GE’s demise should raise the alarm

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GE’s demise should raise the alarm

One of the oldest and most iconic U.S. companies, General Electric, will be formally removed from the 120-year-old Dow Jones Industrial Average next Tuesday.

The company, which was founded by Thomas Edison in 1889, was the most valuable publicly traded company in the United States up until 2005. It received disgraceful redundancy notice, as its stock price halved over a year and now is the lowest on the 30-firm industrial index. GE had been a fixture in the index since 1907, and was the sole surviving name from the founding of the Dow Jones.

GE was often used as a model for business management. Jack Welch, who ran GE from 1981 to 2001, was famous for applying Six Sigma, a method for quality control, as a central pillar of business management. Entrepreneurs around the world, including Koreans, benchmarked GE’s business strategy and enrolled in the GE leadership program in New York.

GE’s drop off the Dow Jones industrial index suggest that the U.S. economy is now driven by banks, healthcare, technology, and consumer enterprises rather than factory-based industries. GE management was complacent, and did not respond to demands for restructuring. Happy with profits from GE Capital, it did not to upgrade its main manufacturing businesses.

But the finance sector was hit hard by the 2008 financial crisis. Pressured to increase stock dividends by activist shareholders, it spent $29 billion over the last three years on a buyback program instead of investment for future growth.

GE’s demise calls to mind Samsung Group Chairman Lee Kun-hee’s comments from 2002. He said he sweated while brooding over his plans for five to 10 years in the future. Korea Inc. is long past its heyday. Its factory operation rate is dropping, and all sectors except for chipmaking are struggling. What will fuel the Korean economy after smartphones and semiconductors? Can the Korean economy maintain its growth for five or 10 more years? GE’s situation should raise the alarm.

JoongAng Ilbo, June 22, Page 30
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