General Electric entered the medical equipment market with the same lofty ambitions as many other multinationals - selling products to a billion people. However the company has achieved unexpected success in exports of complex medical equipment. To get around the import restrictions on computerised tomography (CT) scanners, General Electric (GE) set up a joint venture to handle simple assembly work. Things changed in 1995, the year China abolished import quotas as part of the economic reform programme. Major European and Japanese brands entered the market fairly freely and GE faced the tough decision of keeping the small assembly plant going or terminating operations. The US conglomerate decided to change its mainland factory into a global CT scanner manufacturer that could maximise profits, protect GE quality and service, and target the global market. According to the president of GE Medical Systems China, Chih Chen, 'It proved a right choice'. Mr Chen has the figures to support this. Last year, his company produced 800 CAT scanners - about a quarter of the world's total output - and 70 per cent went to US, European and Japanese customers. Exports of CT scanners, as well as X-ray, ultra-sound, and other equipment have been growing by 50-per-cent annually over the past several years. Penetrating markets At the same time, the company was making such inroads into the Chinese market - securing half the country's scanner market. According to Mr Chen, there are more than 3,000 hospitals in China using their CT scans and the remaining 60,000 state-run hospitals have written GE products into their budgets. Mr Chen believes that the firm's good performance in China is an offshoot of the export strategy. He believes that exports helped give a solid reputation to GE's Chinese-made equipment. Joint venture products in China tended to have a bad reputation because some foreign companies that had produced substandard goods. It was a long battle to convince the sceptics that local products could be as good if not better than imported products. However GE's valuable export contracts with US, Japan, and European clients from China seemed to convince potential mainland customers that the same standards of quality applied on the mainland. Second, international sales allowed GE Medical Systems China to maintain a strong research and development team to produce advanced technology for China. It also helped the company reach an economy of scale quickly, making its prices more attractive to local customers. It also did not hurt GE in scoring points with the government. Mr Chen said the fact his company became Beijing's fifth largest exporter, with exports worth US$200 million abroad, alone made officials happy. 'They feel that our hi-tech scanners help improve the image of products made in China'. The presence of a factory on the mainland was itself a sort of assurance of after-sales services, Mr Chen said and explained with an aphorism: 'Chinese believe that as long as the big temple is there, the monks will not run away.' In comparison, some CT scanners imported from elsewhere fared pretty badly when it came to follow-up service and came to be referred to as 'CT orphans' by mainland customers. Then there is the issue of globalisation. Although many multinationals pay lip service to exports, when pressed rarely want to adopt a serious export strategy. Many want a return from the local market and do not want to see their Chinese factories cutting into market orders from their factories elsewhere in the world. GE, in comparison, says it is a true believer in globalisation. The company's mantra 'high quality and low cost' is applicable throughout the world, according to Mr Chen. '[We believe] if you can't beat the competition internally, how can you win in the real market?' he asked. Keeping down costs GE Medical Systems China beat Korean, Indian, and Japanese companies to overseas export deals and this prompted head office to choose the mainland for GE's global production enter for low end, or economy class, CT scanners. Mr Chen said the process was a 'painful' one. To cut costs, the first thing he tried was to use local suppliers, but he found that it was hard to source local high quality parts. The company had to send workers from its local joint ventures abroad to acquire basic skills and discipline in order to produce parts of satisfactory quality. 'We found that it actually cost more to manufacture in China,' he commented tersely. To solve the problem, GE Medical Systems China turned to its Japanese suppliers for help and paired them up with mainland partners for them so better parts could be made at lower cost. The company put engineers on site at the suppliers to see to it that the parts met GE's stringent standards. 'We developed a whole set of qualified suppliers by ourselves,' Mr Chen said proudly. The company had what it called a 'critical to quality' principle that he said gave them an edge especially when competitors farmed their scanner production out to local factories that followed local standards. There were difficulties, Mr Chen said, but he never lost confidence in his plant because China was after all the world's third largest CAT scan market after the United States and Japan and the largest when it came to economy class scanners. 'By remaining in China, I knew what the Chinese customers needed,' he added. 'A CT scan made with GE technology that is up to its standards but comes with a local price tag will sweep the Chinese market and beat any economy class CT scan markets in the world.' Future market potential China's rapid growth has meant huge opportunities for GE, Mr Chen said, pointing to how he had noticed domestic demand shifting quickly from bicycles and televisions to cars and houses over the past two decades. In his words, people care more about their health when they get rich, and a wealthier society also means an increase in the number of 'civilized diseases' like heart problems, brain diseases, and cancers, all of which mean greater demand for better diagnostic equipment. Mr Chen disagreed with some local officials and experts who have claimed that state-run hospitals have spent too much on 'luxuries' like CT scanners. 'The per capita ownership is still much lower than that of many developing countries, although it may have reached just about average in several major cities,' he said. One of his company's concerns, he pointed out, was the new government policy of providing 'low level' medical care to the 'broad possible masses'. 'I've contacted officials in charge and have told them that misdiagnosing cancers or diseases of the cardiovascular system or the brain will increase the social cost,' he said. Mr Chen hopes that reforms can make China's medical care system more transparent and expose damaging practices like kickbacks. This 'will help a law-abiding company like us,' he said. He expects China's entry into the World Trade Organisation to make the medical equipment business even more competitive but he is confident of GE's advantage of technology and quality as a China-based producer in global business. 'We'd be in real trouble now if we only did simple assembly work,' he mused. Last September, when China was on the verge of becoming a WTO member, GE broke the ground of its Medical Systems Industrial Park in Beijing with an investment of US$26 million. The decision came four days after Jeffery Immelt, who had been in charge of GE's medical systems business, became the chief executive. Mr Chen said Medical Systems Industrial Park could double his company's output and export capacity and consolidate its status as GE's global production centre. GE's former CEO Jack Welch had said, 'We don't have a China strategy for GE, but medical has a China strategy, plastics has a China strategy.' Mr Chen said he was certain that China would surpass Japan in becoming GE's second largest medical equipment market. He did not want to give any further details of his ambitious plan. 'I don't want to arouse any more concern at the trade unions in other GE plants,' he concluded.