, to speed up innovation, GE Ventures16 was formed to invest in start-ups in healthcare, energy, advanced manufacturing, software and analytics. Therefore, with the additional resources, but also pressure from other centers, the CTC needed to redefine its role.
Opportunities
Potential to Become the World’s Innovator
Over the past 10 years, China’s environment for innovation had improved significantly. China outperformed other mid-income countries and moved closer to high-income countries in terms of innovation capabilities and results. For example, from 1999 — when Chen investigated the feasibility of setting up the CTC — to 2012, China’s gross domestic expenditure on R&D increased almost 15 times, from ¥68 billion (0.76 per cent of its GDP) to ¥1,030 billion (1.98 per cent of its GDP) (see Exhibit 10).17 For the same time period, the country’s number of researchers increased 2.6 times, from 531,100 to 1,404,017.18 The quality of education, and levels of experience, for these researchers had increased as well.
Furthermore, according to the Global Innovation Index (GII) 2014, China as an upper-middle income economy moved up by six places from 2013 to reach number 29, making it comparable to the high-income countries that dominated the top 25 rankings. If China continued to improve at such a pace, it would move to the top 25 within only a few years. In contrast, India slipped to number 76, and Brazil was number 61, in the GII rankings.19 Thus, the CTC could benefit from its location advantage when redefining its new role.
Untapped Industrial Internet
In 2013, GE started to realize its Industrial Internet vision. This involved gathering data from all machines, including medical devices and industrial equipment, for control, analysis, prediction and also allowing machines to communicate with each other. Not only would this reduce labor costs for operating the machines, but it would also facilitate predictions about repair and maintenance for these machines, hence reducing, or even eliminating, unplanned downtime.
The Industrial Internet connected people, machines and analytics on a large scale. According to the McKinsey Global Institute,20 China was going through a digital revolution. Using healthcare as an example, when China’s Internet was moving from consumer-oriented to enterprise-driven, by 2025, there would be a potential annual savings in healthcare expenditures of ¥610 billion, or $99 billion,21 which was 13 per cent of the growth in healthcare costs projected from 2013 to 2025. The savings would come from initiatives such as electronic personal healthcare record systems, regional healthcare networks that connected hospitals for coordinating referrals and follow-ups, tele-ultrasound remote healthcare systems and web-based patient tracking systems. Hence, the CTC could play a fundamental role in this revolution.
Challenges
Competitors’ Move
To facilitate innovation and penetrate the mid-range market, other MNCs and local Chinese companies had strengthened their R&D investment both in China and worldwide. Siemens Corporate Technology had over 20 technology centers in different developed markets and emerging markets, including Russia, India and China. It employed nearly 7,000 scientists, software developers and intellectual property experts worldwide. In 2013, Siemens invested EUR€4.3 billion, or $5.9 billion22 — about 5.7 per cent of its revenue — on R&D for its wide range of businesses.23 In China, Siemens set up a technology-to-business innovation center in Shanghai in 2005 to join its R&D unit in Beijing, established in 1998, to develop local solutions. The company would soon open another R&D site in Nanjing, Jiangsu Province.24
Philips Research had eight centers in developed markets and emerging markets, including India and China. It employed about 2,000 R&D people worldwide to focus on consumer-centric research in all of its three business sectors: healthcare, lighting and consumer lifestyle. In 2013, it invested €1.2 million, or $1.7 million,25 about 5.2 per cent of its revenue, in R&D.26 Its Shanghai center, had recently set up branch laboratories in other cities, such as Suzhou in Jiangsu Province, to increase fundamental research in areas such as medical imaging solutions. To expand its product portfolio to the lower end, Philips bought Goldway, a Shenzhen-based company that manufactured patient and fetal monitors.27
In the healthcare sector, Toshiba Medical Systems set up an R&D base in the Dalian High-Tech Industrial Zone in 2012.28 With nearly 200 R&D staff, it aimed to develop imaging products for global sales.29 Mindray quickly broadened and upgraded its technologies by recruiting overseas experts and going through numerous mergers and acquisitions in China and overseas. In 2013, Mindray acquired ZONARE Medical Systems, Inc., a U.S.-based technology leader in the high-end ultrasound segment, for its R&D capabilities and distribution channels.30 Mindray also strengthened its R&D infrastructure in China, the United States and Europe (see Exhibit 11). The company replaced Aloka to become the fourth-best player in China’s ultrasound market, which was estimated to have generated $1 billion in sales in 2013.31 It also led the in vitro diagnostic products category in China, in which GE was not highly involved.32 There were an increasing number of local start- ups that focused on developing niche technologies, such as PET scanners, to compete with GE.
Talent
In previous years, the CTC had continued to improve the quality of fresh graduates by collaborating with academic institutes in China to add practical elements to their curricula and also to allow students to sample what a career in R&D would be like. For example, the CTC hosted the annual GE Tech Awards to provide master’s and doctorate students with an innovation platform upon which to practice what they learned in the classroom. In a master’s program in engineering at Shanghai Jiaotong University, the CTC allocated over 10 R&D staff members to act as coaches to guide students that were conducting research projects. The CTC also offered internships to university students. Yet, the CTC still faced talent challenges. First, with the rising numbers of local private companies and the changing expectations of younger generations, MNCs were now relatively less attractive to talent than before. Second, R&D activities were increasing in the country. According to Scientific American, nearly 470 of the global 500 MNCs operated R&D centers in China. Thus, talent retention became a priority.
