In December 1989, General Electric spent $150 million to buy a controlling interest in Tungsram, the Hungarian state-owned lightbulb maker. Even in its best year, Tungsram earned less than a 4% return on equity (based on the price GE paid).
a. What might account for GE's decision to spend so much money to acquire such a dilapidated, inefficient manufacturer?
b. A Hungarian lighting worker earns about $170 a month in Hungary, compared with about $1,700 a month in the United States. Do these figures indicate that Tungsram will be a low-cost producer? Explain.