Emerging Economies Create Global Competitors That Are Challenging Western Leaders In Every Industry
BY RICHARD McCORMACK firstname.lastname@example.org
A new competitive force is emerging from the world's most rapidly developing countries: a large group of companies that are challenging the world's leading corporations. Until recently, there were only about a dozen or so companies from emerging markets that could be described as being global competitors. "Today there are hundreds, which is in line with the expectation that by 2050 China and India will be two of the world's three large superpowers," says David Michael, author of a new Boston Consulting Group report entitled "The New Global Challengers, How 100 Top Companies From Rapidly Developing Economies Are Changing The World."
In its analysis, BCG found that the top 100 companies from the emerging markets have $715 billion in combined revenue and are growing at an annual rate of 24 percent. They earned $145 billion in operating profits last year, equivalent to a 20 percent margin over sales. They currently generate 28 percent of their revenue from outside their home markets, but that should grow to 40 percent by 2010.
Their growing success can be attributed to lower costs, ambitious leaders, appealing products and modern facilities. They are making acquisitions "and will radically transform industries and markets around the world," says BCG. They are in every sector of industry. Forty-four are from China, 21 from India and 18 from Latin America.
The top 100 companies from emerging markets are growing 10 times faster than the U.S. GDP, 24 times faster than Japan's and 34 times faster than Germany's. From January 2000 to March 2006, total shareholder return on the top 100 emerging companies increased more than 150 percent compared to a decline in total shareholder return for the S&P 500 companies. They employ 4.6 million workers. They purchase $200 billion a year in raw materials and energy, $50 billion in parts and components and $40 billion in services.
These companies are buoyed by their fast growing home markets and their ability to compete in those markets with limited resources, immature logistics systems and customers who can't afford expensive products.
"A company that has addressed these issues in its home market will have an advantage when seeking to grow in similar markets abroad," says BCG. "Such companies may also have developed the ability to innovate quickly and to make very rapid decisions -- skills that are essential to capturing fast-moving opportunities."
Also making them more adroit is the fact that they are competing in their own markets against the biggest multinational companies in the world. Since their own markets are limited, they are being forced to look globally for growth, with many of them becoming leaders in their industrial categories. Eighty-percent of their growth is organic, but the largest firms are becoming more active in mergers and acquisitions. "They are growing next door and around the world," says BCG.
They generally have lower labor costs -- on the scale of 10 to 20 times less expensive -- resulting in savings of up to 40 percent in the cost of end products. Their manufacturing sites and equipment are 60 percent less expensive than comparable facilities in the West, says BCG. They have "huge economic muscle."
There are many implications for incumbents, BCG notes. "The first step seems obvious: you need to identify and understand the [emerging market] challengers in your industry." Companies must understand how these firms are changing the competitive landscape, where they reside in supply chains and what threats and opportunities they represent. Many of these firms are not covered in the media and they are evolving rapidly. "So you need to make an extra effort simply to understand them," says the report.
Companies must also determine how to deal with them by competing head on, developing partnerships, creating subsidiaries in their markets "to capture the same kinds of advantages that [emerging market] challengers possess," and exiting some lines of businesses in which their adversaries have inherent advantages. Companies must also renew their efforts to improve their products, introduce new ones and get closer to their customers. "Find ways to ride the wave," says BCG. "Incumbents and challengers alike should also consider opportunities to create value by acquiring, investing in, or partnering with each other."
Among some of the newly emerging Goliaths:
The Rapidly Developing Economies' Top 100 Emerging Global Challengers:
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