R         BCG G CCompanies on the MoveRising Stars from Rapidly Developing Economies        Are Re...
The Boston Consulting Group (BCG) is a global manage-ment consulting firm and the world’s leading advisor onbusiness strate...
Companies on the MoveRising Stars from Rapidly Developing Economies        Are Reshaping Global Industries            ...
© The Boston Consulting Group, Inc. 2011. All rights reserved.For information or permission to reprint, please contact BCG...
ContentsExecutive Summary                                              4A Decade of Global Growth                         ...
Executive SummaryG              lobal challengers are companies based              the world stage. These are the emergenc...
the global population by 2020. Many challengers have      About the Authors  already built successful businesses serving t...
A Decade of                              Global GrowthF         ive years ago, when the first report in this se-    As the ...
Exhibit 1. Global Challengers Exhibited Strong Sales Growth and Margins                        Annual sales growth, 2000–2...
Exhibit 2. Global Challengers Delivered Superior Value for Shareholders              Total shareholder return (TSR) index ...
Resolving Tradeoffs From 2005 through 2009, global challengers delivered an                      while maintaining compara...
Exhibit 4. Global Challengers Pursued Relatively Bigger M&A Deals      Average number of deals                            ...
The 2011 BCG                       Global ChallengersB             CG has selected a list of 100 global challeng-   Anshan...
Methodology for Selecting the 2011 BCG Global Challengers     We began our analysis by compiling a list of potential      ...
Exhibit 5. There Are 23 New Global Challengers—and 5 Emeriti                                                            20...
Ecuador, and Peru. It has a strong focus on operational ef-        it overseas. It has 44 exploration and production proje...
ing machinery. The company, which reported $3 billion           global producer of platinum and diamonds. Anglo Amer-in re...
The Countries and Industries of the 2011                                                  Five Trends That Will Shape the ...
tures: bridges and power plants in Southeast Asia, high-     These deals have two significant objectives: to satisfy theway...
many state-owned challengers is guaranteed implicitly or         The Tata Group works collaboratively with its acquisi-exp...
In the food and beverage sector, global challengers have           forging companies. It gives Bharat Forge an entry into ...
The Success of                                 ChallengersT             he global challengers are certainly not the      c...
United States, Europe, and Asia. The company has grown         The company’s conviction that polyester is a core busi-from...
The New DecadeT             he global challengers are entering the new      In addition to these external constraints, cha...
2011 Boston Consulting Group companies on the move  rising stars from rapdily developing economies are reshaping global in...
2011 Boston Consulting Group companies on the move  rising stars from rapdily developing economies are reshaping global in...
2011 Boston Consulting Group companies on the move  rising stars from rapdily developing economies are reshaping global in...
2011 Boston Consulting Group companies on the move  rising stars from rapdily developing economies are reshaping global in...
2011 Boston Consulting Group companies on the move  rising stars from rapdily developing economies are reshaping global in...
2011 Boston Consulting Group companies on the move  rising stars from rapdily developing economies are reshaping global in...
2011 Boston Consulting Group companies on the move  rising stars from rapdily developing economies are reshaping global in...
2011 Boston Consulting Group companies on the move  rising stars from rapdily developing economies are reshaping global in...
2011 Boston Consulting Group companies on the move  rising stars from rapdily developing economies are reshaping global in...
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2011 Boston Consulting Group companies on the move rising stars from rapdily developing economies are reshaping global industries

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This year’s global challengers—100 fast-growing companies form rapidly developing economies—have the confidence and ambition to score a leading role on the world stage. Established multinationals should view these companies both as competitors and as potential customers and collaborators.

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Transcript of "2011 Boston Consulting Group companies on the move rising stars from rapdily developing economies are reshaping global industries"

  1. 1. R  BCG G CCompanies on the MoveRising Stars from Rapidly Developing Economies Are Reshaping Global Industries
  2. 2. The Boston Consulting Group (BCG) is a global manage-ment consulting firm and the world’s leading advisor onbusiness strategy. We partner with clients in all sectorsand regions to identify their highest-value opportunities,address their most critical challenges, and transform theirbusinesses. Our customized approach combines deepinsight into the dynamics of companies and markets withclose collaboration at all levels of the client organization.This ensures that our clients achieve sustainable compet-itive advantage, build more capable organizations, andsecure lasting results. Founded in 1963, BCG is a privatecompany with 71 offices in 41 countries. For more infor-mation, please visit www.bcg.com.
