General Electric CEO Jeffrey Immelt, in a speech that may signal an end to seven decades of globalization, said his company is making a “bold pivot” in strategy as a response to rising protectionist political pressures.
Immelt told graduates at New York University’s Stern School of Business on Friday that they are “entering a volatile global economy, the most uncertain I have ever seen.” In particular, he said, “globalization is being attacked as never before.”
“In the face of a protectionist global environment, companies must navigate the world on their own,” he said. “We must level the playing field, without government engagement. This requires dramatic transformation.”
As a response, he said, GE “will localize.”
“In the future, sustainable growth will require a local capability inside a global footprint. GE has 420 factories around the world giving us tremendous flexibility,” Immelt said. “We used to have one site to make locomotives; now we have multiple global sites that give us market access. A localization strategy can’t be shut down by protectionist policies.”
While GE (GE) will remain “a strong American manufacturer” and “produce for the U.S. in the U.S.,” he added, “our exports may decline.”
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Immelt didn’t mention either Donald Trump or Hillary Clinton by name in his speech, but he did refer to the “raucous Presidential election…where every candidate is a protectionist. Globalization is being blamed for unemployment and wage inequality; there is a general sense that this must be somebody else’s fault; and improving competitiveness is not an option.”
He dismissed political criticisms aimed at his and other global companies, saying “I don’t listen to people who have no global context, never been in a factory or don’t want to compete.”
The full text of the speech is reprinted below:
The World I See
Thank you, Peter. What a privilege to be here at the Garden with all of you, on a day you’ll always remember. My thanks as well to all the NYU leadership and Stern faculty with us today. Because of you, I’m center stage, live from Madison Square Garden, or at least as close as I’ll ever get.
You’ve probably heard that Dean Henry just joined the GE Board, so that makes him my boss. Which doesn’t concern me in the least, because I know how to handle my superiors. Peter, is there anything you would like before I get started … a glass of water, pillow, anything at all?
You’ve earned a degree from a business school as fine as they come. Thirty-two of you did so after serving in the United States military – and for that you have our thanks. This class is truly global with members from 59 countries. What a great chance to learn from each other about the world.
You are entering a volatile global economy, the most uncertain I have ever seen. This is a world that needs better leaders, with new skill sets. The playbook from the past won’t cut it today. My advice for you as you enter this world is to be flexible, be bold, and don’t fear criticism. Today, I want to discuss how these lessons can be used to navigate the seismic transformation underway in globalization.
I built my career in a time when productivity, innovation and globalization were essential to success, the way to win. Now they are reviled, particularly globalization. There were a few things I thought that I knew: companies that gave people good jobs, made good products, and contributed to their communities would be valued; governments would at least try to nurture growth and address big problems; above all, global integration was a force for good and would continue to grow.
In the past two decades, we have halved the number of people living in extreme poverty. The global economy has tripled in size. Income inequality at the global level has been substantially reduced. Innovation delivered better and more accessible health care, cheaper energy and connected people across the world like never before.
America was at the center of globalization – quite consciously. American companies that invested in global operations were a source of pride, of jobs, of overseas influence.
We became woven into the global economy. I joined GE in 1982 and 80% of our revenue was in the U.S.; this year, 70% of our revenue will be global. GE has customers in more than 180 countries and exports over $20 billion worth of goods to the world each year. Our U.S. workers earn high wages because they make leadership products that can be sold around the world. Being global has helped us become more efficient, more competitive.
These bonds have fractured. Today: big companies are distrusted; governments and global institutions are failing to address the world’s challenges; globalization is being attacked as never before. This is not just true for the U.S., but everywhere. These sentiments have traction in Europe and Latin America, on both the right and the left. The future of the EU, is an open question. Protectionist barriers are rising in Asia and Africa. China is repositioning its economy to be more sustainable and inclusive.
Many people feel left behind. The global economy is growing too slowly. Some workers have been displaced by outsourcing, the middle class has been squeezed and income inequality has risen to unacceptable levels. As technology and globalization race forward, people understandably fear their impact on jobs and incomes, and distrust the motives of companies and government.
