Outsourcing to Cut Costs is “Yesterday’s Game”: GE’s Immelt

The head of the manufacturing giant has warned that America will no longer be a global leader in trade, though he welcomed the president's planned tax and regulation cuts.

GettyImages-501668351-compressorThe head of one of America’s largest and oldest companies has urged his peers to invest in high-level skills and technology, arguing that simply cutting costs via outsourcing or M&A has done little to boost national productivity.

“Outsourcing purely to achieve lower wages is too easy,” GE CEO Jeff Immelt wrote in his annual letter to shareholders. “The massive industry consolidations that we see today haven’t helped, because they have choked off innovation and reduced investments in a competitive workforce.”

Since the global financial crisis hit in 2008, many American CEOs have been reluctant to risk deploying large amounts of capital organically, though Donald Trump’s pledges to stimulate growth via tax cuts could embolden them to start investing again.

“The massive industry consolidations we see today have choked off innovation and reduced investments in a competitive workforce.

U.S. multinationals still can source labor in places such as China at much lower costs than at home, though wages in developing countries have been gradually rising. Data released this week by Euromonitor, for example, indicated that at $3.60 per hour, Chinese factory workers are now getting paid 60% more than they were five years ago.

Trump also has pledged to create more American jobs through a protectionist policy agenda that involves increasing tariffs on goods made overseas. That approach hasn’t been wholly endorsed by Immelt, who said GE still supports free trade. Nevertheless, he acknowledged that policy is becoming more insular. “For an American company, our country is diverging from the rest of the world. We will be less of a leader in trade,” he said.

GE has a presence in 180 countries and Immelt said it still can leverage its scale to grow globally, no matter what government policy it faces. “We see many giving up on globalization; that means more for us,” he said.

Immelt is walking a fine line between between championing GE’s status as a proud multinational company, while appealing to Trump’s desire to back American-made products. In 2000, the company generated about 70% of its revenue in the U.S., but that proportion has slipped to under 40% today.

GE is among a number of large exporters, including Boeing and Pfizer, that are backing House Republicans’ calls for a 20% tax on imports and a lower tax burden on exports.

Immelt said digital investment is the key to solving America’s productivity challenge, while trumpeting GE’s investments in the so-called Industrial Internet and additive manufacturing. “GE is a leader in globalization and a leader in digitization. We plan to capitalize on change to build our competitive advantage,” he said.


MORE LIKE THIS

  • Get the CEO Briefing

    Sign up today to get weekly access to the latest issues affecting CEOs in every industry
  • upcoming events

    Roundtable

    Strategic Planning Workshop

    1:00 - 5:00 pm

    Over 70% of Executives Surveyed Agree: Many Strategic Planning Efforts Lack Systematic Approach Tips for Enhancing Your Strategic Planning Process

    Executives expressed frustration with their current strategic planning process. Issues include:

    1. Lack of systematic approach (70%)
    2. Laundry lists without prioritization (68%)
    3. Decisions based on personalities rather than facts and information (65%)

     

    Steve Rutan and Denise Harrison have put together an afternoon workshop that will provide the tools you need to address these concerns.  They have worked with hundreds of executives to develop a systematic approach that will enable your team to make better decisions during strategic planning.  Steve and Denise will walk you through exercises for prioritizing your lists and steps that will reset and reinvigorate your process.  This will be a hands-on workshop that will enable you to think about your business as you use the tools that are being presented.  If you are ready for a Strategic Planning tune-up, select this workshop in your registration form.  The additional fee of $695 will be added to your total.

    To sign up, select this option in your registration form. Additional fee of $695 will be added to your total.

    New York, NY: ​​​Chief Executive's Corporate Citizenship Awards 2017

    Women in Leadership Seminar and Peer Discussion

    2:00 - 5:00 pm

    Female leaders face the same issues all leaders do, but they often face additional challenges too. In this peer session, we will facilitate a discussion of best practices and how to overcome common barriers to help women leaders be more effective within and outside their organizations. 

    Limited space available.

    To sign up, select this option in your registration form. Additional fee of $495 will be added to your total.

    Golf Outing

    10:30 - 5:00 pm
    General’s Retreat at Hermitage Golf Course
    Sponsored by UBS

    General’s Retreat, built in 1986 with architect Gary Roger Baird, has been voted the “Best Golf Course in Nashville” and is a “must play” when visiting the Nashville, Tennessee area. With the beautiful setting along the Cumberland River, golfers of all capabilities will thoroughly enjoy the golf, scenery and hospitality.

    The golf outing fee includes transportation to and from the hotel, greens/cart fees, use of practice facilities, and boxed lunch. The bus will leave the hotel at 10:30 am for a noon shotgun start and return to the hotel after the cocktail reception following the completion of the round.

    To sign up, select this option in your registration form. Additional fee of $295 will be added to your total.