  3. 3. Companies on the MoveRising Stars from Rapidly Developing Economies Are Reshaping Global Industries  BCG G C Sharad Verma Kanika Sanghi Holger Michaelis Patrick Dupoux Dinesh Khanna Philippe Peters January 2011 bcg.com
  4. 4. © The Boston Consulting Group, Inc. 2011. All rights reserved.For information or permission to reprint, please contact BCG at:E-mail: bcg-info@bcg.comFax: +1 617 850 3901, attention BCG/PermissionsMail: BCG/Permissions The Boston Consulting Group, Inc. One Beacon Street Boston, MA 02108 USA
  5. 5. ContentsExecutive Summary 4A Decade of Global Growth 6Strong Revenue Growth and Profits 6Superior Value Creation 7Aggressive Moves in Cross-Border M&A Activity 7The 2011 BCG Global Challengers 11Who They Are 11The 2011 BCG Global Challenger Emeriti 15The Countries and Industries of the 2011 Global Challengers 16Five Trends That Will Shape the Future 16The Success of Challengers 20Bharti Airtel’s Operations and Channel Innovations 20Indorama Ventures’ Contrarian Bent 20The Technological Focus of Grupo Alfa’s Nemak 21The New Decade 22The Battle for Emerging Customer Segments 22The Battle for Industry Leadership 23The Battle for New Markets 24For Further Reading 28Note to the Reader 29C   M 
  6. 6. Executive SummaryG lobal challengers are companies based the world stage. These are the emergence of Chinese in rapidly developing economies (RDEs) contractors, the rush for natural resources, the rise of that are shaking up the established eco- diversified global conglomerates, the challenges of nomic order. building global consumer brands, and the increasing reliance on partnerships. ◊ The global challengers identified in this re- port grew annually by 18 percent and averaged oper- The global challengers are entering the new decade ating margins of 18 percent from 2000 through 2009. from a position of strength.◊ During these years, the annualized total shareholder ◊ They have developed innovative business models and return of the global challengers was 17 percent. understand emerging markets, which will serve as the growth engines of the global economy.◊ These companies are also aggressively acquiring for- eign companies in order to expand their reach, acquire ◊ They are financially fit and can take advantage of brands and technological expertise, and build scale. opportunities to buy attractive assets and compete against more established competitors still in recov-The 2011 global challengers are a diverse group, re- ery mode.flecting the dynamic nature of global competition. Many challengers are taking on established multi-◊ They come from 16 countries, with China, India, Brazil, nationals, vying for global leadership. Mexico, and Russia dominating the list—although less so than they did in past reports. ◊ Within the next five years, about 50 of the global challengers could qualify for inclusion in the Fortune◊ Africa, a continent with new-found ambitions, placed Global 500. four companies on the list. ◊ By 2020, the global challengers could collectively◊ Four industries—mining and metals (with nine chal- generate $8 trillion in revenues, an amount roughly lengers), steel (with eight), construction (with six), and equivalent to what the S&P 500 companies generate fossil fuels (with six)—signal the rising importance of today. infrastructure and natural resources to the ultimate success of developing economies and companies head- Increasingly, global challengers will be engaged in quartered in these economies. three key battles with companies from developed markets.◊ Across the 100 global challengers, at least five trends emerge that will shape commerce, not just for the ◊ A Battle for Emerging Customer Segments. The middle global challengers but for all companies that play on class in emerging markets will make up 30 percent of T B C G
  7. 7. the global population by 2020. Many challengers have About the Authors already built successful businesses serving these con- Sharad Verma is a partner and managing di- sumers, but they need to fortify these positions and rector in the New Delhi office of The Boston Consult- consider diversification and expansion. ing Group; you may contact him by e-mail at verma.sharad@bcg.com. Kanika Sanghi is a proj-◊ A Battle for Industry Leadership. Over the coming de- ect leader in the firm’s Mumbai office; you may con- cade, the battle between established players and glob- tact her by e-mail at sanghi.kanika@bcg.com. Holger al challengers will intensify. The challengers need to Michaelis is a partner and managing director in BCG’s move beyond advantages that are based on cost and Beijing office; you may contact him by e-mail at location to create global