Where does the fault lie? In part, with business. Business is complicated. It is always important that the power of our innovation is evident, not just constraints. Productivity growth has slowed to a crawl. At a time of massive liquidity and low interest rates, capital investment is declining. Financing is more difficult to get, particularly for small business and infrastructure projects. Investment is required for productivity which, in turn, supports higher wages.
Part of the fault lies with technology. Innovation has driven growth but also leads to greater instability. The internet can connect people, but doesn’t necessarily give them jobs. Technology has raised the competitive requirements for companies and people. This exacerbates economic insecurity.
Part of the fault lies with Government. Government has failed to promote growth in almost every corner of the world. In the U.S., regulation has expanded while infrastructure has lagged. Education has failed to keep up with the need for modern skills. Small business creation, the engine of growth, has trailed previous times.
Our politics make it impossible to reform old systems: our tax code is 30-years old; our immigration system is broken; and a huge structural deficit clouds the future.
Many other places are worse. While I believe in the European Union, it is tough to see Brussels driving growth. It has added bureaucracy without the ability to solve problems.
The growth of China has impacted global dynamics. Their focus on exports has stirred populist fears in the West. China is extremely skilled at connecting economic development with geopolitical influence.
While U.S. companies can win globally, the U.S. doesn’t engage effectively enough on the world economic scene. With just 5% of the world’s population and 25% of the GDP, we have a lot to gain, but are looking inward. Our trade deals are languishing in Congress, and we remain the only developed country in the world without a functioning Export Bank. Industrial exports are not a priority for the U.S.
In the face of this headwind, we are having a raucous Presidential election, one where every candidate is protectionist. Globalization is being blamed for unemployment and wage inequality; there is a general sense that this must be somebody else’s fault; and improving competitiveness is not an option. Even though all of these trends hurt small companies more than big ones, it is difficult to achieve a productive global game plan between business and government.
Flexible thinking is required. Going forward, it is safe to say that trade deals will be very difficult without U.S. leadership. Every country wants more jobs and will seek their own advantage. The anti-free trade sentiment will not be solved by one election or in one country or with one leader. So the globalization I grew up with – based on trade and global integration – is changing.
As a business leader, it is difficult to decide when to defend the old way (what you were taught) or when to change based on what you see.
With globalization, it is time for a bold pivot. GE has $80B of revenue outside the U.S., so global growth is critical to our success. In the face of a protectionist global environment, companies must navigate the world on their own.
We must level the playing field, without government engagement. This requires dramatic transformation. Going forward:
We will localize. In the future, sustainable growth will require a local capability inside a global footprint. GE has 420 factories around the world giving us tremendous flexibility. We used to have one site to make locomotives; now we have multiple global sites that give us market access. A localization strategy can’t be shut down by protectionist politics.
We will always be a strong American manufacturer. But, we also have built factories all around the world. We have learned to manage through extended supply chains and developing small business. For every GE job, there are eight in the supply chain. We are not pursuing low wages; we are using a manufacturing strategy to open markets.
We will produce for the U.S. in the U.S., but our exports may decline. At the same time, we will localize production in big end-use markets like Saudi Arabia. And countries with effective export banks, like Canada, will be more attractive for investment.
Our competitive advantage is digital productivity. In the past, productivity could be achieved only through low-cost labor in large factories. In the future, manufacturing will be driven by new materials, additive techniques and digitized plants. Factories will be smaller and more flexible. Our goal is to make what we want, where we want. Workers will be more productive and more valuable.
Meanwhile, the digitization of assets also facilitates global productivity, through what we call the Industrial Internet. The combination of physical and analytical will improve infrastructure productivity. In Pakistan, we are using analytics to improve energy efficiency and expand capacity. In India, we can use the internet to deliver healthcare to remote regions. In China, engine analytics are improving airline productivity.
Every industrial company must also be a digital leader. This is the next wave of competitiveness.
We can accelerate growth by solving local problems. In the past, every solution was viewed as a “global solution,” where one size fits all. In the future, companies will impact the way the world works by innovating to solve problems with local capability. To that end, we have built unique solutions for clean energy and healthcare access. We have built local teams to deliver outcomes in markets like India and Brazil and Africa. Today, solutions from the developing world improve outcome in developed markets.
