GENERAL ELECTRIC IN HUNGARY

In the heady days of late 1989 when Communist regimes were disintegrating across
Eastern Europe, the General Electric Company (GE) launched a major expansion in Hungary with
the $150 million acquisition of a 51 percent interest in Tungsram. A manufacturer of lighting
products, Tungsram was widely regarded as one of Hungary's industrial gems. GE was attracted
to Tungsram by Hungary's low wage rates and by the possibility of using the company to export
lighting products to Western Europe. Like many other Western companies, GE believed that
Hungary's shift from a totalitarian Communist country with a state-owned and planned
economic system to a politically democratic country with a largely free market economic system
would create enormous long-run business opportunities.

At the time, many observers believed that General Electric would show other Western
companies how to turn enterprises once run by Communist party hacks into capitalist
moneymakers. GE promptly transferred some of its best management talent to Tungsram and
waited for the miracle to happen. The miracle was slow in coming. As losses mounted, General
Electric faced the reality of what happens when grand expectations collide with the grim realities of
an embedded culture of waste, inefficiency, and indifference about customers and quality.

The American managers complained that the Hungarians were lackadaisical; the
Hungarians thought the Americans pushy. The company's aggressive management system
depended on communication between workers and managers; the old Communist system had
forbidden this, and changing attitudes at Tungsram proved difficult. The Americans wanted strong
sales and marketing functions that would pamper customers; used to life in a centrally planned
economy, the Hungarians believed that these things took care of themselves. The Hungarians
expected GE to deliver Western-style wages, but GE came to Hungary to take advantage of the
country's low wage structure.

In retrospect, GE managers admit they underestimated how long it would take to turn
Tungsram aroundand how much it would cost. As Charles Pipper, Tungsram's American general
manager, says, "Human engineering was much more difficult than product engineering." GE now
believes it has turned the corner. However, getting to this point has meant laying off half of Tungsram's
20,000 employees, including two out of every three managers. It has also meant an additional $440
million investment in new plant and equipment and in retraining the employees and managers that
remained. By 1997 the investment finally seemed to be paying off. Despite a 50 percent cut in the
workforce, production volume is now double the 1989 level. Although some large Eastern European
customers are no longer on Tungsram's books, many of those were themselves poorly run
state-owned enterprises.
Sources: J. Perlez, "GE Finds Tough Going in Hungary " New York Times, July 25, 1994, pp. Cl, C3;
C. R. Whitney, "East EuropVs I lard Path to New Day," New York Times, September 30, 1994, pp.
Al ,'A4; and T. Agassi, "Hungary for Capitalism," The Jerusalem Post, June 18, 1997, p. 8.
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