organizations, strong brands, michaelis.holger@bcg.com. Patrick Dupoux is a partner and world-class innovation capabilities. and managing director in the firm’s Casablanca office; you may contact him by e-mail at◊ A Battle for New Markets. There are several emerging dupoux.patrick@bcg.com. Dinesh Khanna is a part- battlegrounds: Africa, an oen-neglected continent; do- ner and managing director in BCG’s Singapore mestic markets within RDEs; trade with other RDEs; office; you may contact him by e-mail at and small and midsize cities rather than the well- khanna.dinesh@bcg.com. Philippe Peters is a partner known megacities. Challengers can take advantage of and managing director in the firm’s Moscow office; you their knowledge of these markets to develop relevant may contact him by e-mail at peters.philippe@bcg.com. products and compelling brands that stand for quality and value.Competition between global multinationals and chal-lengers will intensify over the coming decade.◊ As competition intensifies, the boundaries between these two distinct sets of companies will continue to blur.◊ During the new decade, winning global companies will be identified less by their home market and more by how they adapt to and embrace the fast-moving world in which they operate.C   M 
  8. 8. A Decade of Global GrowthF ive years ago, when the first report in this se- As the economic profile of RDEs has increased, so has ries was released, global challengers were their influence. RDEs now account for half of the influen- still a novelty. Lenovo Group had recently tial G-20, an international group of finance ministers. Of purchased the PC business of IBM, and the the 29 RDEs we analyzed in this report, 25 are members Chinese National Offshore Oil Corporation of the World Trade Organization.had made an unsolicited bid for Unocal. But the noveltyhas become the norm. This rising economic tide has washed into global rank- ings. The number of companies from RDEs in the FortuneWestern executives now fully recognize—even if they Global 500 has more than tripled—from 21 to 75—in thedon’t thoroughly understand—the rise of companies with past decade. The 2010 list of Forbes 2000 companies in-global aspirations from rapidly developing economies cluded 398 companies from RDEs, nearly triple the num-(RDEs). ber just five years ago.Established Western brands such as Jaguar and Land Global challengers are here to stay. While many develop-Rover are now owned by Tata Group of India. Huawei ing markets are still in economic recovery, global chal-Technologies and ZTE, both of China, are the second- lengers have maintained the momentum they built overand fih-largest global manufacturers of mobile telecom the past decade.equipment ranked by overall revenues, respectively.Mexico’s Grupo Bimbo is the largest bread baker in theworld; Brazil’s JBS, the largest meat producer; and Rus- Strong Revenue Growth and Profitssia’s United Company Rusal, the largest producer of alu-minum. Revenues of the global challengers rose by 18 percent annually from 2000 through 2009, triple the averageThese companies have been the hidden engines of the annual growth rate achieved by both global peers andglobal economy in recent years. Despite the economic the nonfinancial firms among the S&P 500.1 Global chal-slowdown that closed the past decade, global per capita lengers have achieved this growth without sacrificingGDP rose by 50 percent, and 250 million people were li- margins. The average operating margin (earningsed out of poverty over the past ten years. Trade is freer before interest and taxes, or EBIT) of global challengersnow than a decade ago, and global exports have that were publicly listed during those years wasdoubled. 18 percent—6 percentage points higher than the aver- age of the nonfinancial constituents of the S&P 500. (SeeGlobal challengers are also the pubic face of RDEs. Over Exhibit 1.)the past decade, the share of global GDP generated byRDEs rose from 18 percent to 31 percent; their share of 1. Global peers are multinational companies that are headquar-world trade jumped almost as much, from 18 percent to tered in developed economies and that operate in the same indus-28 percent. tries as the global challengers. T B C G
