New Global Marketplace Meets U.S. Needs
Back in the 1960s and 1970s, plenty of Japanese and South Korean companies were either largely unknown or completely dismissed by their Western competitors. Big mistake: Toyota (TM) and Honda (HMC) are today world leaders in auto manufacturing, while Samsung Electronics (SSNLF) and LG (LGEIY) are highly competitive global players in consumer electronics.
The next wave of corporate success stories is going to come from a number of largely unheard of Brazilian, Chinese, Indian, Malaysian, Thai, and Turkish companies. Their competitive edge is no secret: they are delivering low-cost, high-quality products and services. In fact, many companies from these rapidly developing economies (RDEs) have already arrived. Some of these operate below the radar screen, largely because they manufacture for other companies that put their own brand names on the products.
China's Guangdong Galanz Enterprises, for example, now commands a 45% share of the microwave oven market in Europe and has a 25% percent hold on the U.S. market. While U.S. consumers can purchase Galanz products online, they can't go to their local home appliance store and find the Galanz brand name. If they want a Galanz oven, they'll have to look for Sylvania or another company that sources its production from the Chinese partner.
Other emerging market companies with big ambitions are far more visible. These are buying Western companies, building manufacturing plants and distribution networks in Europe, Japan, and the U.S., and are developing premium products.
Walk into any Best Buy (BBY) store in the U.S. and you'll find washing machines, dryers, and small refrigerators from China's Haier (HRELF) home appliance company. Walk across the street to Circuit City (CC), and you'll find Haier microwave ovens. Last year, Haier's global ambitions became clear when it made an acquisition run at Maytag, a U.S. company.
Whirlpool beat it out in the end, but Haier is still gunning for a significant share of the U.S. market. Just weeks ago, in mid-May, Haier announced plans to build a second factory in Camden, S.C., to meet the growing U.S. demand for its refrigerators.
THREE MILLION MOTORS.
There are plenty of other examples out there of new emerging market companies making their presence felt. Mexico's $15.3 billion-a-year building materials group, CEMEX, is already the largest cement producer in North America and the largest distributor of cement in the U.S., with 12 cement plants and 283 ready-mix concrete plants in the U.S. alone.
Meanwhile, Hong Kong's Johnson Electric (JELCY) is the world's largest producer of small electric motors, with more than two-thirds of its revenues coming from outside Asia. The company can produce three million motors a day in a single Chinese plant. It also has manufacturing plants in Latin America, the U.S., and Western Europe, and research and development facilities in Israel, Italy, the U.S. and Japan.
China's BYD is the world's largest manufacturer of nickel-cadmium batteries, with a 23% share of the cell phone/pager market. China's Techtronic Industries is the number one supplier of power tools to the Home Depot (HD) chain. India's Bharat Forge is the second largest forging company in the world. And Brazil's Embraer (ERJ) is the leading manufacturer of regional jets, surpassing Canada's Bombadier. India's Ranbaxy Pharmaceuticals is among the top 10 generic pharmaceutical firms in the world.
Then there's Lenovo. Founded in 1984 as Legend computers, Lenovo is now a world leader in personal computers. The company boldly announced its major league status by purchasing Big Blue's PC division, which used to be known as IBM Personal Computing.
These are some of the headline grabbers. But behind the scenes are hundreds of other companies ready to challenge the status quo. Several of my colleagues from Boston Consulting Group and I recently examined 100 of the top global challengers. Most of the companies we studied were expanding for obvious reasons: either to expand profits (88 of the 100), by tapping into new markets, or to gain long-term access to needed raw materials.
U.S., Japanese, and Europeans ought to take these emerging players seriously. It is true that Western companies enjoy certain advantages, such as brand identity and loyalty, patent and trademark protections, long-standing traditions of innovation, and established distribution channels. However, most of the challengers are cash rich and they're ready to exploit advantages of their own. Consider the following benefits:
Cost edge: As anybody who has followed the globalization story already knows, labor costs in rapidly developing economies are typically 80% to 90% less than comparable costs in the West—a skilled factory worker might cost the company $1 to $5 per hour, vs. $20 to $25 per hour in the U.S., Japan, or Western Europe. Construction and equipment costs, and in many cases even raw materials, also are significantly less expensive in the RDEs than in the West.
Modern and efficient plants and equipment: Recent, rapid growth in the RDEs means they have newer plants and equipment. The average age of such assets for Chinese companies is just 7.2 years vs. 16.9 years in the U.S.
Access to huge talent pools: By 2010, China and India combined will graduate 12 times the number of engineers, mathematicians, scientists, and technicians as the U.S.
The right products for the times: As BCG senior vice-president Michael Silverstein points out in his highly acclaimed new book, Treasure Hunt, the same U.S. consumers who buy up when they demand premium quality trade down when they want value for their dollar.
As their quality has improved, the low-cost consumer products produced by RDE manufacturers are uniquely suited to meet the needs of these consumers. Globalization is entering an important second phase, the era of the RDE challengers.
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