case study for globe environments business course

9B14M141

GENERAL ELECTRIC’S EXPANSION IN THE MIDDLE EAST

Ken Mark wrote this case under the supervision of Professor Assem Safieddine and Shadi Rhayem 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. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Copyright © 2014, Richard Ivey School of Business Foundation Version: 2015-01-12

INTRODUCTION In July 2012, a senior manager in the corporate strategy team of General Electric (GE) was wondering what changes he should recommend for its strategic plans in the MENAT region (the Middle East, North Africa, Turkey and Pakistan). By most measures, GE’s operations in MENAT had been a success. In 2011, the MENAT region contributed $8.6 billion in revenues, compared to $1.7 billion in 2005. Prospects for GE MENAT were bright, with significant interest — on the part of national governments — in improving physical infrastructure and human capital. “We are very bullish about the region,” said Nabil Habayeb, GE’s MENAT regional president and CEO, who was expecting 12 per cent revenue growth for 2012. “The expectations of companies like ours are much bigger now than they ever were after the Arab Spring.”1 But observers noted that, despite the potential for high growth, many companies continued to be cautious in the MENAT region, citing issues such as political instability, the difficulty in dealing with family- owned firms with affiliate relationships, and institutional corruption. Despite these obstacles, GE MENAT had grown rapidly. The senior corporate strategist nonetheless wanted to get a better understanding of how regional management had succeeded in growing the business despite the barriers it had faced. As well, given predictions of sluggish growth for the developed markets, it was clear that GE MENAT would be an increasingly large part of GE’s revenue base. The key challenge was how to continue to sustain GE MENAT’s growth rate while maintaining the high corporate standards for which GE was known. GENERAL ELECTRIC — BACKGROUND Thomas Alva Edison invented the incandescent electric lamp in 1878 in a laboratory in Menlo Park, New Jersey, and then merged his firm, Edison General Electric, with Thomson-Houston Electric in 1892 to 1 M.A. Derhally, “GE Eyes Double Digit Growth in MENA Revenue,” arabianbusiness.com, June 3, 2012, http://m.arabianbusiness.com/ge-eyes-double-digit-growth-in-mena-revenue-460252.html, accessed November 8, 2014.

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Page 2 9B14M141 form the General Electric Company. Beginning with products such as light bulbs, motors and toasters, GE became a global conglomerate with a wide range of products and services including aircraft engines, power-generation equipment, financial services, healthcare solutions and television programming. It was the only firm originally listed in the inaugural Dow Jones Industrial Average in 1896 that was still in the index today. In 2012, with $14 billion in net income from $147 billion in revenues, GE employed 301,000 people and operated in more than 100 countries around the world. The GE of 2012 began to be shaped in 1981 when Jack Welch became CEO and initiated a series of changes to transform the conglomerate. Under its previous CEO, GE had diversified away from electrical equipment and appliances, into growth sectors such as services, transportation and materials. But the firm had become unwieldy and bureaucratic. Welch based his change agenda on a philosophy touted by Peter Drucker, a management thinker, who asked: “If you weren’t already in the business, would you enter it today? And if the answer is no, what are you going to do about it?”2 Welch reorganized the firm around the three circles of services, high technology and core, which represented high-growth, higher-margin sectors. GE businesses had to be number one or number two in their industry or be fixed, sold or shut down. Disposals included central air-conditioning, housewares, coal mining and even consumer electronics. In addition to unlocking $11 billion in capital from divesting more than 200 companies between 1981 and 1990, Welch downsized the organization, removing up to four management layers in some cases. As a result, employment at GE fell from 404,000 in 1980 to 292,000 by 1989. Welch recalled:

Truth was we were the first big healthy and profitable company in the mainstream that took actions to get more competitive.... There was no stage set for us. We looked too good, too strong, too profitable to be restructuring.... However, we were facing our own reality. In 1980, the U.S. economy was in a recession. Inflation was rampant. Oil sold for $30 a barrel, and some predicted it would go to $100 if we could even get it. And the Japanese, benefiting from a weak yen and good technology, were increasing their exports into many of our mainstream businesses from cars to consumer electronics.3

Welch overhauled GE’s talent management strategy, introducing the Vitality Curve, which ranked employees against a set of performance attributes and behaviours. He introduced the concept of the Work- Out session to take “unnecessary work out of the system,”4 increased productivity by looking outside the firm for best practices, and reduced waste via GE’s Six Sigma process improvement program. To position the firm for growth, $21 billion was invested to acquire more than 370 firms in industries such as insurance and financial services. During his tenure, Welch grew GE’s revenues from $27 billion to more than $100 billion by 2001, when he was succeeded by Jeffrey Immelt. Until 2001, GE had focused its efforts on business in the United States, which accounted for 65 per cent of its $126 billion in revenues, and on other developed markets. This ratio of domestic and international revenues was far below the 50–50 split that the firm’s management had envisioned. When it conducted business internationally, it aimed to export goods and services from its current locations. Upon taking office, Immelt had to deal with the effects of a global recession. Just as Welch did before him, Immelt refocused GE from 2001 to 2006, divesting units representing 40 per cent of revenues. In his 2004 letter to shareholders, he hinted at the uncertainty in the global environment, saying, “We have