  9. 9. Exhibit 1. Global Challengers Exhibited Strong Sales Growth and Margins Annual sales growth, 2000–2009 Average EBIT margin, 2000–2009 Percentage Percentage 20 20 15 15 10 10 18 18 11 12 5 5 6 6 0 0 Global Global S&P 500 Global Global S&P 500 challengers peers1 (nonfinancial challengers peers1 (nonfinancial companies only) companies only) Sources: Thomson Reuters Datastream; BCG analysis. Note: The exhibit is based on the financial results of 57 global challengers, 174 global peers, and 393 nonfinancial companies listed in the S&P 500 Index. We included in this analysis only those companies for which sales and margin data were available for the entire period from 2000 through 2009. 1 Global peers are multinational companies that are headquartered in developed economies and that operate in the same industries as the global challengers.Superior Value Creation equivalent to the average in 2008. The challengers have also been pursuing proportionately larger deals thanThe economic downturn took a toll on the total share- their peers have. (See Exhibit 4.)holder return (TSR) of nearly all companies. But the per-formance of the global challengers has bounced back About 60 percent of the global challengers’ cross-bordermuch more quickly and strongly than that of other com- deals in the past decade have taken place in developedpanies. From 2000 through 2009, the annualized TSR was markets. Averaging $554 million, these deals have also17 percent for the global challengers while it practically been larger than those that the global challengers com-stood still for the S&P 500 and global peers and rose pleted in developing markets, which had an average val-much more modestly for the MSCI Emerging Markets In- ue of $337 million. This focus on developed markets hasdex. (See Exhibit 2.) The global challengers have, in fact, increased since the start of the recession. Global challeng-resolved many of the traditional tradeoffs that companies ers conducted 71 percent of their cross-border deals inmake in pursuit of value creation. (See the sidebar “Re- developed markets in the two years aer the recessionsolving Tradeoffs.”) began, compared with 58 percent in the two prior years.Aggressive Moves in Cross-Border M&A GActivity lobal challengers are on the hinge of history, bal- anced between a remarkable past decade ofGlobal challengers have continued to pursue cross-border growth and innovation and a promising but un-mergers and acquisitions aggressively. The number of proven future. Their future success will depend on wheth-outbound deals and their average value fell momentarily er they can maintain their momentum over the new de-in 2009—a reflection of economic uncertainty—but have cade and continue to narrow the gap with globalsince bounced back. Through August 2010, 56 deals had multinationals. They will have succeeded if, in ten years,been announced, the same number announced in all of the notion of global challengers is once again a novelty—2009. (See Exhibit 3.) The average value of the deals in because the distinction between them and global multi-2010 was almost twice as high as in 2009 and roughly nationals has been extinguished.C   M 
  10. 10. Exhibit 2. Global Challengers Delivered Superior Value for Shareholders Total shareholder return (TSR) index (Base = 100) Annualized TSR, 800 2000–2009 (%) 600 Global challengers 17.0 400 MSCI Emerging Markets 10.0 200 Index Global peers1 0.5 S&P 500 –0.7 0 January January January 2000 2005 2010 Sources: Thomson Reuters Datastream; BCG analysis. Note: The index base of 100 was set using data for January 1, 2000, and the data were analyzed through August 23, 2010. All indices were weighted by the market capitalization of their constituent stocks. The challengers delivered an even stronger TSR performance, about 30 percent annually, on an equal-weight basis. The index is based on data from 80 global challengers that were publicly listed and from 194 global peers. 1 Global peers are multinational companies that are headquartered in developed economies and that operate in the same industries as the global challengers. Exhibit 3. Global Challengers Have Continued Aggressive Global Expansion Cross-border M&A deals by 2011 BCG Global Challengers Number of deals Average deal value1 ($millions) 150 1,000 135 835 800 726 667 100 88 600 59 419 57 56 56 400 376 50 49 299 43 36 36 251 243 214 23 200 169 128 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (through (through August) August) Sources: Thomson Reuters Datastream; BCG analysis. 1 These data refer only to deals for which the value of the deal was disclosed. T B C G
