Out-Law / Your Daily Need-To-Know

"Challenger" companies from emerging markets must invest for global success: report

Out-Law News | 15 Sep 2014 | 2:37 pm | 2 min. read

Fast-growing companies from 'emerging' markets will have to work harder for their success in the future, as economic growth in their home countries slows and multinational competitors become smarter in their approach, according to a new report.

Boston Consulting Group (BCG), the global management consultancy, has been tracking the progress of the 100 leading 'global challengers' since 2006. The group is made up of companies that lead domestically in certain industries which have annual revenue of at least $1 billion and overseas revenue above 10% of the total. BCG said that in order to thrive internationally, these companies needed to build their brands and tailor their products to their target markets.

"Global challengers have pursued most of the easy-growth opportunities overseas," BCG said in its report. "They often need to make investments in overseas markets to capture greater market share."

"But these companies have to be careful about where they place their bets. Will they decide that their long-term strength rests on creating truly global footprints and business models in order to take advantage of the eventual convergence of the growth rates of the two worlds? Or will they retreat back home and to other emerging markets?" it said.

Companies also had to start "behaving like multinationals" in their approach towards talent and innovation, recognising that strengthening their capabilities in these areas would likely come at the expense of profit margins. However, BCG concluded that these issues were "growing pains - not the end of growth".

BCG said that the biggest change between its 2014 list and the original 2006 list was the scope of the companies included, both in terms of product offerings and in the number of emerging markets represented. The 2014 list included companies from 18 countries, eight more than on the original list; while the number of companies from the so-called BRIC nations of Brazil, Russia, India and China fell from 84 down to 65. However, two Chinese companies "graduated" from the list this year to become properly global companies: Huawei Technologies and Lenovo.

New categories represented on the list included quick-serve restaurants, such as Jollibee Foods from the Philippines; and wines and spirits, including Chile's Concha y Toro and Thailand's Thai Beverage. Consumer goods companies accounted for 31% of new entrants; while those in the telecoms, media and technology (TMT) sectors accounted for 15% of new entrants.

Between 2008 and 2013, the companies on the list increased their employment by 32%, compared to an 11% increase in employment amongst companies listed on the non-financial S&P 500 global stock exchange index, compiled by Standard and Poor's. The average revenue per employee of these companies also exceeded that of the non-financial S&P 500 companies: $479,000 compared with $440,000.

BCG's Singapore-based partner and managing director, Dinesh Khanna, said that much of this growth was driven by the purchasing power of the growing middle class in the emerging economies.

"Eight years ago, when we created the global challenger list, it was dominated by Chinese and Indian manufacturers that largely competed on the basis of low costs," he said. "Today, the global challengers come from a much wider range of industries and countries - and increasingly from consumer goods sectors."

According to BCG, the size of the global middle class will grow to 3.2 billion in 2020 from around 1.8bn in 2009, and nearly all of the new members will live in emerging markets.