2 J. Welch, Jack: Straight from the Gut, Warner Business Books, New York, 2001, p. 108. 3 Ibid. 4 Ibid.

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Page 3 9B14M141 prepared to make our own growth in a slow-growth, more volatile world.” Immelt announced $60 billion in acquisitions to build GE’s expertise in finance, water treatment, security systems, bioscience and entertainment. THE SEARCH FOR GROWTH OUTSIDE TRADITIONAL MARKETS As the developed economies started to slow in the mid-2000s, GE redoubled its efforts to look for growth areas in which to invest for the future. One of the biggest opportunities was in developing countries and regions, where governments were investing in infrastructure and capital equipment. In 2004, Immelt cited Qatar as a prime example, where GE was partnering with the Qatari government to build water desalination plants and liquid natural gas projects. By this time, GE was starting to book an increasingly high amount of revenues in developing countries. In 2004, developing countries accounted for $21 billion out of $152 billion in revenues, up 37 per cent year over year. Another impetus for the focus on developing countries was the fact that key competitors Siemens AG and Philips Electronics N.V. were already making progress in these high-growth markets. Immelt aimed to accomplish a growth rate of 8–10 per cent, two to three times higher than the world’s gross domestic product growth rate. Up to 2006, GE’s five-year growth rate, according to First Call/Thomson Financial, was 5.65 per cent per year. In 2006, John Rice, GE’s vice chairman and the president & CEO of GE Infrastructure, hinted at the opportunity in emerging markets, noting that infrastructure investments in the developing world were estimated to be $3 trillion from 2005 to 2014, with $1 trillion of that figure in China alone. Similarly, Saudi Arabia was earmarking $700 billion to be spent on healthcare and water purification projects over 10 years. In fact, in the Middle East, with oil prices on the rise, governments were growing more ambitious with their plans to invest in their countries. The MENAT Region The Middle East was part of what GE referred to as the MENAT region, which constituted the Middle East, North Africa, Pakistan and Turkey. MENAT as a whole had huge potential and represented a $3.6 trillion market in 2011, with the Middle East alone contributing a total of $1.2 trillion. GE’s presence in the Middle East and Africa dated back to the 1930s, with an operational presence at the start of the 21st century in more than 10 countries and recorded revenues of $1 billion in 2002. Even GE’s presence in the Middle East and North Africa spanned a series of countries among which Saudi Arabia, the United Arab Emirates, Qatar, Iraq, Egypt and Algeria represented the major markets. However, GE’s market share in the Middle East/North Africa and specifically the Gulf region was minimal and not up to GE’s expectations and the potential there. In the early 2000s, GE realized that in order to remain competitive and get a share of the seemingly attractive emerging markets, something had to change. A change in the go-to-market approach and management strategy was imminent in order to emerge as a market leader in these resource-rich countries and gain a significant share of the potential revenues. The Middle East region was rich with natural resources, which in turn were generating wealth for the region as oil and gas prices had maintained a relatively upward trend. The generated wealth was being reinvested in various projects with the single aim of developing the Middle East region and satisfying the basic needs of a growing population. From residential developments, business districts and artificial islands to the world’s tallest building and complete cities, GE was helping the Middle East support its exponential growth. Such growth required infrastructure, power, water and other services, all of which were service offerings in GE’s portfolio.

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Page 4 9B14M141 Tempering executives’ interest in focusing on MENAT was the fact that there were many perceived challenges about operating in the region. These challenges were similar to issues found in other developing countries. Western firms faced stringent regulations such as those under the Foreign Corrupt Practices Act, which explicitly disallowed bribes to government officials. In fact, on December 15, 2008, the U.S. Securities and Exchange Commission announced a landmark settlement with Siemens AG, one of GE’s largest competitors, on charges of paying bribes to foreign government officials in emerging markets.5 OPPORTUNITIES AND BARRIERS IN MENAT Some of the barriers included risk aversion, the presence of established competition, and the fact that corporate resources were scarce. Risk Aversion The Middle East/North Africa region continuously ranked high on the Corruption Perceptions Index (CPI), and this was mostly attributed to political instability, institutional corruption and affiliate relationships. “The Corruption Perceptions Index (CPI) ranks countries according to the perception of corruption in the public sector. The CPI is an aggregate indicator that combines different sources of information about corruption, making it possible to compare countries.”6 The MENAT region was known for being prone to bribery and facilitative payments. Add to the equation that most customers in the region were governmental customers, and the outcome would seem to be a “no-go” for a company like GE, which was highly driven by compliance and playing by the rules. Exhibit 1 provides country data for the MENAT region, including GDP levels and CPI. Established Competition While GE was being risk averse in the Middle East/North Africa region, some competitors were already building a presence and establishing market share across key regional markets such as Saudi Arabia and Kuwait, to name a few. Siemens, one of GE’s key competitors, had established a presence in the Middle East more than 150 years ago, and had developed it as a key region for the firm. The expansion of Siemens across the region was consistent and the company had offices across it, namely in the Gulf countries, Pakistan and North Africa. Siemens had historically played a key role in the development of the region, fueled the infrastructure and built close relationships with the governments, local businesses and key market players. Siemens projects in the Middle East spanned the 16 countries where it had a presence. Some of the key projects that Siemens had taken part in included the National Power Control Center Project (NCC) for the Ministry of Electricity and Water in Kuwait, where Siemens’s work covered the design, supply and installation of the communication network and the substation equipment at the NCC back in 1976; and the Dammam–Riyadh signaling and telecommunications project for the Saudi Railways Organization, where the most up-to-date signaling and telecommunications systems from Siemens Mobility were installed. 5 “SEC Charges Siemens AG for Engaging in Worldwide Bribery,” U.S. Securities and Exchange Commission, www.sec.gov/news/press/2008/2008-294.htm, accessed November 8, 2014. 6 “Corruption Perceptions Index 2011,” Transparency International, www.transparency.org/cpi2011/results, accessed November 25, 2014.

