Last month, government honchos from Vietnam called on David L. Calhoun, who runs General Electric's brand new infrastructure unit. They huddled in a room at Manhattan's Waldorf-Astoria to go over a fairly formidable shopping list. The delegation left without placing an order, but Calhoun said, "I'm pretty sure we're going to get a near-term hit in airplanes, and a longer-term hit in energy."
Jeffrey R. Immelt, GE's chief executive, is clearly counting on him to get multiple hits, and from multiple countries. For the first time, GE has rolled aircraft engines, rail products, water, energy, oil and gas equipment, and even some finance units, into one all-encompassing collection of businesses, aimed at helping developing countries come of age.
"One of the biggest reasons behind creating the infrastructure unit is to offer one-stop shopping to developing countries," Calhoun said.
PHOTO: NY TIMES
In fact, revving up sales in emerging countries has become the overarching goal behind many of the seemingly unconnected changes that Immelt has made at GE lately.
The legacy of Jack Welch, his celebrated predecessor, was to turn GE into a hugely profitable company that sold products and services primarily to companies in the US and Europe.
Immelt, just four years into his job, is already shaping a company that may become best known for selling products and expertise to a whole new set of customers: the governments in the developing world, and the businesses they run.
He has little choice: GE is running smack into the law of big numbers. In 1981, when Welch, took the helm, GE was earning US$1.7 billion on revenue of US$25 billion. By the time Immelt took over on Sept. 7, 2001, GE was topping US$28 billion in earnings and US$130 billion in revenue. Analysts expect it will exceed US$170 billion in sales this year.
Immelt has often promised that GE's revenues will grow at least at an 8 percent annual clip, and that its profits will grow even faster. Skeptics abound. "That's a pretty Herculean task, and the odds are against his delivering," warned Robert Friedman, an analyst with S&P Equity Research, who has a hold recommendation on GE shares.
Indeed, Immelt knows that GE's traditional customers -- the airplane manufacturers that buy engines and services, the hospitals that buy CAT scanners, the utilities that buy turbines -- cannot provide that growth. But the governments of China and India, or even Vietnam and Abu Dhabi, with their vast needs for continuous power, rail and air transportation, clean water, health care, and, eventually, consumer finance, just might turn to GE, one of the few true conglomerates, to meet all those needs.
GE already gets about half of its revenue from outside the United States. But only about US$25 billion, or 15 percent, comes from emerging countries. Immelt has said he expects that figure to more than double by 2010.
More important, he wants at least 60 percent of GE's incremental revenue growth to come from such countries, and analysts applaud that thought. "The developing world is GE's best option for delivering sustainable double-digit growth over the next five to 10 years," said Deane M. Dray, an analyst at Goldman Sachs who rates GE shares as "outperform."
Ferdinando Beccalli-Falco, chief executive of GE International and its self-described "minister of foreign affairs," insists that GE is in prime shape to exercise that option. "We're hitting the sweet spot between the needs of these countries and our product portfolio," he said.
Management experts say he is onto something. "The things that GE makes, and knows so well, are exactly what's in demand in all the big developing countries," said Joseph L. Bower, a professor specializing in corporate strategy at the Harvard Business School.
That sweet spot could quickly sour, of course. Dealing with often-volatile governments and cultures is rarely as easy as dealing with customers like Boeing, or even Airbus. "One thing we learned from the Roman Empire, the geopolitical risks get more dangerous as you move farther from Rome," said Richard D. Steinberg, the president of Steinberg Global Asset Management, which counts GE shares as its largest holding.
Still, despite the caveat, "GE is taking the right route to growth," Steinberg said. Other investors agree. "Developing countries provide perfect opportunities for GE to leverage its strength and size," said Roger R. Threlfall, a senior managing analyst at the Dreyfus Corp, which holds GE shares.
So just as Welch expanded GE by offering to help corporate customers thrive, Immelt has been offering the leaders of developing nations help in building their economies. "I'm fast becoming GE's chief sales rep," Immelt said.
Indeed, most of the management and marketing changes he has made, although seemingly unrelated at first glance, are aimed at helping GE develop a company-to-country marketing approach.
He has invested in industries he calls "growth engines" -- many of them, like water, security, and health care, with particular appeal to developing countries. He has inaugurated an internal "imagination breakthrough" program, asking GE's executives to come up with new ideas for growth, including better ways of doing business in the developing world.
One plan that GE expects will soon yield US$100 million in sales involves shipping unassembled locomotives to Russia, India, and China, and hiring locals to assemble them. "Countries like Russia don't just want products, they want companies to invest in jobs and plants," Beccalli-Falco said.
Immelt split cumbersome GE Capital into four businesses, a move he described as making the financial services arm more transparent to investors, but that he now says makes it easier to meld "financial strategies and industrial assets."
For example, the units that lease airplanes or finance energy systems now report to Calhoun, as do the units that make aircraft engines and oil and gas systems. That makes it easier to start the ball rolling on financing as a developing country is warming up to the idea of buying planes or turbines. Immelt also introduced, amid much hoopla, an "eco-imagination" program, in which he promised that GE would create more environment-friendly products as well as curb pollution emanating from its own operations. He already predicts that GE "is going to get a bunch" of the US$80 billion that it expects China to spend on fuel-efficient, low-pollutant products.
"We wanted a marketing campaign that could span lots of our divisions, and hooking it to the environment seemed logical," Immelt said.
Then, last month, he tied the seemingly disparate initiatives together. He said that, as of July 5, GE's 11 businesses would be consolidated into six: GE Industrial; GE Commercial Financial Services; NBC Universal; GE Healthcare; GE Consumer Finance; and, perhaps most important, GE Infrastructure, the one with the headiest growth prospects.
The consolidation may yield savings of US$200 million to US$300 million in administrative costs, adding as much as US$0.02 cents a share to GE's earnings next year.
"Jeff has transformed the portfolio so that the company is again focused on the industrial end," said Daniel J. Rosenblatt, an analyst with Babson Capital Management, which holds GE shares in several growth funds.
The reorganization was a back-to-the-future move of sorts, in that the new setup is more reminiscent of the eight business sectors that existed under Reginald H. Jones, Welch's predecessor, than of the 13 businesses that Immelt inherited four years ago.
"Jack got rid of the strategic planners, the multiple staff support positions, all the bureaucracy that existed with the old sectors," said Noel M. Tichy, a professor at the University of Michigan Business School. "Jeff has simplified the structure to make it easier for customers to understand."
Immelt's changes do bring risks. Although energy and aircraft-related financing will be part of GE Infrastructure, GE Capital retains the final say on whether any customer poses an "acceptable risk" for a loan, a hurdle that may be hard for developing countries to overcome. "If a customer asks for financing, we will bring everything we have to bear to try to get it," said Calhoun, who is on the GE Capital board.
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