Shareowner Proposal No. 5

The IUE-CWA Pension Fund, 1275 K Street, N.W., Suite 600, Washington, D.C. 20005–4064, has notified us that it intends to submit the following proposal at this year's meeting:

Resolved:  The Stockholders request that the Board of Directors establish an independent committee to:  1) prepare a report evaluating the risk of damage to GE's brand name and reputation in the United States as a result of the outsourcing and offshoring of both manufacturing and service work to other countries and 2) make copies available to shareholders upon request.

Statement of Support:  In the 2002 Annual Report, GE announced targets of $5 billion in revenue from China and the outsourcing of $5 billion in contracts to Chinese vendors by 2005.  China is a country where employees are persecuted for seeking to exercise internationally recognized human rights, such as freedom of association and the right to collective bargaining.

GE is also attempting to outsource 70 percent of business processes (IT work, engineering, design, accountancy, legal services, call center work and bill paying), send 70 percent of outsourced processes offshore and give 70 percent of offshore outsourced processes to India.  [Hindu Business Line, 6/18/03, reproduced on GE Capital India web site] India has been cited for non-enforcement of labor rights, including freedom of association and the right to collective bargaining.  [ICFTU, "Report for the WTO," 2002]

The outsourcing and offshoring of manufacturing and service work may be profitable in the short term, but could have significant long-term consequences. [Reuters, 10/31/03] The shift of production to low-wage countries in general and to China in particular has generated negative press stories in the U.S. [Knight Ridder, 11/10/03; Union Leader, 10/26/03] Two in three Americans think that job losses to China are a "serious issue."  [Greenberg Quinlan Rosner Research, 2003]

Americans are also sensitive to the exodus of jobs to India and other countries [Time Magazine, 8/4/03] Observers predict a backlash against the outsourcing of white-collar jobs.  [USA Today, 8/5/03; Business Week, 2/3/03]

GE is vulnerable to consumer disaffection in the U.S., which is the source of 60 percent of total company revenues.  A backlash against outsourcing and off-shoring could jeopardize political support for globalization, one of GE's five "elements of growth."

Offshoring and outsourcing also affect the morale of employees who remain in U.S. operations.  [CIO Magazine, 9/1/03] Morale problems extend to the countries where GE is sending work.  A recent poll reported that GE Capital call center employees in India were dissatisfied with pressures to perform and insufficient time off [India Business Insight, 9/30/03]

GE's brand name may be its most important asset.  For Harris Interactive, "the value of a company's reputation may be as much as 40% of its total market value."  [http://www.harrisinteractive.com/pop_ up/rq/benefits.asp] Company reputations affect consumer purchases.  And "reputation, once lost, is extremely difficult to reclaim."  [Wall Street Journal, 2/7/01]

GE sends manufacturing and service work abroad.  It uses foreign contractors.  Its foreign operations are becoming vendors to other companies.  We believe the Board should help shareholders evaluate the long-term risk and policy implications of the offshoring and outsourcing strategies."

[COMPANY RESPONSE]

Our board of directors recommends a vote against this proposal.

Alan Lacy, CEO of Sears, Roebuck and Co., this week talked about offshore outsourcing and expressed keen interest in the "non-U.S. opportunity" available for outsourcing some IT functions during a general session on retail trends at the National Retail Federation's annual conference here.

"But I think, beyond that, to me, a very interesting trend right now is the whole non-U.S. opportunity that's available, and...  if you think about personal intelligence and drive being randomly distributed by population — you know, there are four or five times as many smart, driven people in China than there are in the U.S.  And there's another four or five, three or four times as many people in India that are smarter or as smart or have more drive.  And if technology is now going to basically reduce location as a barrier to competition, then essentially you've got something like whatever that was, seven or nine times, more smart, committed people that are now competing in this marketplace against certain activities.

" There is no job that is America's God-given right anymore," Carly Fiorina, chief executive for Hewlett-Packard Co., said Wednesday.  "We have to compete for jobs."

Intel Corp.  chief executive Craig Barrett said the United States "now has to compete for every job going forward.  That has not been on the table before.  It had been assumed we had a lock on white-collar jobs and high-tech jobs.  That is no longer the case."

Jack Welch [General Electric]:  A truly global company will be one that uses the intellect and resources of every corner of the world.  India is a developed country as far as intellectual capital is concerned.  The opening of (offshore) development centers mark a new level of commitment by GE in India."

John Chambers [CISCO Systems]:  We are expanding our presence in India to take advantage of the ample research and development talent available... our Global Development Center is a critical component of our future success.

Michael Dell [Dell Computers]:  India can become a major part of Dell's operations and a major source of the human capital that Dell takes on as a company... and we are looking for further opportunities to take advantage of skilled labor.

Bill Gates [Microsoft]:  Three years ago, during my visit to India, the country was emerging as an IT superpower.  Today the country is handling the most sophisticated projects in the world...  I am impressed with the talent we have in our India Development Center and the quality of software being developed.

Lawrence Ellison [Oracle]:  I love Indian food and only a few minutes away from my house in Redwood Shores is Gaylord where I eat a lot of naan, dal makhani and baingan bartha.  Oracle is committed to India and has invested huge amounts of money in engineering.  Yes, symbols are important for other top CEOs like Gates, John Chambers and Carly Fiorina have come to India, but I am deeply committed to the Indian venture where we have 2,000 employees, which we will scale to 4,000.