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Why GE just built its big new R&D center in Brazil

GE VP Rice Expects China Business to Grow 15% in Few YearsGE VP Rice Expects China Business to Grow 15% in Few Years
John Rice, vice chairman of General Electric Co.Photograph by Jerome Favre — Bloomberg via Getty Images

General Electric (GE) today opened the doors to its first new global R&D center in more than a decade, with a facility in Rio de Janeiro that eventually could employ 400 people. John Rice, vice chairman of GE and CEO of its global growth and operations division, was in Brazil for the launch, and took some time to speak via phone with Fortune.

What follows is an edited transcript of our conversation:

FORTUNE: Why is GE opening such a large R&D facility in Rio de Janeiro?

RICE: Brazil and Latin America have been great markets for us for a long time. So when you do something like this, it’s really about the quality of the people we can find to work there. You can open a center but if you can’t hire great people, it self-selects to something not very significant. There’s also the fact that here we have some very progressive participants in the world of oil and gas, including Petrobras, who are really pushing the boundries in terms of going to deeper, more complicated places. We have to learn how to support them by developing new capabilities both for them and with them.

What gives you confidence that you can find the right people in Rio?

Because we have been. This is the formal opening of the center, but we started hiring people and they began working with our customers two years ago. Phase 1 is to hire 200 people, and we’re at 160 today. Then we plan to double it up to 400.

Plus, everyone working here is plugged into our global innovation network. There is no one here who doesn’t work with technologists and researchers in the U.S. or Europe or Asia or India, because that’s just the way it is these days… We don’t launch any new products that are developed only in one country. We might have material scientists in one place working with software engineers in another place working with systems engineers in a third place.

Is part of the reason to open this center in Brazil because it can be hard getting visas for engineers to work in your U.S. facilities?

I wouldn’t say that’s directly part of the calculus, but clearly that is a frustration for us. We certainly encourage the U.S. to relax visa restrictions so people can move around. Not just to come live in the U.S., but also to visit for a couple of months. So it wasn’t a driving force, but it is a side benefit.

Will most of the Rio oil and gas R&D efforts be focused on Latin American exploration and production?

Many of them will be technologies that can be used across the broader oil and gas industry, but there are certain sets of geological formations that are pretty specific to here, called pre-salt. There is more work done around pre-salt here than in anywhere else in the world, so there will be some things specific to the local geology. But, again, most things at the center will have broader applications.

When was the last time and place you opened a global innovation center?

The last one was Munich in 2004.

Is the next one already planned?

No specific plans right now. In addition to these locations, however, we’ve opened up smaller innovation centers in China and Canada and one in Japan. It’s kind of a hub-and-spoke model. These smaller facilities that have between 50 and 200 people, and are located close to larger ones. For example, we opened a customer innovation center in Chengdu whereas we have a global research center in Shanghai. Usually the innovation centers develop a very specific product.

A number of large incumbent companies either have cut R&D, or de-emphasized it to please Wall Street’s short-term outlook. Why is GE still making R&D a cornerstone of its business?

Because, in many respects, creating leading technology is at the foundation of what we do. For example, the next generation of jet engines needs to be 15% more efficient with fewer emissions and lighter weight. So that’s something we need to work on developing, but we also put great emphasis on collaborations — whether it be with other companies or customers or schools — because many of the problems we are trying to solve aren’t problems we can solve by ourselves. In the 21st century, a company like GE has to have these global research centers pushing the limits of material science and advanced technologies, but not without the partnerships that can make one plus one equal four.

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