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Page 5 9B14M141 Resourcing and Regional Presence GE approached its presence in the Middle East/North Africa region in a cautious manner and avoided having major investments in the region, unlike some of its key competitors. This resulted in having a limited presence of GE resources close to the customer, especially on the executive side, which in turn slowed down the relationship-building process with the regional customer base and governments — a process that was essential for growth and creating opportunities. Furthermore, GE was put at a competitive disadvantage when servicing customers due to the slow decision-making process and turnaround time required in addressing customer issues. The latter was due in part to the fact that the decision-making process was still centralized in the United States, and in part to the lack of manufacturing facilities and spare parts inventory that would enable a short response time to customers. Such an approach was highly driven by GE’s values and operating norms. Having a zero-tolerance policy towards non-compliance with GE values, especially around integrity and fair business practices, GE opted not to exploit any opportunity that might jeopardize its reputation or require turning a blind eye on any of its long-established values. In simple terms, the Middle East/North Africa region was treated largely as a remote site or an export market with little executive presence, minimal investment in infrastructure, and decisions being taken centrally in the United States on projects and opportunities in the region. REVISITING THE OPPORTUNITY TO GROW IN MENAT GE had two successful endeavours in buying cheap assets in Europe and Mexico during recessionary periods. This provided it with good leverage to enter the market through existing channels and established customer bases. However, as the developed economies started to slow down towards the end of 2005, GE started looking for new places to generate revenues and grow its global presence. Immelt was focused on emerging markets for GE’s future growth:

In 2007, for the first time in the history of GE, we’ll have more revenue outside the United States than we’ll have inside the United States. Our business outside the United States will grow between 15 per cent and 20 per cent next year. We’re a $172 billion company. In 2008, with the U.S. economy growing at 1.5 per cent, we’ll grow revenue by 15 per cent because we’re in the right places with the right products at the right time.7

The Global Financial Crisis of 2008 put tremendous pressure on both the national and international sources of revenue for GE, and presented the company’s capital leg with tough challenges and restructuring requirements given the nature of the crisis and the following changes in regulations. The financial crisis shifted the attention of GE more towards the MENAT region as a haven for safer investments and as a region with huge potential for growth. One of the factors that contributed towards this perception was the fact that the MENAT region was the least affected by the financial crisis due to minimal investments in risky securities and a solid outlook for growth over the coming few years. In November 2010, Immelt stated that GE’s focus would be on its global markets, saying: “We are raising the stature on everything global in GE. We expect global sales to be about 60 per cent of GE going forward. Our global growth has expanded by about 15 per cent a year for most of the past decade and we

7 D. Lieberman, “USA TODAY CEO Forum: GE Chief Sees Growth Opportunities in 2008,” USA Today, December 14, 2007, p. B1.

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Page 6 9B14M141 expect it to continue in the future.”8 The vehicle to support GE’s growth initiatives was called the Global Growth Organization. The Global Growth Organization With the Global Growth Organization (GGO), GE was positioned to meet some key targets such as accelerating all efforts to meet customer needs, achieving more localization and decision-making decentralization, and having more local business development, customer support, research and product development. Under the new organization, GE would focus on its competitive advantage, breadth and depth to build leadership in the growth markets and would focus on its company-to-country approach. Below are some highlights of the key strategies of the GGO:  Build leadership in global markets by focusing on key priorities

– Recentralize decision making; grow bigger leaders with authority and accountability – Invest in local markets with local players – Execute market-driven product development – Build key customer capabilities

 Focus on GE competitive advantages

– Leadership & organization – Breadth & scale – Brand & reputation – Risk management

 Ensure growth market success by utilizing a company-to-country approach

– Build key customer capability – Expand funding/capital markets – Establish regional partnerships – Invest in local products – Lead market innovation – Invest in manufacturing & services

Geographically, the new organization, led by John Rice, covered China, India, Southeast Asia, Latin/South America, Russia, Canada, Australia, the Middle East, Africa, Germany, Europe and Japan/Korea. In many of the countries, GE had already established “company-to-country” growth agreements. Salem Alkhaled, the GE Growth Leader for MENAT, in an interview on growth in the region, highlighted the importance of decentralization as a key enabler of driving faster growth. “You can’t close a deal in Iraq by sitting in the U.S.,” he said. “GE needs to be closer to the customer and drive the need for its products and services as opposed to being a receiver of tenders. To succeed in this highly competitive market, GE needs to be in the region for the region,” continued Alkhaled. “The selling cycle with the customer and the servicing cycle need to be shortened significantly, and this is where the GGO

8 “GE Names Vice Chairman John Rice to Lead GE Global Growth & Operations,” BusinessWire, November 8, 2010, www.businesswire.com/news/home/20101108006198/en/GE-Names-Vice-Chairman-John-Rice-Lead#.VF5qRvnF8eq, accessed November 8, 2014.

