Central European Transformation into Industrial Giant – Interview with the Head of GE in the Region

posted in: BTA blog, ertsei, zentuccio | 0
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Central Europe is facing an industrial renaissance. It is capable to generate above EU average GDP growth, but will require a deeper integration with a total erasing of internal borders – explains Peter Stracar, general manager of GE Central-Europe. According to him, most multinationals operating in Hungary deserve to be finally treated as actual domestic companies, since they contribute to the domestic budget through their taxes as well as economic growth.  For example in the case of GE, 99.9% of the workforce is Hungarian, and 10% of its service providers belong to the region. In this interview, Peter Stracar discloses that due to its current purchase of the French energy giant Alsthom, GE has an opportunity to expand its Central European workforce by four thousand workers. In addition, it appears from this interview that this global multinational forecasts that wind energy will become cheaper than nuclear energy in the future.

Peter Zentai: By focusing uniquely on individual talent, it is clear that your firm does not take into account the origin or “pedigree” of its co-workers. In your GE Foundation Scholar-Leaders Program, one can find young men from small roma villages around Miskolc, as well as female students living in the more affluent hills of Budapest and who graduated form local high schools. When selecting its future management elite, can your firm truly abstract the ethnic, religious or other background of its candidates and focus purely on their potential?

Peter Stracar: Indeed, we focus purely on individual talent, flexibility and performance. Our culture is based on meritocracy: we take on candidates based only on their past achievements and to build a career, we take only performance metrics into consideration.

PZ: Is it truly possible to forget about the background of future managers by leaving out their religious, ethnic or national from consideration and focusing purely on their upside potential?

PS: The only things that count are the talent, flexibility and track record of candidates. We speak of creating a meritocracy among in our teams. In other words, we recruit candidates purely based on their merits, and let them spend carriers with us only if their performance is outstanding. At the recruiting stage, it would be absurd to take into consideration any other criterion for developing new talent. Beyond natural talent and creativity, candidates must have also leadership qualities allowing them to communicate new plans and visions and motivate coworkers to embrace them.

PZ: Does diversity condition the starting point, namely the hiring process?

PS: The entire GE system is predicated on diversity. Though operating in 175 countries, we maintain uniform values across the global  firm.

PZ: How are you adapting to Central Europe, or even Europe in general? In our many countries, the degree of economic protectionism or nationalism varies, some countries becoming more vocal than others, often putting large multinationals on the pilory. Are you ready for such confrontations?

PS: I am actually quite optimistic about the pan-european conjuncture and particularly in Central Eastern Europe. There is no doubt that certain countries have protectionist tendencies, although none are likely to seriously affect the historical underlying trend: for the last 25 years, Europe has undergone a systematic process of opening up its borders, including the liberated Central European countries. As a result, the countries and businesses of this continent have grown strong interdependenices, based on a complex mesh of technology, financial and value-chain links, which strongly bind their interest together and would make them unable to survive isolation. When you consider individuals, a creative entrepreneur can chose freely, whether to stay or leave a particular country, or market, and based on his relative assessment of opportunities locally or abroad. From the perspective of the labor force, their is ample freedom, if ambitious, to pursue an education system or labor market in the EU. Most young people, as soon as comfortable with 2-3 foreign languages, become de-facto fungible resources across the entire EU, as well as the global workforce. The most important for us is to assist the local authorities in supporting regional eoconomic growth conditions that are conducive to the preservaition of native laborforce.

PZ: Isn’t there an inherent conflict between the global culture represented by your firm, and that representing national interests, who may be tempted to expand their influence and reach through privatizations?

PS. I may be incorrigibly optimistic, but I am also a realist. It is investors that enhance productivity and competitiveness of regions, who impact the rate of modernization and enhance the quality of life of local populations. It is them also who allowed the reintegration of Central Eastern Europe into the community of developed nations.

PZ: In our region, did’t GE get turned off by some of the recent episodes of nationalistiv rethoric or even corruption? Aren’t you concerned of possible  … that would force you to pull out of the region?

PS: GE is as much a multinational corporation, as it is Central European or even Hungarian. It is one of the largest regional industrial employer with 10,500 staff across four major divisions just in Hungary: 99.9% of management and staff are Hungarian citizens and we pay our taxes to the Hungarian treasury, while cooperating with thousands of local suppliers and subcontractors.  But the situation is identical in the Czech Republic or Poland or even China. GE, like any other responsiblle multinational corporation, is well aware of its obligaitons to contribute to the local economies of each host country, whether Hungary or any other country in Central Europe.  In the mean time, GE’s stable and long-term presence, not only in Hungary but also in all Central and Eastern European countries, provides reassurance and incentives for other investors to further support developments in the region. Production in Hungary supports not only regional but also global projects in other countries: for example some of the advanced technology turbines produced in Hungary’s plant at Veresegyhaz were absolutely critical to our success and ability to support our mega energy projects in both Algeria and Egypt. Actually, I was also able to verify recently that 10% of GE’s global value chain is established in this region. Our presence is largest in Hungary, with 12 plants generating about $ 5.4 bn exports. So, my answer remains unequivocally, yes, we are here for the long term.

