NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, May 23, 2014

Driven by growth from the emerging markets and gains from cost cutbacks, profits from GE‘s healthcare segment have risen strongly in the last few years. During 2011-2013, GE Healthcare’s profits grew at a compounded annual growth rate of 4.3%, and the company anticipates this strong growth to continue in 2014. The company provides medical imaging systems, diagnostics, patient monitoring systems, drug discovery tools, medical equipment repair services and related IT solutions in the global healthcare space.

GE has employed multiple strategies to achieve this solid growth in its healthcare business. Primary among these is its expanding footprint in the emerging markets that has allowed the company to benefit from the rising healthcare spending from these regions, particularly in Asia-Pacific and Latin America. A strong focus on research and innovation has also enabled this growth by allowing the company to retain its competitive advantage. At the same time, driven by benefits from cost reduction activities like headcount reduction and exit from low-margin products, GE has improved its healthcare segment margins to 16.7%. The company anticipates its margins to continue to expand in 2014. We figure the simplification initiatives that GE has employed across its industrial businesses have also contributed to expand its healthcare margins. For instance, under this initiative the de-layering of management structure in Europe and reduction of the number of zones in the U.S. has contributed to margin expansion. In our view, in the coming years along side oil & gas and aviation, healthcare segment will likely also play a key role in driving growth at GE. This segment constituted nearly 20% of GE’s $16.2 billion industrial profits last year.