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Page 7 9B14M141 organization will play a role. GGO will empower local decision making and deliver on the commitments GE is making both to the customers and the region. GE will speak the local language and drive regionalization and localization.” There were several key strategies undertaken by GE to increase its presence in the MENAT region. GROWING BUSINESS IN THE MENAT REGION GE’s strategy to penetrate the Middle East market and secure market share was a multi-pronged approach and was expected to be executed over several years. Being a late entrant, GE needed to find optimal means to gain market share, secure access to the supply chain and distribution channels and establish a customer base. This was also challenging on a country-to-country basis in terms of finding the right talent, complying with local regulations and winning against established competition. The large push to grow business in MENAT began in 2006. From 2006 to 2011, GE participated in infrastructure development, energy, transportation, water and healthcare development. Joint Ventures (JVs) GE entered into JVs with local firms to carry out certain projects. It looked for a combination of six key elements — the right partner, material share, value proposition, effective structuring, the right people and effective and tailored integration. It had two different JV models, depending on the project: Minority interest: This was an arrangement where GE typically held less than 20 per cent of ownership in the JV with limited or no operating management rights. In this case, GE had limited influence over compliance matters related to the company and complying with applicable laws and regulations. This type of engagement was the least preferred by GE. Management interest: This was an arrangement where GE typically held a large stake of ownership in the JV with significant operating management rights, and strong director rights. In this case, GE had almost complete influence over compliance matters related to the company and complying with applicable laws and regulations. GE would have the right to control the compliance committee, appoint a compliance leader and mandate GE compliance programs. GE placed great emphasis on selecting partners with which to enter into JVs because of the impact the partner could have on the success of the JV and the reputational risk the partner could impose on the whole of GE due to any improper conduct. GE conducted a thorough due diligence, screening and background search for each partner to assess areas such as money-laundering activities, terrorist activities, legal cases, sources of funds, business practices and reviewing the business logic of the engagement given the portfolio of the partner. The other key player was the integration leader that GE would appoint to lead the joint venture. The role of the integration leader was to prioritize and police GE’s interactions with the identified target. With a focus on building partnerships, GE embarked on ventures that ranged from power and water technology to entertainment and financial services to transportation and more. GE had more than 15 key JVs in the Middle East region. Exhibit 2 shows GE’s presence in MENAT and Exhibit 3 provides three examples of JVs that GE had negotiated in the MENAT region. A senior GE manager described how GE competed with other firms in the region without resorting to some of their unsavoury tactics:

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Page 8 9B14M141

We, as GE, need to comply with both local and overall GE guidelines. If this comes at the expense of a project here and there, this is a cost that we’re willing to take. At the same time, we have to consider that it’s not just the opportunity cost of losing a project but the opportunity cost for GE as a whole. The impact on shareholders can be huge if we commit a compliance error, and it will have an impact on shareholders. If we are affected from a reputational perspective, our ability to make money will be impacted. Reputational risk is the most damaging risk one can imagine. If you’re short on your numbers at the end of the year because you did not take a bribe, management will take this into account when assessing your performance. But one strike and you’re out. If you’re making a decision to take a bribe, you’ll lose your job. We have a zero- tolerance policy. If a third party is asking for a bribe, there are written policies within GE around what we can or cannot do. For example, if a bribe is requested, one has to report this immediately to the line manager. In some cases, GE senior management gets involved, approaches the other company’s senior management directly to inform them that GE will not be bidding on the deal because a bribe was requested. Some customers take this disclosure very positively because the bribes do not benefit the customer, only the bribe taker.

Company-to-country Engagements (C2C) By understanding the structure of the customer base in the Middle East region and by considering the big role governments played in the distribution of wealth that was mainly generated from oil, GE developed what it called company-to-country (C2C) agreements. “The C2C concept was created by GE with the government being the customer as a response to the economic slowdown in the world economies,” said Alkhaled. C2C agreements were engagements that GE signed directly with the government of a country through the appropriate ministry, depending on the type of deal. These were long-term agreements and addressed multiple country requirements and needs, on top of being beneficial and profitable for GE. Some of the benefits a country could realize from a C2C agreement were:  Building and developing infrastructure  Satisfying social needs, like job creation  Establishing a local manufacturing base and the ability to export In parallel, through such partnerships, GE would be making money in the region by investing in human capital and localization, and acting as a good corporate citizen. Engaging in partnerships was strategic for GE due to the leverage it provided and in view of the growing government spending in the region. GE signed C2C agreements with multiple governments in the region including Saudi Arabia, the United Arab Emirates, Qatar and Iraq. Some examples are shown in Exhibit 4. Localization In 2005, in establishing a regional headquarters in Dubai to serve the MENAT region, GE signaled its intent to localize its business. “Our new headquarters is a significant testimony to our commitment to the region, and aims to bring GE’s various businesses under one roof,” said Nabil Habayeb, president and CEO of GE MENAT. In 2007, a manufacturing facility was opened in Saudi Arabia to produce diagnostic imaging systems for the region. It was the first facility for GE Healthcare in MENAT, and supported the firm’s vision of transforming healthcare delivery in the Middle East.

