General Electric in Hungary
In the heady days of late 1989 when Communist regimes were disintegrating across Eastern Europe, 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 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. Hungarians expected GE to deliver Western-style wages, but GE came to Hungary to take advantage of the country's low wages.
Source:Global Business Today, Second Edition Charles W. L. Hill