What's Driving General Electric's Global Growth?

Nearly every company on the Dow Jones Industrial Average today can claim significant international reach. It might as well be a prerequisite for admission to the index. But to what extent do operations overseas really drive growth for American blue-chip companies?

For GE (NYSE: GE  ) , the longest-standing member of the Dow, foreign markets are critical. They provide balance across the business and plant the seeds for the future. GE's geography is changing rapidly, however, and it tells a story about where this company is headed. To make an assessment of GE's stock, first you need to understand its most promising markets.

Not your grandpa's GE
GE's history of international expansion is vast, but the real momentum didn't start to build until Jack Welch took the helm in 1981. Up to this point, GE had established sales operations in a few foreign countries, but Welch was the first CEO to really make large investments in the rest of the developed world. When Welch passed the torch in 2001, GE's new CEO Jeffrey Immelt continued to push the company into international markets. Today, this industrial giant serves customers in approximately 100 different countries. Compared to the GE of generations past, it's a much more global company than ever before.

But the countries of particular significance to GE might surprise some investors. For example, The Wall Street Journal reported last year that GE's revenues from Australia were predicted to be on par with those from China by the end of 2012. A country of 22 million was packing about the same punch as a country of 1.3 billion! Quite an impressive feat for the land down under, which has experienced a mining and resource boom in recent years.

To get a clear picture of GE's evolving geography, however, let's look at which regions have contributed to GE's revenue growth since 2002:

On the whole, developed markets have proven lackluster, and growth has primarily stemmed from countries outside of the U.S. and Europe. But let's dig a little deeper into the trends:

United States: For GE, the U.S. market has always been important, but its clout has diminished on the whole. In 2002, the U.S. accounted for 65% of revenue compared to 48% by the end of last year. From 2007 to 2011, sales in America decreased every single year, primarily due to the steadily shrinking GE Capital unit. Lately, however, change is afoot. Last year the company posted a slight uptick in the U.S. that amounted to 1% revenue growth. This trend appears to be picking up steam in 2012, and GE's order growth of 20% and 18% in its home market over the last two quarters could be a sign of things to come.

Europe: Looking to Europe, the story has been quite similar: Revenue across the pond ballooned right up until the financial crisis only to crater thereafter. During the past decade, Europe's piece of GE's revenue pie went virtually nowhere, from 18.8% to 18.6% of overall sales. The stagnating European economy threatened to curb GE's growth prospects earlier this year, but seems to have begun turning the corner over the last few months.

The rest of the world: As a percentage of GE's sales, the only two areas that posted growth were the Pacific Basin and the Middle East, Africa, and Other regions. The Pacific Basin posted an average annual growth rate of 8% whereas the Middle East, Africa, and Other region grew at a hefty average rate of 13% over the last decade. Not too shabby.

Strength in non-traditional markets is why GE's leadership has its sights set on the latter two regions. And the low-hanging fruit in these areas is no longer in the heralded "BRIC" nations of Brazil, Russia, India, and China. Immelt discussed this development at a Stanford University conference last year: "These places have unbelievable opportunities for the U.S. China is big, but it is hard. These places are equally big, but they are not quite as hard." Immelt pointed to resource-rich countries like Canada and Australia or up-and-comers like Mongolia and Peru as more promising greenfields.

The complex operating environment in China, for example, poses a challenge for GE, despite the opportunity it presents. On the flipside, there's still plenty of upside in less-traditional markets for GE to start building businesses -- and relationships -- from scratch.

Foolish takeaway
As GE looks beyond the U.S. and Europe, the rest of the world offers pockets of growth in a variety of countries. If demand remains high for resources and infrastructure services -- GE's bread and butter -- the greatest returns might not come from the usual suspects like China. Instead, top-of-mind for GE execs are non-traditional hot spots like North Africa and Australia, two of the seven "growth" regions that posted a double-digit increase in orders last quarter.

Establishing a footprint in these areas could pay dividends for years to come. As income levels rise from resource wealth, this could translate into sales across GE's other businesses. While it could take years to play out, these formerly "niche" markets could become a gift that keeps on giving for GE.

GE's 7E Gas Turbine, Source: GE Investor Relations

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