The New Global Challengers How 100 Top Companies from Rapidly Developing Economies Are Changing the World BCG REPORT Since its founding in 1963, The Boston Consulting Group has focused on helping clients achieve competitive advantage. Our firm believes that best practices or benchmarks are rarely enough to create lasting value and that positive change requires new insight into economics, markets, and organizational dynamics. We consider every assignment a unique set of opportunities and constraints for which no standard solution will be adequate. BCG has 61 offices in 36 countries and serves companies in all industries and markets. For further information, please visit our Web site at www.bcg.com. The New Global Challengers How 100 Top Companies from Rapidly Developing Economies Are Changing the World MARCOS AGUIAR ARINDAM BHATTACHARYA THOMAS BRADTKE PASCAL COTTE STEPHAN DERTNIG MICHAEL MEYER DAVID C. MICHAEL HAROLD L. SIRKIN MAY 2006 www.bcg.com © The Boston Consulting Group, Inc. 2006. All rights reserved. For information or permission to reprint, please contact BCG at: E-mail: [email protected] Fax: +1 617 973 1339, attention BCG/Permissions Mail: BCG/Permissions The Boston Consulting Group, Inc. Exchange Place Boston, MA 02109 USA 2 BCG REPORT Table of Contents A Word from the Authors 4 The New Global Challenge 5 Many Companies on the Move 5 RDEs as Platforms for New Types of Global Competitors 6 The RDE 100 Emerging Global Challengers 7 Where They Come From 8 The Industries They Represent 9 Why They Are Going Global 9 Their Huge Economic Muscle 10 The Shareholder Value They Create 11 How Global They Are Today 11 How the RDE 100 Are Going Global 13 Their Six Strategic Models for Globalization 13 How They Are Growing: Buying and Building 16 Where They Are Growing: Next Door and Around the World 18 The Competitive Strengths and Weaknesses of Emerging Global Challengers 20 Low-Cost Resources 20 Home-Market Environments 21 Operations 21 Innovation 22 Supply Chain Management 22 Going to Market 22 Management Talent 23 Rigorous Strategy and Road Maps 23 Looking Ahead 24 Implications for Challengers 24 Implications for Incumbents 25 Closing Thoughts 26 The New Global Challengers 3 A Word from the Authors In our discussions with executives at the world’s largest companies, globalization and its challenges are often at the top of the agenda. Invariably, one key question comes up: Which are the new companies based in China, India, and other rapidly developing economies that I need to know about? Executives recognize that a new class of company is arising in the world today—a group of emerging challengers that are becoming important players in both developing and developed markets around the globe. 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. Our analysis of this sample of 100 companies has yielded important insights into the broader trend of RDE- based companies that are expanding globally. This trend is only beginning. Ultimately, its implications will affect every industry and market. We hope that you will find this report interesting and useful. As always, we would be pleased to talk with you about our observations and conclusions. Marcos Aguiar Pascal Cotte David C. Michael Vice President and Director Senior Vice President and Director Senior Vice President and Director São Paulo Paris Beijing [email protected] [email protected] [email protected] Arindam Bhattacharya Stephan Dertnig Harold L. Sirkin Vice President and Director Senior Vice President and Director Senior Vice President and Director New Delhi Moscow Chicago [email protected] [email protected] [email protected] Thomas Bradtke Michael Meyer Manager Consultant Boston Beijing [email protected] [email protected] 4 BCG REPORT The New Global Challenge A revolution in global business is under way. • Cemex (Mexico) has developed into one of the Companies based in rapidly developing economies world’s largest cement producers (RDEs) such as Brazil, China, India, and Russia, • China International Marine Containers Group armed with ambitious leaders, low costs, appealing Company (China) has a 50 percent share of products or services, and modern facilities and sys- the marine container market, supplying the top tems, are expanding overseas and will radically ten shipping companies globally transform industries and markets around the world. As this movement unfolds, established • Chunlan Group Corporation (China) has a 25 incumbent companies percent share of the will meet the new RDE- Established incumbent Italian air-conditioner based challengers in companies will meet the new market many arenas: in the com- • Embraco (Brazil) is the petition for supplies, in RDE-based challengers world leader in com- the search for talent, in in many arenas. pressors, with a 25 per- the quest for innovation, cent share on the acquisition front, and in markets at home and abroad. Each of these encounters will pose • Embraer (Brazil) has surpassed Bombardier as threats but will also offer opportunities for part- the market leader in regional jets nering and cooperation. So it will be vital for all companies, regardless of their home location, to • Galanz Group Company (China) commands a 45 understand these developments and take action percent share of the microwave market in Europe ahead of them, lest their competitive positions and a 25 percent share in the United States deteriorate. • Hisense (China) is the number-one seller of flat- panel TVs in France Many Companies on the Move • Johnson Electric (China) is the world’s leading The handful of RDE-based companies that have manufacturer of small electric motors recently captured media attention—prominent examples include the Chinese manufacturers Haier • Nemak (Mexico) is one of the world’s premier Company and Lenovo Group and the Indian soft- suppliers of cylinder head and block castings for ware houses Infosys Technologies and Wipro—rep- the automotive industry resent only a small fraction of a much larger phe- • Pearl River Piano Group (China) is the global vol- nomenon. The number of RDE-based companies ume leader in piano manufacturing that are actively expanding beyond their home mar- kets, or planning to, approaches several thousand. • Ranbaxy Pharmaceuticals (India) is among the top ten generic-pharmaceutical players in the Already, RDE-based companies have started assum- world ing leadership positions in lucrative developed mar- kets and have established beachheads in other • Techtronic Industries Company (China) is now RDEs. Here are just 15 examples: the number-one supplier of power tools to Home Depot in the United States • Bharat Forge (India) is now the world’s second- largest forging company • Wipro (India) has become the world’s largest third-party engineering-services company • BYD Company (China) is the world’s largest man- ufacturer of nickel-cadmium batteries and has a To be sure, not all challengers will be successful. 23 percent share of the market for mobile-hand- Some may meet the same fate as D’Long Group, a set batteries Chinese investment company that acquired The New Global Challengers 5 Fairchild Dornier, a German aircraft manufacturer, RDEs have low-cost resources. All RDEs have an with great fanfare in 2003, only to seek bankruptcy abundance of low-cost basic labor, and most offer protection a year later. But many others will break other resources at low cost. Domestic companies through to become established global players. Just in these markets are often better than foreign as many companies based in South Korea and Japan companies at exploiting these low-cost resources. are now firmly global, so too will today’s RDEs pro- We discuss this issue extensively later in the duce future global leaders. Indeed, the RDEs them- report. selves possess characteristics that constitute particu- larly powerful platforms for the creation and Difficult operating environments in RDEs produce development of future global companies. some highly capable companies. The challenges of operating in RDEs include selling profitably to low-income customers, dealing with immature RDEs as Platforms for New Types of Global Competitors logistics and distribution environments, navigat- ing ambiguous legal environments, handling rapid Why are we now seeing the emergence of global external change, and managing despite shortages challengers from RDEs? A variety of fast-moving of management talent. A company that has globalization forces are spurring this trend. These addressed these issues in its home market will have include the Internet, the World Trade Organization, an advantage when seeking to grow in similar mar- the dramatic surge in low-cost communications tech- kets abroad. Such companies may also have devel- nologies, and economic reforms in key RDEs. In oped the ability to innovate quickly and to make addition, the development of RDE markets them- very rapid decisions—skills that are essential to selves is a strong enabler for the creation and growth capturing fast-moving opportunities.