  11. 11. Resolving Tradeoffs From 2005 through 2009, global challengers delivered an while maintaining comparable leverage. Since the start of annual return of 22 percent, on average, while global the economic downturn, they have reduced their leverage peers delivered just 5 percent. below that of their global peers. In 2009, the average debt- to-equity ratio among the global challengers was 65 per- Breaking down the global challengers’ returns into com- cent, 3 percentage points lower than it was in 2005. By ponents—sales growth, change in margin, change in mul- contrast, the same ratio for global peers rose from 52 per- tiple, and dividends—yields a remarkable story: the chal- cent to 66 percent over the same period. lengers have been able to resolve the three classic strategic tradeoffs confronting companies. (See the exhib- Growth versus Dividends. Investors expect growth it below.) companies to pay much lower dividends—if they pay them at all. Yet the global challengers have managed to Volume versus Margin. Conventional logic assumes that achieve higher levels of growth than their global peers firms make tradeoffs between volume and margin. The while delivering greater dividend yields in all years since global challengers outperformed global peers by aggres- 2004 except one. sively pursuing growth and taking advantage of their low- er cost base to achieve higher margins. The global challengers have achieved these results across nearly all industries, with pharmaceuticals and consumer Rapid Expansion versus Low Leverage. To expand rap- goods being the exception. In pharmaceuticals, global idly, companies oen need to increase leverage to fund challengers have focused on lower-margin generic drugs, growth. The global challengers, however, achieved more while in consumer goods, they have pursued a low-cost than three times the sales growth of their global peers, original-equipment-manufacturer model until recently. Global Challengers Led in All Dimensions of Value Creation Components of value creation, 2005–2009 (all data in percentage points) Capital gain Sales growth 20 80% 17 4 5 Intrinsic + value TSR EBITDA margin change Cash flow contribution –2 33% –4 77% + 22 1.5 1 EBITDA margin 20% 18% 5 (2009) EBITDA multiple change Valuation 7 multiple 1 Global challengers Global peers Sources: Thomson Reuters Datastream; Thomson Reuters Worldscope; Bloomberg; company disclosures; BCG analysis. Note: This exhibit reflects data for 57 global challengers and 168 global peers—the companies for which data were available. EBITDA is earnings before interest, taxes, depreciation, and amortization.C   M 
  12. 12. Exhibit 4. Global Challengers Pursued Relatively Bigger M&A Deals Average number of deals Ratio of average deal value to the market per company capitalization of the acquirers1 (%) 2.5 20 2.0 15 1.5 10 1.0 5 0.5 0.0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Global challengers Global peers Sources: Thomson Reuters Datastream; BCG analysis. Note: This exhibit reflects our analysis of 100 global challengers and 189 global peers. 1 These data refer only to deals for which the value of the deal was disclosed. T B C G
  13. 13. The 2011 BCG Global ChallengersB CG has selected a list of 100 global challeng- Anshan Iron and Steel Group (China) is one of world’s ers that are already sizable, are globally ex- top-ten steel producers, with revenues of more than pansive, and are taking a run at traditional $15 billion. Over the past few years, the company has multinational companies. As in past reports, made a series of overseas and domestic acquisitions, in- our point in this exercise was not to pick in- cluding the 2010 acquisition of China’s Panzhihua Irondustry winners but to spotlight the innovative business and Steel Group. The combined production capacity willmodels, strategies, and challenges emerging from the propel Anshan to become one of the world’s leadingplethora of constraints in RDEs. steel producers.In selecting this year’s list, we undertook a rigorous Bharti Airtel (India), with more than 200 million sub-screening process. (See the sidebar “Methodology for Se- scribers, ranks among the largest telecom operatorslecting the 2011 BCG Global Challengers.”) worldwide. The company generated revenues of $8.8 bil- lion in fiscal 2010 and has grown by an average of 38 per- cent annually over the last five years. Spreading out fromWho They Are its base in India, Airtel has aggressively pursued acquisi- tions in other RDEs. With its $10.7 billion acquisition ofThe global challengers list is as dynamic as the markets Zain Africa’s mobile operations in 15 countries, the com-in which its members are located, with 23 new members pany now has a presence in 19 countries.in this report. (See Exhibit 5.) Bidvest Group (South Africa) is a diversified holdingIn most cases, previous entrants that do not appear on company with interests in food services, freight, manufac-the current list continue to be strong contenders in their turing, and automobile sales. It is the largest food-distri-respective industries, but they may not be expanding bution company outside the United States. The