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Page 9 9B14M141 Other localization projects in Saudi Arabia included GE’s agreement with Al Farraj Trading & Manufacturing Company (FTMC) in Qatar to meet the growing electricity demands in the region. Under the agreement, FTMC would assemble and supply GE electrical equipment to five key Middle Eastern countries: Qatar, the United Arab Emirates, Kuwait, Oman and Jordan. The facility was inaugurated in October 2010 by Dr. Mohammed Bin Saleh Al-Sada, Qatar’s Minister of State for Energy & Industry Affairs, and Sheikh Khalifa Bin Jassim Bin Mohammad Al-Thani, chairman of the Qatar Chamber of Commerce & Industry. The new facility would create up to 150 jobs in the country. A senior GE manager talked about how GE had become a trusted partner in the region:

We take pride in our values. Some key aspects of our values are integrity and giving back to society. We act in that spirit. How have we achieved this reputation? We adhere to our values as a company. And we have to work within our principles or risk losing goodwill which we have built up. We cannot send a message to our customer that we promote good values, and then demonstrate different values whether in how we participate in the community or interact with our partners and suppliers. In an environment where corruption is widespread, our customers — the governments — have become more and more aware of the value of integrity and some of them have actually taken it to the extreme, where they favour working with companies with such values. The repercussions of corruption have a large and long-lasting impact. Similar to the governments of Western Europe and North America, governments here are evolving and as they do, they put more regulations into how their departments deal with and procure services.

GE further localized its electrical distribution technology by developing local warehouse, execution and assembly capabilities. The nurtured relationship with FTMC boosted GE’s knowledge-sharing initiative by making GE’s latest designs for low-voltage switchgear and other distribution equipment available for local access. This in turn helped support the region’s rapid industrial and commercial growth. A senior GE manager added that working closely with suppliers was also a key to success:

We tend to rely on a preferred list of suppliers. This list is developed by always going through a competitive bidding process and performing full due diligence on each of our suppliers. Our mantra, “Know your supplier,” entails making background checks, validating financial statements, looking at credit lines and running them against a watch list to make sure they’re not associated with any fraudulent companies. In addition, one of the things we do for our suppliers is to provide their staff with training sessions such as “Improper Payment Training and Policies.” We have, as part of our engagement, if they’re customer-facing, that they need to take these training sessions and sign off on what they’ve taken. We need to make sure they understand our GE values. If a supplier interfaces with the customer and he takes a bribe, even if the supplier is not a GE employee, this act has the potential to be very detrimental for GE.

Developing Local Talent Ameena Alanzi, GE MENAT’s HR Leader, outlined broad categories that GE had adopted in order to build local talent:  Attract the right talent in growth markets  Retain talent with growth plans, career development and competitive compensation  Develop talent into future leaders

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Page 10 9B14M141 In implementing these three steps, Alanzi mentioned that GE faced many challenges and roadblocks. Due to the poor educational infrastructure in the Gulf countries, finding the right set of skills could sometimes be a challenge and this was magnified when governments imposed requirements and quotas in terms of localization (e.g., Saudization requirements in Saudi Arabia). In order to overcome this challenge, GE had started working with local universities and organizations to get more experienced resources and instill the GE culture in them early on. Some examples of these initiatives, as indicated by Alanzi, were the Human Resource Development Fund in Saudi Arabia and Tanmia in the United Arab Emirates. However, Alanzi mentioned that GE was still not too successful in this area yet and that only small steps had been achieved so far. The main challenges GE faced were competition from the public sector in terms of attracting available talent, due to the public sector’s shorter working hours and higher compensation. Even local private companies had better chances than foreign multinationals for similar reasons (e.g., Aramco). A few examples of HR successes achieved by GE MENAT can be seen in Exhibit 5. When asked why GE had finally decided to focus on MENAT, Alkhaled mentioned a couple of drivers and factors that had led to GE’s current state in the region:  The lessons learned from being in India for India  Following in the footsteps of other companies  Slowdown in the U.S. market  Customer demands for better service and support  Realizing the need to build local capabilities and replicating those in the United States In linking growth with some of the macroeconomic factors affecting the region, Alkhaled saw opportunities in the “Arab Spring,” as the newly elected governments would have to give back to the people and would be expected to do so in terms of infrastructure, healthcare and jobs. On the other hand, the crisis in the European Union would probably leave its negative impact on some countries in the region as they relied for their financing needs on the European Union (e.g., Turkey). This point of view was also shared by Khozema Shipchandler, the chief financial officer of GE MENAT, who felt that the E.U. crisis would have a noticeable impact on countries like Turkey in financial markets. Moreover, northwest Africa might be affected, given the connection with France, while in his view the rest of the countries should be okay from this perspective. Also in connection to the “Arab Spring,” Shipchandler believed that volatility was not something new to the region and that in the long term, the market would be attractive even though there might be volatility in some years. Shipchandler added that GE was an infrastructure company that provided energy, healthcare, transportation and water among other services and that those were offerings the company provided on a commercial basis. GE’s management believed that the company could continue to play a big role in the region and that it should aspire to “better connect people to the grid, help in healthcare and contribute to cleaner energy and we should do it in a way to help create jobs,” as Shipchandler said. With the region being under- developed and with governments’ desire and appetite to invest in infrastructure projects — especially with the financial abundance in the Gulf states — GE faced a unique opportunity to demonstrate its commitment to the region. The “Arab Spring,” Shipchandler mentioned, “was a cry from the people to serve their basic needs and we should play a role.” Shipchandler elaborated that GE had always had an interest in the region, with a presence in Saudi Arabia for more than 80 years. “What is changing now was that we want to do more, better and faster,” Shipchandler continued. The slowing growth of GE in the developed markets directed the company more to the rest of the world and namely the emerging and fast-growing markets like the

