Why GE's "Made in China" Strategy Works

General Electric (GE) has turned, once again, to a "go local" strategy in its bid to tap China's $13 billion wind turbine market. It's a rather straightforward game plan, but it works for GE -- and perhaps other heavy-equipment manufacturers -- hoping to move into China or another far flung overseas markets.

The deal
GE announced Monday it has formed a joint venture with Harbin Electric Machinery, a subsidiary of Harbin Power Equipment, to make and sell wind turbines to customers in China. The new company will make GE-designed wind turbines for near-shore and offshore use in China. Harbin Electric will own 51 percent and GE 49 percent of the new company. Harbin Electric also will buy 49 percent interest in the existing GE Shenyang wind factory, which makes land-based turbines.

GE already has its own factory in China -- the Shenyang property that Harbin Electric is buying into -- that sells its popular 1.5 megawatt turbines to Chinese customers. This announcement is unique because it signals GE's entrance into China's offshore wind market and its increasing willingness to partner with host countries.

Why it works
First off, China's wind turbine market is a manufacturers' Shangri-la. That is, if they can successfully negotiate the tricky business environment there, something GE CEO Jeffrey Immelt has complained about in the past. China is already the world's largest wind turbine sales territory and is projected to grow an additional 500 percent in the next decade to 150 gigawatts of installed capacity. Overall, China's electricity demands are growing at a rate of 12 percent per year, according to GE.

• No. 1: Transportation. Clearly, GE wants and needs to be part of the action here. But shipping wind turbines to Chinese customers from the U.S., or even a neighboring country is problematic and expensive. Wind turbines contain some 8,000 components and weigh up to 400 short tons. Fuel and port costs have risen enough that shipping turbines overseas makes even less sense than before.
• No. 2: Protectionist government. It's hardly a secret that China is known for its difficult business environment. Taking on a local partner is seen as one way to circumvent those hurdles. For GE, the joint venture allows it to not only access the country's cheap labor force, but also be far more competitive when it goes to sell its product to China.

• GE Aviation and AVIC Systems agreed to launch a 50-50 avionics joint venture for commercial aircraft, which will be headquartered in China;
• GE announced in March it would invest $450 million to produce its new gearless turbine technology at plants in the UK, Norway, Sweden and Germany in an effort to expand Europe's offshore wind market.
• GE Energy and Shenhua Group have agreed to form an industrial coal gasification joint venture to develop new cleaner coal technologies.
• GE Transportation completed two years ago the first China Mainline Locomotive, which assembled in China by its partner Qishuyan Locomotive Co.