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The New Global Challengers

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The New Global Challengers

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Indeed, many companies based in RDEs are going global fast. As this report highlights, a sample of 100 lead-ing RDE-based companies already have combined annual revenue of $715 billion—and are growing at an average rate of 24 percent per year. Companies in this sample are gaining global market share, making major acquisitions, and emerging as important customers, business partners, and competitors for the world’s largest companies.

The Boston Consulting Group recently assessed the activities and strategies of these newly globalizing com-panies. We identified and profiled 100 of them, focusing on those with large businesses, significant global activity, an evident commitment to further globalization, and solid prospects for continued success. A global team of senior BCG consultants, based principally in Beijing, Moscow, Mumbai, and São Paulo but also span-ning other RDEs, contributed to this effort. We would like to acknowledge particularly valuable contribu-tions to the research and analysis by our colleagues Evgeni Agronik, Jean Chen, Rahul Guha, Vladimir Kim, Xin Liu, and Fernando Machado. We would also like to acknowledge the editorial and production assistance of Barry Adler, Gary Callahan, Kim Friedman, Gina Goldstein, and Kathleen Lancaster.

A revolution in global business is under way. Companies based in rapidly developing economies (RDEs) such as Brazil, China, India, and Russia, armed with ambitious leaders, low costs, appealing products or services, and modern facilities and sys-tems, are expanding overseas and will radically transform industries and markets around the world. As this movement unfolds, established

• Cemex (Mexico) has developed into one of the world’s largest cement producers

and abroad. Each of these encounters will pose threats but will also offer opportunities for part-nering and cooperation. So it will be vital for all companies, regardless of their home location, to understand these developments and take action ahead of them, lest their competitive positions

• Embraer (Brazil) has surpassed Bombardier as the market leader in regional jets

Already, RDE-based companies have started assum-ing leadership positions in lucrative developed mar-kets and have established beachheads in other RDEs. Here are just 15 examples:

• Bharat Forge (India) is now the world’s second- largest forging company

• Pearl River Piano Group (China) is the global vol- ume leader in piano manufacturing

• Ranbaxy Pharmaceuticals (India) is among the top ten generic-pharmaceutical players in the world

Fairfield Dornier, a German aircraft manufacturer, with great fanfare in 2003, only to seek bankruptcy protection a year later. But many others will break through to become established global players. Just as many companies based in South Korea and Japan are now firmly global, so too will today’s RDEs pro-

RDEs have low-cost resources. All RDEs have an abundance of low-cost basic labor, and most offer other resources at low cost. Domestic companies in these markets are often better than foreign companies at exploiting these low-cost resources. We discuss this issue extensively later in the

RDEs have rapidly growing markets, some of which are very large. Markets such as China, India, and Russia are sufficiently large and fast growing to sup-port large domestic companies. For example, China’s Huawei Technologies Company, a telecom equipment maker, has achieved domestic sales of more than $3 billion. The rapid growth of RDE markets in general over the past decade means that domestic companies have an opportunity to become quite large on their home turf.

Difficult operating environments in RDEs produce some highly capable companies. The challenges of operating in RDEs include selling profitably to low-income customers, dealing with immature logistics and distribution environments, navigat-ing ambiguous legal environments, handling rapid external change, and managing despite shortages of management talent. A company that has addressed these issues in its home market will have an advantage when seeking to grow in similar mar-kets abroad. Such companies may also have devel-oped the ability to innovate quickly and to make very rapid decisions—skills that are essential to capturing fast-moving opportunities.

The RDE 100 Emerging Global Challengers

To better assess the globalization strategies of RDE-based companies, we have identified 100 large RDE-based companies that, in our opinion, are at the leading edge of globalizing their businesses. Having identified this group of companies, we then looked

identified these companies from a pool of more than 3,000 candidates by screening primarily for size, extent of overseas revenue, and prospects for further expansion. (For details, see the sidebar below.) Although these companies employ different strate-gies and are at different stages of globalization, they share a strong ambition to grow globally. They also share a set of compelling competitive advantages that they are leveraging in various ways to pursue global growth.