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Page 11 9B14M141 Middle East, so now GE was resourcing this strategy and direction by having the required local presence to support it. Between 2006 and 2011, revenues grew five times to $8.6 billion. There was potential to growth revenues further, as a senior GE manager added:

Given that our competitors have come to this region faster than us, we need to make sure we keep our growth momentum strong. We’re in some of the countries in MENAT but not in all of the countries. Outsiders might think some of these countries are risky — e.g., Pakistan, Sudan — but we know we can operate well in these countries and we want to be among the first to be there. We were late entrants to the region but today, our growth prospects look as strong as ever.

DISTILLING LESSONS LEARNED AND CRAFTING A VIABLE STRATEGY FOR THE FUTURE The GE corporate strategy manager could see that tremendous progress had been made to build a presence for GE in the MENAT region. The prospects were bright, especially with the euro crisis in Europe and an American economy that had yet to fully recover from the Global Financial Crisis. He took a look at the challenges that GE MENAT’s management team had faced over the past six years and started writing down the key lessons that had led to its success. While GE MENAT’s team had found a way to grow business whilst still maintaining GE’s high corporate standards, the challenges of overcoming regional issues — especially corruption — were not going to go away. He wondered what pitfalls GE MENAT’s management team should continue to look out for. In addition, he wondered if there were any changes he could recommend to GE MENAT’s management team, to assist it in continuing to grow its business in the region.

Dr. Assem Safieddine acknowledges the financial support of the Rami Fouad Makhzoumi Chair in Corporate Governance at the Olayan School of Business, AUB.

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Page 12 9B14M141

EXHIBIT 1: CORRUPTION PERCEPTIONS INDEX RANKING FOR VARIOUS COUNTRIES

CPI

Rank Country Score

GDP Nominal, $B

(2010)

GDP per Capita,

$000s (2011)

GDP Growth Rate Per

Cent (2011)

1 22 Qatar 7.2 152 110 18.7

2 28 United Arab

Emirates 6.8 301 70 3.3

3 50 Oman 4.8 54 16.2 N/A

4 56 Jordan 4.5 27 5.9 2.5

5 57 Saudi Arabia 4.4 414 22 6.5

6 61 Turkey 4.2 822 11 8.5

7 73 Tunisia 3.8 43 4.1 N/A

8 80 Morocco 3.4 93 3.1 4.6

9 112 Algeria 2.9 205 2.9 2.9

10 112 Egypt 2.9 243 2.9 1.2

11 120 Iran 2.7 439 5.5 2.5

12 129 Syria 2.6 71 3.2 -2

13 134 Pakistan 2.5 203 1.2 2.4

14 164 Yemen 2.1 36 1.1 -2.5

15 168 Libya 2 71 10.6 N/A

16 175 Iraq 1.8 155 3.3 9.6

17 177 Sudan 1.6 71 1.8 -0.2

18 180 Afghanistan 1.5 18 6.9 7.1

24 United States 7.1 14,447 48.1 1.5

10 Canada 8.7 1,577 40.3 2.2

100 Mexico 3 1,032 15.1 3.9

14 Germany 8 3,280 37.9 2.7

25 France 7 2,559 35 1.7

16 United Kingdom 7.8 2,253 35.9 1.1

75 China 3.6 5,739 8.4 9.5

95 India 3.1 1,722 3.7 7.8

143 Russia 2.4 1,479 16.7 4.3 Source: “Corruption Perceptions Index 2011,” Transparency International, http://cpi.transparency.org/cpi2011/results, accessed October 26, 2012; “The World Factbook,” Central Intelligence Agency, https://www.cia.gov/library/publications/the-world- factbook/fields/2003.html?countryName=World&countryCode=xx&regionCode=oc&#x, accessed June 29, 2012 and October 26, 2012.

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EXHIBIT 2: GE’S PRESENCE IN MENAT

Country Presence Bahrain GE first set up operations in Bahrain through Middle East Engineering, Ltd. in 1973 to help

service the large inventory of GE gas turbines in the Middle East. The new three-story office houses employees from the various GE businesses, showcasing our various capabilities from training to customer service, as well as our commitment to growing young local talent through the Graduate Management Program.

Iraq With more than 40 years of heritage in Iraq, GE supports the country’s infrastructure needs in power generation, oil & gas, water processing, aviation and healthcare, with its diversified multi- business solutions and growing local presence. Having established three offices in the country in Baghdad, Erbil and Basra, GE’s investments in the country support the government’s strategic goals of creating new jobs for Iraqi youth and driving socio-economic growth.

Jordan By establishing our GE corporate office in Amman in 2005, we’ve been able to collaborate with and contribute to local businesses more than ever before. From installing Jordan’s first digital radiology workflow system to providing engines for Royal Jordanian’s new Boeing 787 fleet, we are deeply dedicated to continuing Jordan’s growth.