Businesses can also have a unique impact on society. Two years ago we opened a business process outsourcing center in Saudi Arabia that will employ 3,000 women and is led by a woman. Our vision was to tap into a pool of talented Saudi women to execute process support for our activities in 50 countries. The center is growing and competing globally. Sometimes businesses can drive change faster than governments. It is tough to hate a company that is reducing climate change and creating jobs.
Financing is the new oxygen of global growth. While global problems require local solutions, they also require capital. The financing needs for infrastructure are $1 trillion a year. One-third of the world still lacks access to electricity; this is unacceptable when we have the technologies to meet demand right now. Regulation has created a huge gap in infrastructure project finance. So we are taking it on, by building local infrastructure finance teams, capable of tapping global capital markets.
These teams are critical as we cannot count on the U.S. Exim Bank. One Senator has blocked the will of 70% of Congress. This reinforces my point that companies must control their own destiny globally, protecting against government dysfunction.
We have positioned GE to capitalize on investment flows from new sources. These include the Chinese governments’ “One Belt One Road” initiative. This is their attempt to build relationships in Central Asia, the Middle East and Africa leveraging their financial strength. We are supplying a Power project in Pakistan using Chinese financing.
Unlike the U.S., most countries are increasing their export financing. So we will export turbines to Asia and the Middle East, made in France supported by French financing.
Executing a new global strategy requires simpler organizations. Complex and centralized bureaucracies are obsolete. Change requires new business models … leaner, faster, more decentralized. The days of cycling global ideas through a central headquarters is over. Globalization requires pushing capability to local teams who are empowered to take risks without second guessing.
We tend to think of globalization as a philosophy, but it is much more about what you do on the ground. Success requires hundreds of little things, and decisions made with a local context. A good global leader has an appreciation for how people do their work in a local culture. They try to make a teams’ work meaningful to their country. This allows us to hire the best talent in every country where we compete.
By taking these bold actions … by pivoting … I am confident we can continue to grow. Our global sales have grown “6-fold” since 2000, and we want that to continue. I know we will be more competitive by selling and producing in more countries. I know we will be more relevant by designing local solutions and building multicultural teams.
One thing I know about globalization is that there will always be plenty of critics. It requires a long-term view to see the “win win.” Hell, to understand globalization, you actually must have a passport. You have no idea how many times I have been criticized in Washington for doing business around the world. Global leaders need thick skin.
Early in my career, I worried way too much about what people thought. Over time I realized that progress counts for more than perfection and that anything worthwhile takes persistence and resilience. Criticism has made me hungrier, tougher, sharper.
My shield consists of competency, hard work and fairness. I don’t listen to people who have no global context, never been in a factory or don’t want to compete. I run a meritocracy with the highest standards. Everyone who joins GE … Americans, Mexicans, Chinese, Nigerians … men and women … Muslims and Christians … straight and gay … know they have a future if they perform. Discrimination has no place in business — in the United States or anywhere else in the world. Similarly, our factory teams know that, while we cannot guarantee markets, we can guarantee effort; we always play to win. I believe these to be American values.
I know that these values resonate globally. By adopting this approach, we have become a better global company.
So be flexible, be bold, don’t fear criticism. We are going through a transformational change in globalization, which will require fresh, new thinking. I hope you join me. I am proud of my profession. Our goal is to build an economic ecosystem that is the most competitive in the world. To create great jobs through private enterprise and ingenuity. To give back competency and innovation directed at solving the world’s toughest problems.
There is nothing elitist, or establishment, about this task. Giving speeches about jobs doesn’t create jobs. Only by being in the arena can you create work for others. Whether you are going to a start-up, or a company on Wall Street, your work matters in a vibrant economy.
The discord we see in the U.S. today is primarily due to slow growth and the wealth discrepancy it creates. This problem will not be solved by any bureaucracy. It requires new leaders who see the world as it is and are willing to drive change.
Two weeks ago I gave the commencement speech at Clemson. I tell seniors in college not to be too bummed out. They can still party a bit and their jobs won’t be too intense. For MBA students … like you … there is no comfort. It is time to go to work and pay off your loans! We need you now, and there are some amazing days ahead.
