To most Americans, the names are pretty obscure: Embraer (ERJ), Cemex (CX), Ranbaxy (RBXLY), Galanz, Pearl River, America Movil (AMOV). But these and many other companies from developing nations such as Brazil, China, India, and Mexico are beginning to register on the radar of U.S. CEOs. Or at least they should.
This is the message of a new study by Boston Consulting Group titled "The New Global Challengers". In the report, BCG names 100 companies from "rapidly developing economies" that are poised to become important 21st century multinationals. They "will radically transform industries and markets around the world," the report says.
Taken together, these companies accounted for $715 billion in revenue last year, 28% of which came from international sales. They also boasted $145 billion in operating profits, a half-trillion dollars in assets, and a combined $9 billion in research and development spending. Plus, they have grown at an average rate of 24% for the past four years.
SURGE OF INTEREST. The BCG research project is one of a number under way by big consulting firms. These outfits, including McKinsey & Co. and IBM Global Services (IBM), want to get a handle on the growing number of serious global players springing from developing nations -- and what the phenomenon means for established companies in the West.
Why the surge of interest? "The reality is that we are seeing a lot of companies from developing nations playing on the world stage," says Hal Sirkin, a BCG senior vice-president who leads the firm's worldwide operations practice. "It has become an issue in U.S. boardrooms, where executives see they have new competitors and must address them in a number of ways."
To develop its list of 100 "global challengers," BCG sifted through data on more than 3,000 companies from a dozen developing countries. Most had sales of $1 billion or more, with at least 10% of those revenues coming from outside their home country. The international presence of sales, product development, manufacturing, and other operations also were assessed. "The quantity of companies that are emerging and the speed of their progress was a bit surprising," says Sirkin.
BRAZIL RISING. The big contribution of the BCG study, though, is that it highlights the great diversity -- both in terms of geography and strategy -- of these aspiring multinationals that are now posing a challenge to incumbents in the West and Japan.
Not surprisingly, China and India, the world's two emerging economic superpowers, have the most companies on the list, with 44 and 21, respectively. They include some obvious names, such as China's Lenovo, which recently acquired IBM's notebook PC business; CNOOC, the Chinese oil company that failed in its bid for California-based Unocal ; and the Indian information-technology services giants Infosys, Tata Consulting, and Wipro.
But a dozen also come from Brazil. They include Embraer, which has zipped past Canada's Bombardier to become the world's biggest producer of regional jets; oil company Petrobras (PZE); and food processors Sadia and Perdigao. Mexico also boasts an impressive number of important mutlinationals, including cement giant Cemex and America Movil, which is building one of the world's biggest international cellular empires with holdings that span Latin America.
THIS YEAR'S MODELS. Russian resources companies such as Lukoil and Gazprom also have big global ambitions. Three companies from Turkey (home appliance maker Koc Holding, building materials producer Sisecam, and consumer appliance maker Vestel) and even one from Egypt (cellular conglomerate Orascom) also made the list.
The companies are deploying a plethora of business strategies. Often these revolve around leveraging big domestic consumer markets and privileged access to low-cost sources of factory labor, engineering talent, and natural resources. But just as key are managerial and operational strengths that sometimes exceed those of counterparts in industrialized nations. "Most people think think these companies are only about low wages," says Sirkin. "But it also is important to show that they operate in different business models."
BCG identifies six different basic business models at work:
This is the most obvious strategy, pursued by 28 of the 100 companies, which are going abroad with brands that have been established at home. Often, they begin selling their products in neighboring countries before launching in the U.S. or Europe. Examples are Chinese appliance and consumer electronics companies Haier, Hisense, Galanz, and Skyworth.
Turning engineering into innovation.
The ability to tap big pools of experienced but low-cost engineers has been key to the success of Brazil's Embraer, which began by building respectable small jets and now is regarded as a serious innnovator in design. India's Wipro has used its armies of engineers to become a world leader in software and engineering services. And China's Huawei, which boasts thousands of engineers, is starting to gain respect as innovator of low-priced telecom equipment.
Assuming global leadership.
An example is Hong Kong's Johnson Electric, which has most of its manufacturing and engineering operations in China. Johnson has zeroed in on the micromotor industry, which produces components to power everything from car windows to digital cameras. After a number of acquisitions around the world, it now is the global leader. Guangzhou-based Pearl River has used a similar strategy to become the world's biggest manufacturer of pianos. And Indian pharmaceutical giant Ranbaxy is now expanding its reach in the global market for generic drugs by buying up smaller producers worldwide.
Monetizing natural resources.
The vast majority of the world's resources are located in developing nations. And a rising number of emerging multinationals are using access to those resources to their advantage. Examples include Brazilian food processors Sadia (SDA) and Perdigao (PDA), which operate everything from farms to branded ready-to-eat meals and export half of their combined $4 billion in annual revenue. Metals manufacturers such as Brazil iron giant Companhia Vale do Rio Doce (RIO) and the Russian companies Rusal (aluminum), Lukoil (petroleum), and Gazprom (petroleum) also are leveraging natural resources to go global.
Rolling out new business models to multiple markets.
A number of new multinationals are succeeding globally because they have perfected business models that work as well at home as they do abroad. A prime example is $15.3 billion Cemex, which has bought cement makers in nations as diverse as Columbia, the U.S., Bangladesh, and Indonesia, and turned them into efficient money-makers by implementing its homegrown management systems.
Acquiring natural resources.
The growing wealth of many developing nations means their top companies are in position to bid against Western multinationals for resources around the world. China's CNOOC, for example, has been buying into oil and gas reserves in Southeast Asia, Africa, and Central Asia. China's Baosteel has bought iron-ore interests in Brazil and Australia.
CEOs in the U.S., Europe, and Japan have often sniffed at upstarts from the developing world as lacking world-class management, sophistication, and technology. Clearly, a whole pack of emerging multinationals are overcoming those challenges.
It's unlikely, of course, that all of the 100 companies will be global powers a decade from now. The point is that these are just the tip of the iceberg. Thousands of other companies from the developing world also have big global dreams and are investing accordingly. CEOs who don't take these new rivals seriously risk getting blindsided.