Kuwait Since the early 1970s, GE has partnered with both the Kuwaiti government as well as private- sector companies to implement strategic solutions. From broadening our infrastructure offerings to accommodate Kuwait’s large economy to creating a safe and dependable means for obtaining drinking water in hard-to-reach areas, GE is committed to addressing the various needs of the Kuwaiti government and population.

Lebanon The partnership that began in the 1960s between GE and Lebanon has broadened a great deal over the last forty years. Whether providing well-priced and effective household appliances to families, creating new energy sources or enhancing healthcare and medical technologies, GE continues to bring our best ideas to Lebanon.

Oman GE has been operating in Oman since 1975, and we continue to provide solutions today. GE operates in Oman through its diverse businesses and is committed to further growth through focusing on technical leadership, customer partnerships and global competitiveness.

Qatar With years of success in the Qatar market, GE recently inaugurated a new multi-story office building, located on C-Ring Rd., which is home to the company’s wide range of businesses from energy, water technologies and security to advanced materials, healthcare and the consumer and industrial division responsible for appliances and lighting.

Saudi Arabia From appliances in people’s homes to helping lead the oil discovery expedition in Saudi Arabia with the first refinery, GE has been a major player here since 1942. Our operations have since grown into the largest GE workforce in the Middle East — 670 employees striving in healthcare, transportation, energy, oil & gas, water and aviation. GE continues to increase its regional presence and partner with local enterprises.

United Arab Emirates

GE’s partnership with the United Arab Emirates began more than 70 years ago. Through our business offerings that include power, water, health, aviation and more, GE is able to be a partner in the U.A.E.’s quest to solve its toughest challenges. From clean energy centers to the world’s soon-to-be largest theme park, successful partnership with the United Arab Emirates’ governments and first-rate companies resulted in the impactful presence of GE in the country.

Source: General Electric Middle East Website, www.ge.com/jo/company/me.html, accessed November 8, 2014.

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EXHIBIT 3: THREE OF GE’S JVS IN MENAT 1. GE and Al Shaheen Energy Services GE Oil & Gas and Al Shaheen Energy Services, a wholly owned subsidiary of Qatar Petroleum, announced on December 22, 2009, two partnership agreements — consolidating PII Pipeline Solutions’ presence in Qatar and the Middle East, and establishing a JV for aftermarket services of turbo-machinery equipment in Qatar. Under the first agreement, which is a 50–50 strategic partnership, GE maintained operational control of the business. The company’s name, logo, assets and services remained the same under the new arrangement. As per GE Oil & Gas general manager John Bucci, “Al Shaheen Energy Services, as part of Qatar Petroleum, is an excellent strategic partner for PII to help us continue to grow and meet our long-term objectives. The partnership agreement will benefit our entire global customer base through the leveraging of additional resources and improved access to the Middle East…” Under the second agreement, which is a 50–50 joint venture agreement to perform aftermarket services for the Oil & Gas installed fleet in Qatar, the JV will provide the most advanced technologies for the inspection, maintenance and repair needs of the local oil & gas industry, thus helping Qatar achieve increased oil & gas capacity. 2. GE El Seif Healthcare Arabia The new joint venture, which is complementary to the earlier joint venture that GE and El Seif had, GE El Seif Medical Services, has a 51 per cent – 49 per cent ownership by GE and El Seif Development, respectively. With this JV, GE Healthcare supported the Saudi market by bringing an extensive portfolio of medical equipment and services from innovative diagnostic and imaging equipment, patient monitoring and data systems to network storage systems and software for healthcare professionals across Saudi Arabia. “GE believes in strong regional partnerships such as the one we have with our valued partner El Seif Development Co.,” said Richard Di Benedetto, president and CEO of GE Healthcare International - EAGM Region. “Through this second exciting partnership with El Seif Development, we are moving further closer to our customers to address their specific needs by designing and developing innovative solutions that will be a true local fit.” Further to these joint ventures, GE Healthcare would increase its workforce in the region to about 180 talented professionals. Combined with the country service support centre in Riyadh, this has led to improved customer response times and an experienced local support team. 3. GE–Mubadala JV Signed in June 2009, this is an $8 billion joint venture between GE and Mubadala Development Company at a 50–50 ownership ratio. The commercial finance joint venture was formalized by signing an agreement where GE and Mubadala will each allocate up to $4 billion in equity for the joint venture over a three-year period. The venture will have two strategic pillars — access to investment opportunities generated through GE Capital’s existing global origination platform, and building a Middle East & Africa platform with select focus areas aligned to both partners’ capabilities and regional presence. “The global financial services business proposed under today’s agreement combines Mubadala’s regional investment expertise with GE’s global origination excellence in one of the world’s fastest-growing markets,” GE chairman and CEO Jeff Immelt said. “Having grown its Middle East-based revenues more than 60 per cent in the past two years, GE clearly shares Mubadala’s view of high-growth opportunities in the region.” He continued, “The world has changed dramatically since we announced this partnership last year. The fact that everything we committed to in our announcement is on track and proceeding as planned is a testament to the strength of the Mubadala partnership and soundness of our strategy.” Source: Company files.