PZ: Unfortunately, we still witness in the region instances of corruption diverting substantial amounts of resources. This reality is definitely weakening some economies in the region. What is your opinion about this?

PS: We touching on the subject of predictability, trust and transparency with this question. GE is one of the large enterprises operating globally as well as locally, where all workers and managers are subject to very simple and plain ethical codes, whose violation will cause and immediate termination and separation from the enterprise and their career with GE. The good news is that in all countries were we have a strong presence, we also contribute to the eradication of corrupt practices through our extensive leverage through our network of local clients and suppliers. Indeed, all our employees and subcontractors are bound by a strict code of ethic, whose violation to the letter or in spirit, is accompanies by an immediate termination.
PZ: All in all, when summarizing your experience across Central Europe, don’t you perceive strong business practive or cultural differences between the various regions?

PS: It is true, that Europe has been cobbled together from many different nations. But such diversity should be considered as a positive, instead of being considered as an obstacle to progress.  One of the considerations that large investors like us take into consideration, are always the average level of development of a particular city or region, the sophisticaiton of its infrastructure and opportunity for further integration into other complex logistical and economic value-chains. We analyze also the level of education and motivation of the local workforce, as well as average wages and cost of living. All in all, looking back at the last 25 years,  we are convinced that we were verymade a wise choice by picking Budapest as our entry point into the region, right after the fall of the communist regime. Indeed, despite the fact that the region is small, when compared to China or the United States,  it has become a powerhouse in terms of its productivity but also its upside in terms of advanced technology developments. The key to success remains education and professional training. GE has currently 21 factories, 5 technology centers, 5 business development centers and 2 banks in the region, generating $ 7.7 bn global exports in 2014. This is an amazing number especially if we translate it into Hungarian Forints.

We operate on the conviction that the future of Central Eastern Europe is very bright and closely linked to advanced industrial production. Actually, based on the necessary subjective and objective talent,  this region may be the most gifted in all of Europe for such types of activities. The promise of this region is that it has the potential to develop into a much more dynamic “Central European” brand for specialty industries, even if, I repeat,  the difference in GDP growth, level of wages or quality of infrastructure remains non-negligible across its member countries. But, for long-term investors like us, the commitment to a particular region transcends the choice of specific countries within it.

PZ: What kinds of expansion does GE expect in Hungary?

PS:  We are all focused now on the acquisition of the French energy group Alsthom. As soon as we receive the final green light, GE will expand by many thousand its workforce in this region.  GE is the largest development group for infrastructure technologies in the world. The energy-related technology contributions of Alsthom will complement nicely our current portfolio. The restructuring of the energy sector in Europe is one of the top priorities of this continent.

PZ: I presume that GE is quite interested in the strengthening of the European Energy Union.

PS: It is already a top priority for Central and Eastern Europe. Indeed, the future of this region is linked to its ability to support a sustainable, modern industrial production, which is a top priority of each member country in this region.  Similarly, on the demand-side, all industrial participants in the region have a critical dependency on both quality suppliers,  local good and services, and reliable access to diversified energy sources for production. Central Europe’s current efficiency in terms of its energy use is still mediocre, with on average older power plants. As a result, it is logical for this region to try to leapfrog others in terms of its technology.  By the way, the European Union will mandate the integration of national distribution grids, using some of the most advanced technologies for its various interconnection gateways.

PZ: Regardless of whether generation is assumed by traditional means of alternative sources?

PS: The energy sector is undergoing a generational transformation in terms of technology and digitalization. Next to the traditional sources of energy, the creation and transport of renewable source energy is important. Based on our own forecast, we predict that wind energy will turn out not only safer, efficient but also much cheaper within the foreseable future. At the same time, solar and wind energies as alternative sources are not equivalent, due to their dependencies on seasons, time of day or geographic location. Traditional sources of energy will provide the necessary complement to smooth out supply. Among them, we believe that based on our assessment of technology and econological impact, the liquefication of natural gaz is the most promising form of energy for effcient and safe distribution and transport. The creation of a pan-European energy market will definitely accelerate the development and adoption of such alternative energy sources.  Actually, in this context, one must emphasize the importance of creating appropriate investment incentives for the private sector, including some of our clients, supported by appropriate tax and other incentives for providing predictible returns within 20-30-40 years horizons. Similarly, I am convinced that further economic integration within the region will be recognized as critical to achieving both national as well as regional economic objectives. Not only will Central Europe remain open, but it will continure to open further driven by its above average economic growth rate, forecast to be  2.7% in 2016 across the entire region.  That is why, we at GE intend to stay and expand in both Hungary and the entire Central Eastern European region.

 

[Translated from Hungarian by Ertsei from a July 6 Blog by Zentuccio in alapblog.hu]