companyglobally as aggressively as the currently listed companies had revenues of $14.4 billion in fiscal 2010 and has aare. Some companies have dropped from the global chal- strong footprint in Africa, Europe, Asia, and Australia.lengers list because they suffered during the economicdownturn and are now focused on bringing their busi- Bumi Resources (Indonesia) is among the fastest-grow-nesses back to health. ing coal companies in the world. In 2009, Bumi postedIn addition to the new entrants, we are also introducing 2. In addition to the 23 new companies on the 2011 list, there arein this report challenger emeriti—a new group we cre- five new names among the list of challengers. Brasil Foods (Brazil) is the product of a merger in 2009 of Sadia and Perdigão, both ofated to recognize companies that now more closely re- which were listed previously as challengers. DP World (United Arabsemble traditional multinationals than newcomers.2 Emirates) replaces its parent company, Dubai World. Grupo Alfa (Mexico) replaces its manufacturing subsidiary Nemak. Tata Tea has changed its name to Tata Global Beverages (India). UnitedThe 23 new additions to the BCG Global Challengers list Company Rusal (Russia) replaces its parent company, Basic El-are the following companies: ement.C   M 
  14. 14. Methodology for Selecting the 2011 BCG Global Challengers We began our analysis by compiling a list of potential Next, we applied a set of quantitative and qualitative cri- global challengers from companies based in RDEs. We fo- teria. We deemed company size important, as smaller cused on companies located in Asia, Central and Eastern companies have fewer resources to mount aggressive Europe, the Commonwealth of Independent States, the globalization efforts. We sought companies that already Middle East, and Latin America. In this report, we also ex- had high international revenues or large cross-border panded the geographic reach of our analysis to include M&A deals; we also sought companies with credible aspi- the African continent; we took this step to reflect the dy- rations to build truly global footprints, and we excluded namic growth of the economies there. those that could pursue only low-end, export-driven mod- els. We determined this globalization potential by analyz- Our initial master list of potential global challengers was ing each company’s international presence, the number drawn from local rankings of the top companies in the and size of its international investments over the past five geographic markets listed above. We excluded joint ven- years, and the strength of its business model. We mea- tures and companies with significant overseas equity sured the size of each company relative to that of other holders. We decided to consider a few companies that are challengers and multinational competitors in their indus- headquartered in financial capitals—such as London, tries. We wanted to ensure that the global challengers are Hong Kong, and Singapore—on the condition that these credible contenders to become market leaders. companies’ operations take place primarily in RDEs. These companies are listed in the RDE that houses most We based our selection of the final 100 on these criteria of their operations. and feedback from industry experts around the world.revenues of $3.2 billion, with the majority generated and is the sole producer of power transformers in manyoverseas. The company has a strong sales presence in Ja- African countries. Its new wind-energy business is a pio-pan, India, Hong Kong, Taiwan, and Europe and has re- neer in renewable energy in the Middle East and Northcently entered the Chinese market. Africa.China State Construction Engineering Corporation Geely International (China) is one of the fastest-growing(China) is a leading construction company, ranking sixth car manufacturers in China. In 2010, Geely agreed to payon Engineering News-Record’s Top 225 Global Contractors $1.8 billion for Volvo Cars. Geely intends to preserve Vol-for 2010 and earning 2009 revenues of $22.4 billion. The vo Cars’ existing manufacturing facilities in Sweden andcompany has undertaken more than 5,000 projects in 100 Belgium while exploring opportunities to manufacturecountries and has a significant presence in North Africa, Volvo vehicles in new production facilities to be built inUnited Arab Emirates, India, and the United States. China for the local market.Chint Group (China) is a leading player in the low-volt- Indorama Ventures (Thailand) is the largest global pro-age transmission and distribution industries and has re- ducer of polyethylene terephthalate (PET), which is usedcently expanded into solar energy. It exports to more to make plastic bottles, and it is the only PET producerthan 90 countries. Chint has a strong focus on R&D and with a manufacturing presence in the United States, Eu-has begun over the past five years to create its own rope, and Asia. The company’s revenues have grown an-brands rather than simply supply equipment to other nually by 60 percent since 2005, reaching $2.3 billion incompanies. 