New
global giants to watch
By
Nirmala Harrylal
The Trinidad Guardian
Port
Spain
Petroleumworld.com
09 10 06
To
many of us, names like Ranbaxy, Reliance and L&T
probably do not ring a bell. For that matter Wipro,
Enbraer, Cemex or Galanz are not household names,
at least not in the western hemisphere. These companies
were largely unknown in the 1960s and 1970s and
were dismissed as no-hopers by their competitors
from the developed world.
However,
each company is a multibillion-dollar powerhouse
that could mount a serious challenge to their more
established counterparts. That’s according
to a recently released report from Boston Consulting
Group (BCG), the global consulting firm that listed
those companies as part of the top 100 “New
Global Challenges” from rapidly developing
economies (RDE) that could become the world’s
next General Electric or Siemens. This article will
explore the success factors for the rise of the
new challengers from the RDEs.
According
to the May 2006 report, the group of 100 together
already have a combined annual revenue of US$715
billion and are growing at an average rate of 24
per cent a year. These companies based in developing
economies are winning in global markets, making
major acquisitions and emerging as important customers,
business partners and competitors to the world’s
largest companies.
“We’ve
been noticing how US and other western and Japanese
companies aren’t taking notice of these emerging
global players,” said Harold Sirkin, senior
vice president with Boston Consulting Group and
one of the report’s authors.
“American
companies have to become aware of this global threat
in order to compete more effectively in the long
run.”
The
firm’s list of the top 100 global challengers
was constructed using data from more than 3,000
companies in 12 developing countries. To streamline
the process, analysts focused only on companies
with annual sales of at least US$1 billion, with
ten per cent of their revenue coming from outside
their home countries.
The
report said India, China, Mexico and Brazil, four
of the fastest growing “developing”
economies, are armed with ambitious executives,
low costs, low wages and a growing talent pool.
Meanwhile, the United States is in danger of losing
its competitive edge in engineering and product
development, especially as it imports more of what
it consumes. It has become an issue in US boardrooms
where executives see they have new competitors and
must address them in a number of ways.
Companies
in the RDE 100 are in nearly all sectors: industrial
goods (auto equipment, basic materials, engineered
products); consumer durables (household appliances
and consumer electronics); resource extraction;
technology and business services. Seventy are from
Asia (43 from China and 21 from India), and 18 are
from Latin America. The rest are from such countries
as Russia and Turkey. Some examples are:
BYD
(China), the world’s largest manufacturer
of nickel-cadmium batteries; it has 23 per cent
share of mobile-handset battery market.
Bharat
Forge (India), the world’s second-largest
forging company.
Embraer
(Brazil), surpassed Bombardier as market leader
in regional jets.
Chunlan
Group (China), has a 25 per cent share of Italy’s
air-conditioner market.
Johnson
Electric (China), the world’s leading manufacturer
of small electric motors.
Wipro
(India), the world’s largest third-party engineering
services company.
Pearl
River Piano Group (China), the global volume leader
in piano manufacturing.
Ranbaxy
Pharmaceuticals (India), among the world’s
top ten generic pharmaceutical players.
Indeed,
the rules of the game are changing, and changing
very fast. Americans, Japanese and Europeans ought
to take these emerging players seriously. It is
true that western companies enjoy certain advantages,
such as brand recognition 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.
The
emerging global companies from RDEs are going global
because they’re focused on organic growth
but find that their home markets don’t have
the scale or the resources to allow them to deliver
the levels of shareholder value and competitive
advantage they want to achieve.
They
aim globally to tap into new profit pools or gain
long-term access to raw materials. Eighty-eight
of the RDE 100 are seeking the former, 12 the latter.
For instance, Baosteel, China’s biggest steelmaker
(US$19.5 billion), is focused solely on the China
market and has operating margins well above the
industry average; its international expansion is
designed to secure stable iron-ore supplies. This
explains its purchase of part of CVRD’s Auga
Limpa complex in Brazil.
The
emerging companies from RDEs are good at international
expansion in part because of the discipline required
for success in their difficult home markets. They
learned to sell profitably to low-income customers;
deal with immature logistics and distribution environments;
navigate ambiguous legal situations; handle rapid
external change; and manage despite shortages of
management talent. They also learned from foreign-based
multinationals operating in their markets.
What
then are the factors behind their success stories?
Kunal
Kumar Kundu, a senior economic analyst with a leading
foreign bank in India, gives an Indian perspective.
India
has a traditional disadvantage in terms of lack
of experience of the global scene, given that very
few Indian companies ventured abroad in years past.
Indeed, the Indian companies were initially reluctant
to go abroad and always exhorted the government
to put up high entry barriers, mostly through tariffs.
But
things are changing. Indian companies now have global
ambitions (aided in equal measure by falling tariffs
leading to increased international competition).
Moreover, their relative lack of global experience
can be used in India’s favour, given the rapidly
changing global arena, where new ideas and fresh
perspectives make all the difference.
Indian
global strategy can typically be categorised into
the following:
Building
and leveraging success in the home market;
Accessing
multiple foreign markets through exports;
Building
a multinational skill set and adding local value
in international markets.
Success
would depend on the ability of the Indian companies
to focus on developing softer assets as they build
traditional “hard” business assets.
An analysis of the Indian success stories brings
forth the following models of success:
Companies
that have leveraged India’s comparative advantages
of knowledge;
Companies
that have grown through acquisitions;
Companies
that have occupied a niche segment and built a best-in-class
competency;
Companies
becoming scale players like Reliance.
Indeed,
globalisation is entering an important second phase,
the era of the RDE challengers, as BCG points out.
Executives who don’t take these new rivals
seriously risk getting blind-sided.
Nirmala Harrylal is senior associate, centre for
leadership assessment and development, Arthur Lok
Jack Graduate School of Business. She can be reached
at 662-9894 ext 118 or e-mail: n.harrylal@gsb.tt
The Trinidad Guardian
Thursday 31st August, 2006
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©2006 Trinidad Publishing Company Limited.
All Rights Reserved.