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EXHIBIT 4: THREE OF GE’S COMPANY-TO-COUNTRY PROJECTS 1. Technology Center in Saudi Arabia In collaboration with its joint venture partner Ali A. Tamimi, GE completed in 2008 a Power Technology Center, a new state-of-the-art service facility, in Dammam. It is expected to create employment opportunities for the Saudi market, and thus complements the Kingdom’s socio-economic growth initiatives, especially Saudization (representing the hiring of Saudi nationals), as well as increase GE’s responsiveness to local customers in the region and double the number of technologists GE has in the region. The Center, which is designed as a Center of Excellence, reiterates GE’s commitment to delivering innovation, advanced technology and quality services to its customers in the Middle East, in the words of John Krenicki, president and CEO of GE Energy. 2. Ministry of Commerce and Industry in Saudi Arabia To further reinforce & strengthen its 70-year relationship with the Kingdom of Saudi Arabia, early in 2010, GE signed a memorandum of understanding (MOU) with the Ministry of Commerce and Industry. The MOU was aimed at building a sustainable economy by means of an industrialization focus, research and education, and Saudization by creating new jobs for Saudi nationals. The MOU places GE as a trusted partner for the Kingdom’s development goal through its “company-to-country” approach. This approach, which was illustrated by the signing of the MOU, will result in technology and know-how transfer, in addition to job creation in a set of various industries such as energy, healthcare, transportation and water. Manufacturing opportunities for both the local and internal markets will be examined under this MOU by GE, while the Saudi Ministry of Commerce and Industry will drive economic diversification through industrialization. Ferdinando Beccalli-Falco, president and CEO of GE International, said: “As one of the world’s fastest growing economies and the largest economy in the Arab world, Saudi Arabia is focused on diversification and sustainable development initiatives that support the Kingdom’s growing population. The Kingdom’s multipronged development approach emphasizes education, research and industrialization — areas where GE can make a tangible difference.” Later in 2010, the message on Saudi Arabia was reinforced by Akram Hamad, the president for the Gulf region for GE, when he mentioned that GE is focused on increasing its presence in the Saudi market by means of manufacturing, technology development and job creation. “With the increasing role of the government in 2008–09 amid the financial crisis globally, we put more focus on government stimulus and worked more closely with the government,” Hamad said. 3. GE Oil and Gas Service Center in Qatar One of the fastest-growing centres for the oil and gas industry, Qatar is the chosen home for GE Oil & Gas’s Service Center, which is considered a milestone in the business’s history in the country. The Center represents a significant step for GE’s infrastructure localization strategy in the region, and will be a Center of Excellence for GE Oil & Gas in the Middle East. It will support both emerging markets and the fast-growing refinery industry in the region, with application expertise ranging from petrochemical services to liquefied natural gas. Source: Company files.

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EXHIBIT 5: GE MENAT’S TALENT DEVELOPMENT SUCCESSES  Iraq – Trained more than 100 employees of the Iraqi Ministry of Oil at GE’s Oil & Gas University; introduced

Graduate Management Program (GMP) to empower its Iraqi workforce, training more than 300 Iraqis as of 2011. The GMP is a paid, 12-month postgraduate program.

 Saudi Arabia – Added a training centre to the GE Energy Manufacturing Technology Center in Dammam. The centre would offer Saudi college students, engineers and power industry professionals across the region technical education and skills to work with the latest in energy and manufacturing technologies.

 Saudi Arabia – Partnered with the Ministry of Health to train more than 1,000 Saudi healthcare professionals.  United Arab Emirates – Opened the Abu Dhabi Leadership Development Center based on GE’s successful

Crotonville training facility. The Abu Dhabi Center would offer executive training, change management and integration programs.

Here is a list of other leadership programs run by GE MENAT:

Program Description EEDP The Edison Engineering Development Program develops technical problem-solving skills through

advanced courses in engineering and technical projects and presentations to senior leadership that are aligned with business objectives. Diverse experiences may include systems, analysis, design, quality, reliability, integration and testing. The Middle East program had close to five resources on this program in 2011.

HRLP The Human Resources Leadership Program is a challenging rotational program focused on accelerated development of top potential human resource talent, with the purpose of creating a pipeline for HR leadership roles across GE. HRLP is an intensive two-year program consisting of three eight-month rotational assignments in the human resource functions of a GE business. The program combines job assignments with focused training and leadership opportunities to prepare one for a career at GE. The Middle East program had around 10 resources on this program in 2011.

ECLP The Experienced Commercial Leadership Program is an intensive two-year program for commercial-savvy talent consisting of three eight-month rotational assignments in the sales and marketing functions of a GE business. The program combines job assignments with focused training and leadership opportunities to prepare one for a career at GE. The Middle East program had around 15 resources on this program in 2011.

FMP The Financial Management Program develops leadership and analytical skills through classroom training and key assignments. Hands-on experience may include financial planning, accounting, operations analysis, auditing, forecasting, treasury/cash management and commercial finance. The Middle East program had around 30 resources on this program in 2011.

CAS Corporate Audit Staff is an intensive two-plus-year audit and leadership program designed to provide high-potential employees with intensive on-the-job development opportunities, extensive contact with the different businesses within GE, and valuable personal contacts that can accelerate one’s career at GE. The Middle East program had around 20 resources on this program in 2011.

Source: Company files. “Resources” refers to “employees.”

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