2009, with 85 percent of these revenues generated over- seas. Indorama Ventures focuses on cost control, tight in-El Sewedy Electric (Egypt) is one of the leading electri- tegration, and a contrarian growth strategy that hascal-equipment manufacturers in Africa and the Middle helped the company build scale through acquisitions inEast, specializing in cables and power transformers. The mature markets.company’s revenues grew by 35 percent annually, on av-erage, from 2004 through 2009 and reached $1.7 billion LAN Airlines (Chile) has domestic operations in fivein 2009. El Sewedy focuses on underpenetrated markets South American countries—Argentina, Chile, Colombia, T B C G
  15. 15. Exhibit 5. There Are 23 New Global Challengers—and 5 Emeriti 2011 BCG Global Challengers Argentina Egypt South Africa ◊ Tenaris ◊ El Sewedy Electric ◊ Bidvest Group ◊ Sappi Brazil Hungary ◊ Sasol ◊ Brasil Foods1 ◊ Gedeon Richter ◊ Camargo Corrêa Group Thailand ◊ Coteminas India ◊ Charoen Pokphand Group ◊ Embraer ◊ Bajaj Auto ◊ Indorama Ventures ◊ Gerdau ◊ Bharat Forge ◊ PTT ◊ JBS ◊ Bharti Airtel ◊ Thai Union Frozen Products ◊ Magnesita Refratários ◊ Crompton Greaves ◊ Marcopolo ◊ Dr. Reddy’s Laboratories Turkey ◊ Natura ◊ Hindalco Industries ◊ Koç Holding ◊ Odebrecht Group ◊ Infosys Technologies ◊ Sabanci Holding ◊ Petrobras ◊ Larsen & Toubro ◊ Votorantim Group ◊ Lupin Pharmaceuticals United Arab Emirates ◊ WEG ◊ Mahindra & Mahindra ◊ DP World5 ◊ Reliance Industries ◊ Emirates Airline Chile ◊ Suzlon Energy ◊ Etisalat ◊ Falabella ◊ Tata Chemicals ◊ LAN Airlines ◊ Tata Communications ◊ Tata Consultancy Services 2011 BCG Challenger Emeriti China ◊ Tata Global Beverages2 ◊ Aluminum Corporation of China ◊ Tata Motors We identified five RDE companies ◊ Anshan Iron and Steel Group ◊ Tata Steel that are emerging from the global ◊ Baosteel Group ◊ Vedanta Resources challenger role to closely resemble ◊ BYD Group ◊ Wipro established multinationals ◊ Chery Automobile Brazil ◊ China Communications Construction Indonesia ◊ Vale Company ◊ Bumi Resources ◊ China International Marine Containers ◊ Indofood Sukses Makmur Indonesia Group ◊ Wilmar International ◊ China Minmetals Malaysia ◊ China National Chemical Corporation ◊ Petronas Mexico ◊ China National Offshore Oil Corporation ◊ Cemex ◊ China Shipbuilding Industry Corporation Mexico ◊ China Shipping Group ◊ América Móvil South Africa ◊ China State Construction Engineering ◊ Femsa ◊ Anglo American6 Corporation ◊ Gruma ◊ SABMiller6 ◊ Chint Group ◊ Grupo Alfa3 ◊ Cosco Group ◊ Grupo Bimbo ◊ Galanz Group ◊ Mabe New global challengers are ◊ Geely International ◊ Mexichem listed in red ◊ Haier ◊ Huawei Technologies Russia ◊ Johnson Electric ◊ Evraz Group ◊ LDK Solar ◊ Gazprom ◊ Lenovo Group ◊ Lukoil ◊ Li & Fung Group ◊ Norilsk Nickel ◊ Shanghai Electric Group ◊ Severstal ◊ Sinochem ◊ United Company Rusal4 ◊ Sinohydro ◊ Sinomach Saudi Arabia ◊ Sinosteel ◊ Saudi Basic Industries ◊ Suntech Power Corporation (Sabic) ◊ Wanxiang Group ◊ Yanzhou Coal Mining Company ◊ Zoomlion ◊ ZTE Source: BCG analysis. 1 Brasil Foods was created through the merger of two 2009 challengers, Sadia and Perdigão. 2 Tata Tea, a challenger last year, was renamed Tata Global Beverages in 2010. 3 Grupo Alfa replaces its subsidiary Nemak. 4 United Company Rusal replaces its parent company, Basic Element. 5 DP World replaces its parent company, Dubai World. 6 We define these companies as challenger emeriti because although they were not named in prior global challenger reports, they were listed in The African Challengers, a BCG report published in June 2010. Had our analyses in the 2009 global challenger report covered the African continent, these companies, which are already beginning to resemble their global peers, would have met our criteria for global challengers.C   M 