Among the RDEs studied, China and India in par-ticular have already produced an impressive set of

these include one company actually domiciled in Hong Kong).

The shares of Indian companies are usually divided among private owners, strategic investors, and the

The Industries They Represent

E X H I B I T 3

Brazil
• Food and beverages (2)
• Engineered products (2)

For the remaining 12 of our RDE 100 companies, such as China’s CNOOC (fossil fuels), globalization is driven by the need to secure long-term access to raw materials. The underlying motives may be both nationalistic and related to shareholder value. These companies are less likely to compete for overseas customers and instead will challenge developed-market companies for access to supply and for M&A opportunities.

Their Huge Economic Muscle

• On the acquisition front, the RDE 100 completed 200 publicly announced international transac-

omy. Given their growth rates, most will continue to gain strength in the coming years. The picture becomes more complicated, however, when we look at individual companies. Whereas some of the RDE 100 players have established themselves firmly in the global marketplace, others are rapidly doing so now, and others are still in the early experimenta-tion phase.

In terms of the maturity of their globalization drive, our RDE 100 can be divided into three groups: the early movers, the fast followers, and the up-and-comers.

superior returns compared with its international competitors and has developed unique capabilities in the form of a highly scalable operating model, a serial acquisitions approach, and a global logistics

While these companies have already received sig-nificant public attention, others have so far kept a relatively low international profile. These less well-known players include, for example, China’s Pearl River (pianos), China’s Hisense (consumer elec-tronics), Mexico’s Nemak (automotive equipment), and Turkey’s Vestel Group (consumer electronics).

The Up-and-Comers. The last group consists of 44 companies. These are players that are at an early stage of globalization or whose ambitions have, until recently, been more regional than global. Companies in this category include India’s Tata Motors (automobiles), Egypt’s Orascom Telecom Holding (telecommunications services), Turkey’s S¸is¸ecam (glass), and Brazil’s Braskem (petrochem-icals). Spanning a wide range of industries and home countries, this group includes many compa-nies that merit careful watching in the future.

Their Six Strategic Models for Globalization

TV sets and 3 million air conditioners each year in more than 40 countries. International sales account for $490 million, or 15 percent, of total revenue. Hisense has the best-selling brand of flat-panel TV sets in France, where its products are being distrib-uted through major retail chains such as Carrefour.

innovation ing and most demanding consumer-electronics mar-

• Model 3: Assuming global category leadership • Model 4: Monetizing RDE natural resources
• Model 5: Rolling out new business models to mul-

Model 1: Taking RDE Brands Global. Twenty-eight of our RDE 100 are growing internationally by taking their established home-market product lines and brands to global markets. A representative company employing this strategy is China’s Hisense, a $3.3 bil-lion consumer-electronics group. The company is one of China’s premier manufacturers of TV sets (it has an 11 percent share of the domestic market), air conditioners, PCs, and telecom equipment. In addi-tion to manufacturing in China, Hisense has pro-duction sites in Algeria, Hungary, Iran, Pakistan, and South Africa. The company has expanded mainly through organic growth and is now selling 10 million

alliances with global players such as Hewlett-Packard, IBM, and Panasonic.

processes, a task requiring comprehensive process-innovation capabilities.

claims to be the world’s largest third-party provider of R&D services. Its 12,000-strong Product Engineering Services (PES) group offers a complete range of R&D services—from product strategy to hardware design to quality consulting—to clients that sell electronics-based products. With more than 120 active clients in industries such as semiconduc-tors, automotive products, platforms and peripher-als, consumer electronics, and medical devices, PES has seen its revenue grow at a rate of 36 percent per year from 2003 through 2005. The group already accounts for 36 percent of Wipro’s total revenue.

