June 21, 2006    Volume 13, No. 12

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Emerging Economies Create Global Competitors That Are Challenging Western Leaders In Every Industry

BY RICHARD McCORMACK richard@manufacturingnews.com

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:

  • BYD of China is the world's largest manufacturer of nickel-cadmium batteries and holds 23 percent of the mobile-handset battery market.
  • Bharat Forge of India is the world's second largest forging company.
  • Hisense of China is the number-one seller of flat-panel TVs in France.
  • Embraer of Brazil has surpassed Bombadier as the market leader in regional jets.
  • Chunlan Group of China has 25 percent share of Italy's air conditioner market.
  • Johnson Electric of China is the world's leading manufacturer of small electric motors.
  • Wipro of India is the world's largest third-party engineering services company.
  • Pearl River Piano Group of China the world's largest manufacturer of pianos.
  • Ranbaxy Pharmaceuticals of India is in the top 10 in generic pharmaceuticals.

The Rapidly Developing Economies' Top 100 Emerging Global Challengers:
Aluminum Corp. of China (China), Nonferrous metals
America Movil (Mexico), Telecommunications services
Bajaj Auto (India), Automotive equipment
Bharat Forge (India), Automotive equipment
BOE Hydis Tech. Corp. (China), computers, IT components
Braskem (Brazil), Petrochemicals
BYD Co. (China), Consumer electronics
Cemex (Mexico), Building materials
Charoen Pokphand Foods (Thailand), Food and beverages
China Aviation Group (China), Aerospace
China FAW Group Corp. (China), Automotive equipment
China HauNeng Group (China), Fossil fuels
China Intl. Marine Containers Group Co. (China), Shipping
China Minmetals Corp. (China), Nonferrous metals
China Mobile Communications Corp. (China), Telecom
China National Heavy Duty Truck Group Corp. (China), Automotive equipment
China Netcom Group Corp. (China) Telecom services
China Petroleum & Chemical Corp. (China), Fossil fuels
China Shipping Group (China), Shipping
Chunlan Group Corp. (China) Home appliances
Cipla (India), Pharmaceuticals
CNOOC (China), Fossil fuels
Companhia Vale do Rio Doce (Brazil), Mining
COSCO Group (China), Shipping
Coteminas (Brazil), Textiles
Crompton Greaves (India), Engineered products
Dongfeng Motor Co. (China), Automotive equipment
Dr. Reddy's Laboratories (India), Pharmaceuticals
Embrace (Brazil), Engineered products
Embraer (Brazil), Aerospace
Erdos Group (China), Textiles
Femsa (Mexico), Food and beverages
Founder Group (China), Computers and IT components
Galanz Group Co. (China), Home appliances
Gazprom (Russia), Fossil fuels
Gerdau Steel (Brazil), Steel
Gree Electric Appliances (China), Home appliances
Gruma (Mexico), Food and beverages
Grupo Modelo (Mexico), Food and beverages
Haier Co. (China), Home appliances
Hindalco Industries (India), Nonferrous metals
Hisense (China), Consumer electronics
Huawei Technologies Co. (China), Telecom equipment
Indofood Sukses Makmur (Indonesia), Food and beverages
Infosys Technologies (India), IT services outsourcing
Johnson Electric (China, Hong Kong), Engineered products
Koc Holding (Turkey), Home appliances
Konka Group Co. (China), Consumer electronics
Larsen & Toubro (India), Engineering services
Lenovo Group (China), Computers and IT components
Li & Fung Group (China, Hong Kong), Textiles
Lukoil (Russia), Fossil fuels
Mahindra & Mahindra (India), Automotive equipment
Malaysia International Shipping Co. (Malaysia), Shipping
Midea Holding Co. (China), Home appliances
MMC Norilsk Nickel Group (Russia), Nonferrous metals
Mobile TeleSystems (Russia), Telecommunications services
Nanjing Automobile Group Corp. (China), Auto equipment
Natura (Brazil), Cosmetics
Nemark (Mexico), Automotive equipment
Oil and Natural Gas Corp. (India), Fossil fuels
Orascom Telecom Holding (Egypt), Telecom services
Pearl River Piano Group (China), Musical instruments
Perdigao (Brazil), Food and beverages
PetroChina Co. (China), Fossil fuels
Petrobras (Brazil), Fossil fuels
Petronas (Malaysia), Fossil fuels
Ranbaxy Pharmaceuticals (India), Pharmaceuticals
Reliance Group (India), Chemicals
Rusal (Russia), Nonferrous metals
Sabanci Holding (Turkey), Chemicals
Sadia (Brazil), Food and beverages
Satyam Computer Services (India), IT outsourcing
Severstal (Russia), Steel
Shanghai Automotive Industry Corp. Group (China), Automotive equipment
Shanghai Baosteel Group Corp. (China), Steel
Shougang Group (China), Steel
Sinochem Corp. (China), Chemicals
Sisecam (Turkey), Building materials
Sukhoi Co. (Russia), Aerospace
SVA Group Co. (China), Consumer electronics
Tata Consultancy Services (India), IT outsourcing
Tata Motors (India), Automotive equipment
Tata Steel (India), Steel
Tata Tea (India), Food and beverages
TCL Corp. (China), Consumer electronics
Techtronic Industries Corp. (Hong Kong), Engineered products
Thai Union Frozen Products (Thailand), Food and beverages
Tsingtao Brewery (China), Food and beverages
TVS Motor Co. (India), Automotive equipment
UTStarcom (China), Telecommunications equipment
Vestel Group (Turkey), Consumer electronics
Videocon Industries (India), Consumer electronics
Videsh Sanchar Nigam (India), Telecommunications services
Votorantim Group (Brazil), Process industries
Wanxiang Group Corp. (China), Automotive equipment
WEB (Brazil), Engineered products
Wipro (India), IT services, business process outsourcing
ZTE Corp. (China), Telecommunications equipment

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