Talent needs were also evolving. For instance, GE’s Industrial Internet vision demanded new capabilities, (i.e., analytical and leadership skills) in addition to technical skills. To partly meet the cross-discipline requirement, in 2013, GE Global Research launched a Software Leadership Program, a new multi-year internal development program for R&D staff. The CTC needed to develop complementary initiatives to equip its team with the newly demanded capabilities. More importantly, according to Chen:
For over a century, all of GE’s major businesses have originated from the [United States] or Europe. Emerging markets will likely breed new businesses of the future, and [the] CTC and the GE Innovation network will drive to achieve this inspiring vision. Thus we require technical talent with a nose for new business models, and who are able to interact with customers to identify emerging businesses that are beyond GE’s core but have huge growth potential.
WHAT TO INNOVATE? HOW TO INNOVATE WELL?
Over the years, the CTC took on an increasingly significant role. According to Chen, the past 15 years were a critical period for GE to explore the Chinese market. Chen reflected:
GE has a culture that allows you to change your own job . . . and find your way to prove your point. Now, making [the] CTC a critical member of the GE Global Research network is not a dream anymore. It has become concrete . . . . Each center should have its own distinct focus, while cross- center collaboration should continue. In the next 15 years, while China’s low-cost advantage has been diminishing, our goal is to develop [a] distinctive competitive advantage in our global R&D network.
What value could the CTC bring to the Global Research network in the short run and in the long run? What should be Chen’s top priorities in the next five years?
Mindray, founded in 1991 and headquartered in Shenzhen (Nanshan) High-Tech Park,33 started with its business of importing patient monitoring systems into China. The average price of a patient monitor was around $2,000. In the mid-1990s, the company started its own R&D and production. Mindray not only offered products at a low price, but also fulfilled the special needs of community hospitals (Levels 1 & 2) and clinics in small cities, towns and villages. For example, knowing that the electricity supply was unstable in the rural areas, Mindray engineered dual (battery and alternating current) equipment so that it could continue to function with an illuminated control panel, even when electricity was cut off.
In 2001, it introduced China’s first digital black-and-white ultrasound scanner, while GE was mainly selling the more expensive and advanced color scanner to Level 3 hospitals. Due to the adoption of the latest digital technology, the image accuracy of Mindray’s black-and-white scanner was better than that of existing black-and-white scanners produced by other local companies. More importantly, these scanners were affordable for most of the hospitals and clinics in China and in emerging markets.
In 2004, after receiving the approval of the Food and Drug Administration in the United States, Mindray started exporting products to the United States, which was the largest (40 per cent of the total) medical equipment market in the world in terms of value. By 2006, Mindray had become the market leader, by units and value, in the patient monitor segment, the diagnostic laboratory instrument segment, and the black- and-white ultrasound product category in China. In 2006, Mindray had approximately 2,000 employees, plus 700 R&D staff.
In May 2009, GE announced the launch of its Healthymagination Initiative in anticipation of the enactment of two federal statutes — the Patient Protection and Affordable Care Act and the Healthcare and Education Reconciliation Act — in the United States in the following year. By 2015, it spent:
$3 billion on R&D to focus on innovations that decrease costs to offer high-tech products at more affordable price points, allow more people in rural and underserved areas to have access to healthcare services, support consumer-driven healthcare and improve healthcare information technology
$2 billion on financing healthcare information technology
$1 billion on related technology and media content to drive health awareness It aimed at decreasing costs by 15 per cent, reaching 100 million additional patients per year, increasing access by 15 per cent and improving quality by 15 per cent. GE Global Research would be involved in this initiative. Immelt, stated: Our focus on the environment and affordable healthcare will be our pillar strategies for growth into the next decade. Healthcare is an important industry that is challenged by rising costs, inequality of access and persistent quality issues. Healthcare needs new solutions. We must innovate with smarter processes and technologies that help doctors and hospitals deliver better healthcare to more people at a lower cost. Healthymagination is our business strategy that seeks to help people live healthier lives, support customer success and help GE grow. In October 2009, GE announced the formation of the “GE Healthymagination Fund,” a new equity fund that would make investments in highly promising healthcare technology companies. The formation of the fund was part of GE’s $6 billion Healthymagination initiative. The fund would target three broad areas for investment: broad-based diagnostics, healthcare information technology and life sciences. The fund would draw on capabilities from across GE Healthcare, GE Capital and GE Global Research and would have a global footprint. Immelt stated: GE is able to offer a unique proposition to promising healthcare companies. In addition to providing growth capital and investment expertise, through this fund, we offer entrepreneurs the opportunity to work directly with a global leader in healthcare technology in areas of mutual interest.
