General Electric (GE) was formed in 1892 through a merger between Edison General Electric Company and Thomson-Houston Electric Company. GE started acquiring other companies within the area (Cakes, 2001). As a result, management saw this as a business opportunity leading to the formation of a company known as General Electric Contracts Corporation in 1932 (Cakes, 2001). The main purpose was to financially fund the company’s industrial business.
The segment continued to grow introducing new products in the market and changing its name to General Electric Capital (GE Capital). GE Capital provides the following financial services: commercial Lending and leasing, and consumer financing. In the last few years, GE Capital has been experiencing difficulties due to the economic crisis. In order to evaluate the challenges, the use of strategic analysis is valuable. Therefore, this paper analyzes how economic crises has affected GE Capital and solutions to the challenges. Discussion GE Capital started on a high note!
At one point, the company was among the most successful companies in the world getting a triple AAA rating (Grub and Lamb, 2001). However, in 2008, when there were financial crises, GE Capital began to fail. Stock prices were decreasing at an alarming rate and the company was having difficulties to finance its projects. Additionally, the company profits were decreasing at a worrying rate. The most alarming thing may be that despite being five years into the crisis, the company has yet to fully recover from the challenges (Grub and Lamb, 2001).
For this reason, many people are asking themselves what went wrong and why he company is taking too long to recover. In this case, the use of SOOT analysis and Porter’s five forces to evaluate what happened and find solutions. Strategic Analysis SOOT Analysts Strengths GE Capital possesses significant name and global recognition. Since the organization was started, it has grown globally with a success rate for more than one hundred and seventeen years. As a result, the company has gained reputable recognition across the globe. This has made the company have global strength and competitiveness (Cakes, 2001).
This is because it is extremely difficult for a new many to penetrate in the market. Additionally, GE Capital has excellent management and structure. The organization has been able to run smoothly despite the overwhelming number of employees and massive challenges in the market environment (Ferreira, Gamester’s, Hough, Rottener and Sherman, 2012). Moreover, GE Capital has taken significance strides in improving the environment. The company is dedicated to conserving the environment by taking up environmental initiatives to protect the earth (Cakes, 2001).
It is worth noting that the company has a diversified line of products and services. Therefore, they are able to satisfy the different needs of their diversified consumer across the globe (Cakes, 2001). For this reason, Weaknesses GE Capital has a huge amount of debts in the organization. It is extremely difficult for an organization to run efficiently with such a large amount of debt. In addition, the new company policy of simplification has led to reduced total revenue. As a result of simplification, management has eliminated the marketing of many products in the company.
Many people may argue it out as an excellent strategy but to others it is a sign of weakness. Many believe the products they deem to be unproductive are viable, it is only that GE Capital is afraid of taking risks and change (Ferreira, Gamester’s, Hough, Rottener and Sherman, 2012). Therefore, GE Capital has a potential threat due to not being flexible since they are not ready to take any risks and tackle the changes in the market. Opportunities GE Capital has a significant amount of opportunities in the different mergers and acquisitions they have made over the years.
The organizations acquired or merged with over time have brought significant opportunities. For example, the acquisition f Cit is a big move by the organization (Ferreira, Gamester’s, Hough, Rottener and Sherman, 2012). This is because the GE Capital can now widen their market and at the same time cover a larger area than before. Secondly, GE Capital’s research and development team provides the company with excellent opportunities. The research and development team can develop new products that are extremely productive (Cakes, 2001). Moreover, they ensure they are risk free due the massive amount of research they conduct.
Threats GE Capital is facing a number of competitors in the market like any other many. Although GE Capital is considered a global icon, the number of competitors in the different segments is growing rapidly (Ferreira, Gamester’s, Hough, Rottener and Sherman, 2012). This is resulting to a reduction in revenues. Secondly, there is a lot of uncertainness about the future of GE Capital due to the financial crisis in the market. As a financial service industry, GE Capital depends on the economy (Ferreira, Gamester’s, Hough, Rottener and Sherman, 2012). In this case, when the economy is performing well, the company will perform well.
On the notary, if the economy is performing poorly, GE Capital can be negatively impacted. Porter Five Forces Analysis Suppliers Bargaining Power GE Capital does not purchase large volumes of supplies in the organization. This is because it is a service industry. This means that the company does not need to purchase any goods so that they can be able to conduct businesses (Warner, 2010). Additionally, GE Capital suppliers could not survive if they lost GE Capital as a buyer. In all instances, GE Capital does not need their suppliers for purposes of continuity in business.
Moreover, GE Capital is the one bringing business to them and not the other way round (Warner, 2010). Buyers Bargaining Power The number of buyers in GE Capital is numerous. This is mainly due to the various products GE Capital offers its buyers in the market. Secondly, GE Capital mainly deals with individual or medium sized company’s (Warner, 2010). This means that the buyers are relatively powerful. Thirdly, GE Capital buyers do not lose anything when they shift to their competitors. In this case, their buyers have the power to dictate the prices of their services.
Therefore, it is clear that GE Capital buyers have a significant mount of power that should not be taken for granted by the company. Competitive Rivalry GE Capital has a limited number of competitors. One of their greatest competitors is Siemens. Siemens offers almost the same array of products as GE Capital does to their customers. However, it is worth noting that GE Capital is globally recognized. Additionally, GE Capital suppliers do not have any bargaining power. Therefore, they cannot dictate their prices. For this reason, this tends to give GE Capital a competitive advantage as compared to the other organizations.
Threat of Substitution GE Capital has a great deal of diversified products that the threat of substitution in every market is at a higher risk of failing. Most GE Capital products are a bit unique. This is because there are few or no substitute available in the market (Warner, 2010). For this reason, GE Capital is not at threat of any substitution because the buyers and suppliers do not have a large selection of substitutes. Threat of New Entry GE Capital is globally recognized and has diversified products in the market. . As a result, this has led to the company attaining loyalty from their buyers/customers.
Companies trying to enter these markets are at a great risk of failure due to the massive control GE Capital has in the market (Warner, 2010). For this reason, it is extremely difficult to have a new organization entering the same market with GE Capital. Therefore, GE Capital has low threat on any company trying to enter their market share. Results of the Strategic Analysis According to the SOOT analysis, GE Capital Strengths and opportunities outweigh the weaknesses and threats. GE Capital is globally recognized, has excellent customer loyalty and it is diversified.
This platform should and will counter the threat of a financial crisis or losing business to their competitors. Porter’s five forces analysis shows that GE Capital has great potential for growth. This is because the company has a likelihood of increasing their profits in the future (Grub and Lamb, 2001). Moreover, the company has no threats from the external environment. In addition, the management of the organization is strong. Conclusion According the analysis, the problem of financial/economic crisis can be easily solved. First, GE Capital management should concentrate more on the most reductive products.
This is clearly evident with the current state of the organization because it has been able to survive the crisis. Secondly, the management of GE Capital should concentrate on development of the organization rather than playing safe. Although the simplification of things seems to be working for them in surviving the crisis, it is not doing anything to increase their revenues. In this situation, GE Capital should concentrate on strategies that increase their revenues. This is because most of their internal and external factors tend to favor them. References Cakes, G. (2001).