'India should be a $10 billion market in five years'

After the 2008 recession and Eurozone crisis, it became evident to Jeff Immelt, Chairman and CEO of General Electric, that business growth in the next few decades would not come from developed markets but from emerging markets in Asia, Africa and Latin America. With an aim to capture those markets, Immelt, 54, has decided to make India the focus of a turnaround at GE. In an interview with Chaitanya Kalbag and Josey Puliyenthuruthel, Immelt explains the rationale for the change and how the ambitious India-centred model change GE for the next few decade. Edited excerpts:

You are on President Barack Obama's economic recovery advisory board. How does the US economy look from where you sit?
Things are getting better in the United States. Across most businesses I look at, most things are improving.  It's a slow recovery and some of that is based on how steep the crisis was, on consumer deleveraging and the savings rate going up.  GDP growth hasn't been robust, but I see things steadily improving in the U.S.  The thing that doesn't always get effect is that  corporations have a lot of cash - probably more than any time in their history. That gives them lots of financial flexibility to continue to invest and that's typically a good sign.

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But the number of job losses is actually still very high?
The jobless rate is very high - it's 9.6 per cent. Until unemployment goes down, people aren't going to feel better.  In 25 or 30 years, the inflation adjusted income of the middle class hasn't increased. My own belief is that has something to do with manufacturing jobs  have left the United States. I really think there  has to more focus on areas like exports, and the key focus is to create some of these higher-end middle-class jobs.  The U.S. has to repurpose its economy, has to be more technology-focused, more manufacturing-based. The notion that the US can be a service economy is just completely wrong.

You spoke up recently about manufacturing in China, is it a big concern....
Well, China is a very important market to GE as is India and we have made big investments in China. We stand for free and fair open trade.

How free is it in India?
I think India is, by and large, fair and free. You could have more of reform in markets like financial services but GE feels we can do almost anything here. We can grow our health care business; we can grow our energy business. We are welcome amongst our customers, welcome with the government and so I think the progress in India has been fantastic.

Can you elaborate more on what the US needs to do repurpose itself on technology and manufacturing. If you were running the show in Washington, what would be the areas of focus?
Well. If you were a student of last 30 years, you'll certain good things have happened to the US in the area of productivity, the birth of information technology sector.... But there was underspending on  R&D and in 30 years we went from having a trade surplus to having a trillion dollar trade deficit, that's not consistent with a wealthy country. So, I think we need to have more engineers, we have to have more focus on developing patents and intellectual property.

This notion that the US can be a service economy is just completely wrong. We need to have more of a focus on R&D, manufacturing and exports. If you look at R&D spending as a percentage of GDP in the US it has basically shrunk every year for the past  25 years. It's just not sustainable. It's not that every country has to do everything, but there are certain things that create wealth in any country and technology is at the heart of it...

Is there  a sense that China is close to America in terms of manufacturing output?
Manufacturing output in China has I think surpassed the US in the last 12 months so it's the biggest market in the world. I think competition is good, we all need to compete for the future. In some ways, the (economic) crisis should be a good catalyst.

What do you think of President Obama's move to raise visa fees for technology workers coming into the US? You sit on both sides of the table, you part-own Genpact in India and you also outsource a lot of work here.
We are globalists. We believe we should export and import. When I am here, I want to sell jet engines and I want to sell gas turbines and I want to sell other products that we make in the United States.  At  the same time, we have outsourced certain areas to India. We were an early mover in  business process outsourcing. So we see it as a two-way street. . The problem with protectionism is that it is unilateral.  Everybody would like to say I win you lose; that's not how the world works. The problem with any kind of artificial barrier is that it hurts as much as it helps.

In India, your business is a shade under $3 billion, which is a tiny percentage of your top line. What are the major opportunities you see going forward?
We will have energy and health care which are two big needs  in India and two big pillars for GE for the future in India. Then we have a big aviation presence. We hope to sell products to the Indian Railways over time. Then look  for opportunities in financial services. My belief is in India we should continue to grow by  at least 30 per cent a year for the next four to five years . This should be an exciting growth market for GE in the coming years.

What growth are you looking at in China in comparison?
It will be double-digit growth but off a higher base.  I would expect China to be 10 to 15 per cent growth, but India should be 30 per cent growth. . We see the projects, we see the opportunity, we think we have the team on the ground to get it done and we are quite excited.

You've talked about energy being a big opportunity. How do you see the nuclear energy opportunity panning out?
This is quite controversial. We would love to be involved, and I think that the nuclear opportunity in India is quite exciting. I know that Prime Minister (Manmohan) Singh and the Government would welcome our participation. The liability law as currently written doesn't  quite work for GE and for most Western companies, but I know that the intent  exists here not to shut us out.  And I am hoping that we find  some way to bridge the gap between the way the law is written today and companies like GE that would like to come and participate. I don't want to get into any details but as much as I would love to participate in the Indian nuclear market, I would never put the enterprise at risk. There are certain things the CEO of any company just can't do; one of them is to take  uncapped risk, as pertains to anything, particularly nuclear power generation. There is a set of standards that exists in the global nuclear arena and we just need some  convergence towards those standards on liability.  Let me just re-emphasize ... I know Prime Minister Singh and the government want us here.  We just need good lawyers!  .

Did it come up when you met the PM on this trip?
Look, it has come in the past as well, then I think the PM is very pro (in favour of) good relations with the United States and is searching for ways to see that it happens.