Innovation-based globalization will require RDE-based players to mobilize engineering and science talent in areas in which they can create sizable and sustainable advantage over their counterparts in developed markets. In many domains, the RDE tal-ent pool is deep and growing quickly, and RDE play-ers are at an advantage when it comes to monetizing that pool relative to MNCs that are setting up RDE-based R&D centers. In a ranking by university stu-dents in China, for example, China’s Huawei Technologies Company was rated as a more attrac-tive employer than any of its MNC competitors.

Companies in this category have in common a rela-tively well-defined target market for their products; considerable depth in their chosen niches (which in some instances amounts to global category leader-ship); superscale manufacturing; highly focused R&D; and global logistics, which they have down to a science. Their specialization allows them to be best in class, ahead of the competition on cost, innova-tion, and the understanding of next-generation cus-tomer needs. It also provides them with a scalable platform from which to drive global industry consol-idation—and also to add on new, related niches.

International Marine Containers Group Company). These companies had $36 billion in combined 2004 revenue, of which they earned 61 percent, or $22 bil-lion, abroad. Their average annual growth from 2000 through 2004 was 23 percent. A particularly large number of RDE players in this category are based in Brazil and China.

The 13 companies pursuing this model had $110 bil-lion in combined 2004 revenue, of which they earned 66 percent, or $73 billion, abroad. Their average annual growth from 2000 through 2004 was 26 percent. Almost all the companies in this category are based in Brazil or Russia.

Model 5: Rolling Out New Business Models to Multiple Markets. Thirteen of our RDE 100 are building regional or global portfolios in their respec-tive industries by rolling out business models that they have generally pioneered in their home mar-kets. These companies had $93 billion in combined 2004 revenue, including 29 percent, or $27 billion, earned abroad. Their average annual growth from 2000 through 2004 was 28 percent.

abroad. It has built a truly global presence through acquisitions in the Americas (Colombia, Dominica, Panama, Puerto Rico and other parts of the United States, and Venezuela), Asia-Pacific (Bangladesh, Indonesia, the Philippines, and Thailand), the Mid-dle East (Egypt), and Europe, topped off by the 2005

Baosteel’s combination of state-of-the-art technol-ogy, the lowest cost base in Asia, and strong opera-tional capabilities has translated into operating profit margins well above the industry average. More than 98 percent of its revenue comes from China, the world’s fastest-growing steel market. Baosteel is

The companies in this category are active in either fossil fuels or metal and mining products. Nine of the 12 are based in China, which consumes far more oil, gas, and iron ore than it produces. Irrespective of their countries of origin, these companies typi-cally enjoy solid government backing for their attempts to acquire assets abroad. Following the buildup of overcapacity in some sectors (steel in China, for one) and a further upgrade in their oper-ational capabilities, some of these companies will likely compete in global product markets. The com-panies pursuing this model had $282 billion in com-bined 2004 revenue, including only $30 billion, or a little more than 10 percent, earned abroad. Their average annual growth from 2000 through 2004 was 25 percent.

How They Are Growing: Buying and Building

extreme, companies taking their home-market brands global have seldom pursued M&A. (See

organically, either by exporting from their home- Exhibit 5.)

Most of these deals are small, with specific objec-tives. They usually help an RDE-based company establish a commercial beachhead through exist-ing brands, distribution channels, and local man-agement. In addition, many RDE-based compa-nies, such as India’s Bharat Forge (automotive equipment), have used M&A activities to obtain immediate access to vital technologies. Some RDE players have bought underperforming incumbents or dormant brands with the aim of turning them around. An example is Techtronic’s formation of a strong power-tool portfolio combining brands such as AEG, Atlas Copco, Dirt Devil, and Ryobi

with superscale, low-cost Chinese manufacturing and leading-edge R&D capabilities. The company is now the category leader at Home Depot, the world’s largest do-it-yourself chain, and it has won several awards for product quality and innovation.