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ADEX 509 STRATEGIC MANAGEMENT SEMINAR |
GENERAL ELECTRIC VS WESTINGHOUSE CASEPOSITION PAPER |
OZDE KARAKAS |
ADEX 509: STRATEGIC MANAGEMENT SEMINAR
Ozde KARAKAS / Position Paper
This position paper aims to illustrate the competitive environment in large electric tribunes market in 60’s between General Electric and Westinghouse and will be evaluating the competitive positioning of both companies.
Turbine generators produced over 80% of the US power supply. Tribunes were the major cost item of the electrical utilities. Therefore any reduction in the prices of turbines increased market share. ...view middle of the document...
The market was realized at USD 400 million in 1963. Prices peaked in 1957 – 1958 but then fell by 50% in 1963.
Manufacturing requires highly skilled labor, large sophisticated machine tools and large amount of space. Direct cost accounted for 65% - 70% of sales revenue materials represented for roughly half of direct costs while labor approximated a third of them. Competitors’’ plans for capacity additions were well known throughout the industry because of lead times in ordering machine tools and information disseminated by trade associations. Building larger turbines, experience curve and product innovations decreased the direct costs.
Product and Competition
In fact there is not a standardized turbine in the market. Each product is customized according to customer specifications. These specifications accounted for 10% of the order cost on average. The market can be segmented according to capacity, efficiency, basic design, accessories and other characteristics of the turbines. Efficiency of the turbine determined the operating cost of the utility. Major achievements in product efficiency were done during 1950s which were becoming harder to catch up with in 1960s. Improvement in turbines is highly dependent on R&D expenditures which exceeded USD 30 million per year in early 1960s. In addition producing larger scale turbines can decrease the prices (i.e. when the capacity of turbine is doubled, price per kWh can be reduced by 7%). Therefore size of turbines increased from 200MW in 1955 to 500MW in 1962.
The US stream turbines market was dominated by three players, GE, Westing House and Allis-Chalmers. The latter one had to exit the market in 1962 after decades of marginal results. In addition these players there were two foreign players who wanted to penetrate to US market, Brown Boveri of Switzerland and Parsons of England. Although they managed to get 13.3% of domestic orders in 1959, their share decreased to 3.8% in 1961 on the back of bitter price cuts of GE and successful lobbying attempts.
GE was a diversified manufacturer of electrical products. Turbine generators accounted for only 3.8% of its consolidated revenues between 1958 and 1962. It reported excess capacity and depressed market conditions. GE has been the innovator in the industry and pioneered most pf the technological advances. GE implemented a policy to reduce large turbine prices whereas increasing smaller less sophisticated turbines. GE spent over USD 100 million for capacity increases...