Well that is a big dampener. From everything we hear, it is extremely urgent for India to get on the nuclear front to step up generation.
It's important for everybody that this gets resolved. There are people of goodwill on either side,  it's just a very hard issue.

Do you think India is being completely unrealistic from a global point of view on this issue?
I just don't want to pass judgement because I really haven't read the law specifically myself. I really trust Prime Minister Singh and the Government of India; ultimately we all need to work on it. 

Coming to GE, is India the only country which has a separate management?
We have a unique structure in India where we have a CEO of India and all the businesses and functions are reporting to him. We wanted to try and see how this speed in decision making helps us grow faster and we like our results so far. This might be a good model of how we approach other regions around the world.

Many are concerned about India's talent and skill sets as India drives through to become an economic super power? Do you believe that India has the kind of calibre of management and talent a global corporation like GE will look at?
The entrepreneurial middle class of India has almost no peer in terms of how fast it has moved, how competitive the people are.  The one thing we have never missed on is betting on the human resource talent in India.

Is that going to mean that more Indians will get into increasingly senior roles in GE globally, that there will be a GE CEO who is Indian?
I really do think that there will be more people who will make it to senior ranks in the company. I also think that many American Indians are going to see more opportunities back here than in the United States. And you will see more people coming back here who maybe grew up in US with their parents, who moved to the US, 30 years ago. It's just the Asian markets like India and China and the others; these are the big economic factors of this generation. So people are going to see opportunities which they cannot see anywhere else and that's going to happen.

The local management structure you have is kind of odd, isn't it? Products and technologies are developed outside India. Lines of businesses are headed by people outside India. Pricing is mostly dictated from outside India. How do see it working?
My view is that it is all about speed, and in some way for a company like GE, it is about (operating within) markets organized horizontally and products vertically. It will never be simple no matter how you organize the company. It's never going to be simple. But, by and large we are a team, we know each other and we've all worked together for a long time. John Flannery is well known to the guys running the energy business and the health care business, so we are all kind of friends.

I think what impressed me about India is how fast the market moves and how much more responsive we need to be to the market shifts. So, John needs s to work with the energy team and the health care team and others because, to your point, much of the technology is going to come from outside. But what we have done is we have made a country leader, he's got a budget, he can make decisions. He has got my backing with the decisions he makes.

What about forces related to policy-making which may be very unpredictable?
Think about the powerful companies that existed and the ability to work with Reliance or the ability to work with Wipro and any number of different companies. We all are moving quickly, we need to work as quickly as they do. In the end, the measurement for the team here is not organizational philosophy. I always tell people here's my philosophy for the organization: 'Whatever works.' (Laughs.) Sometimes you have got to try new things to see what works. If John and we can grow this market at 30 per cent for five years, you know what: we are going to organize other regions like we organize it here. But, if it grows only 10 per cent, then we may say this didn't work; we should try some other approach.

One of the elements of moving fast and responding to the local market is localization. Does GE have any past experience of localizing really rapidly or is this ground zero?
I think we do and it's going to help us here.  If you take the business of healthcare, about 30 per cent is already localized here and that might be 70 per cent in five years. I can envision making MRI/CTs and other products in India for India. Aviation will be a primary global business, in other words , when you fly local on Air India or Kingfisher, you want the engines on those planes to be dependable…. so, aviation is on one side, health care is on the other and energy is somewhere in between in terms of localization.

So if India keeps growing at 30 per cent and meets your hopes, in five years from now what portion of your business will it be?
In five years from now, India should be $10 billion or more, and five to 10 per cent of GE. When I think about emerging markets, take a look at Africa, Asia, Latin America…. it is $40 billion today and I think it will be $80 billion by 2015; if not, we will be losing market share. The big factor of the last 25 years for GE has been the US consumer, the  big driver of the next 25 years will be the emerging markets and their needs…… the transportation they need, the energy they need.

With that perspective, how critical is what you are trying to do in India, how will this experiment run, how will that shape GE in India?
Totally. The question is how do you localize high tech products. It is simple to think about how do you localize shampoo or toothpaste or consumer products. Companies like Unilever have been on the leading edge of globalization. But how do you highly localize a CT scan? What are the technologies, what part has to be c  common, what part has to be localised?  Then, what I like about India is that there are many business models that I think we can take back to the US. The notion that a plastic surgeon  does 20 procedures over several days (in India) versus four a month, that kind of change needs to be made.

You talked about the financial services and that's one of the frustration for many overseas investors. The investors here say that the financial markets are very wide but too shallow. What do you think?
There has to be a lot more reform and globalization in financial services. Think about 10-15 years ago: the banks in China were more or less the same size as banks in India. Today all of them dwarf the biggest banks in India. So you have this incredible, deep consumer base here. It just has to be localised: businesses like insurance and credit cards have to change.

Do you think you are going to get to a point in India where all of these businesses will come together to have a sort of spin off in terms of listing?
I don't rule that out. Historically, that not been something we have done. But, we have to be mindful of the way the world is changing and at some point if we build a hugely successful, very local Indian business, we will see.

There has been some talk about you taking Larry Summers' job (as President Obama's national economic adviser). Is there anything to it?
No (laughs), I am a GE man. That's what I am and everything I want to do is with GE.

One last question on Jeff Immelt the family man. How is it with regular 18 hour work days?
If I am not at work, I am with my family. I keep it simple - one company, one wife and one child.