  16. 16. Ecuador, and Peru. It has a strong focus on operational ef- it overseas. It has 44 exploration and production projectsficiency. In August 2010, LAN Airlines announced a merg- in 13 countries.er with TAM, the largest airline in Brazil. In 2009, thecombined revenues of the airlines totaled $8.4 billion. Saudi Basic Industries Corporation (Sabic) (Saudi Ara- bia) is the largest and most profitable Middle EasternLDK Solar (China) is a leading integrated manufacturer company outside the oil industry and one of the world’sof photovoltaic products and the world’s largest producer largest manufacturers of chemicals, plastics, and fertiliz-of multicrystalline wafers. In 2009, 75 per- ers. A series of acquisitions has expandedcent of its $1.1 billion in revenues originat- PTT aspires to become Sabic’s presence across more than 40ed outside China. Since 2006, LDK Solar’s countries. In 2009, Sabic had revenues of a member of therevenues have more than doubled an- $27.5 billion.nually. Fortune 100 and plans over the new decade to Sappi (South Africa) is the leading pro-Lupin Pharmaceuticals (India) is a rap- ducer of several types of fine paper. Mostidly growing pharmaceutical firm with invest $100 billion. of its facilities are located in Europe andboth generic and branded products and a North America. In fiscal 2009, Sappi hadsizable presence in the United States and Japan. The com- revenues of $5.3 billion, with 87 percent originating out-pany has made recent acquisitions in Australia, Germany, side Africa.Japan, Philippines, and South Africa, and it reported rev-enues of $1 billion in fiscal 2010. Sasol (South Africa) is the largest producer of synthetic fuel and among the largest coal-mining companies in theMabe (Mexico) is the largest home-appliance manufac- world, with revenues of $16.1 billion in 2010—half fromturer in Latin America. It has leveraged strategic alliances international sales.with such companies as General Electric and Fagor todrive international growth. The company has 18 manu- Shanghai Electric Group (China) is one of China’s top-facturing facilities in the Americas, and its products are three manufacturers of electric equipment and one of thesold in 70 countries. The company’s revenues reached largest elevator manufacturers, with 2009 revenues of$4.5 billion in 2009. $8.4 billion. It has acquired technical and managerial know-how through more than 50 joint ventures with lead-Magnesita Refratários (Brazil) is the third-largest—and ing players such as Siemens and Mitsubishi. In 2010,the only fully integrated—global producer of refractory Shanghai Electric acquired Goss International, a U.S. pro-products (materials resistant to the high temperatures vider of engineered goods, for $1.5 billion.that are used in steel and cement production). The com-pany has 28 manufacturing facilities in South America, Sinohydro (China) is a leading construction firm that hasthe United States, and Europe, and it reported 2009 rev- captured more than half of the global hydropower-con-enues of $1.1 billion. struction market. Revenues in 2009 exceeded $11 billion. The company has more than 200 projects under construc-Norilsk Nickel (Russia), which returns to the challenger tion in 46 countries. Its presence is particularly strong inlist aer a hiatus in 2009, is the largest vertically integrat- Southeast Asia, the Middle East, and Africa.ed mining company in Russia and the largest global pro-ducer of nickel and palladium. It generated revenues of Yanzhou Coal Mining Company (China) is the first Chi-$10.2 billion in 2009 and has sales networks across 20 nese coal company to be listed on both the New York andcountries. Hong Kong stock exchanges. In 2009, the company gener- ated $3 billion in revenues and acquired Felix ResourcesPTT (Thailand), a state-owned oil and gas company, gen- for $3.2 billion, making it the largest Chinese investor inerated 2009 revenues of $46 billion, nearly half of which Australia.came from its international trading business. The com-pany aspires to become a member of the Fortune 100 and Zoomlion (China) is a leading construction-machineryplans over the new decade to invest $100 billion—half of company and the largest manufacturer of concrete-mak- T B C G
  17. 17. ing machinery. The company, which reported $3 billion global producer of platinum and diamonds. Anglo Amer-in revenues in 2009, has grown annually by 60 percent ican has extensive mining operations in South Africa,since its founding in 1992. Zoomlion’s strong R&D culture Australia, and Latin America.has helped generate a wide range of products. In 2008,the company extended its presence to more than 70 coun- Cemex (Mexico) is the third-largest producer of cementtries when it acquired Italy’s CIFA, a manufacturer of and the largest producer of ready-mix concrete in theconcrete equipment. world. It operates in more than 50 countries in the Amer- icas, Europe, the Middle East, and the Pa- Some RDE-based cific Rim. Cemex’s success rests on its ef-The 2011 BCG Global companies are starting fective operations and marketingChallenger Emeriti strategies, as well as its proven ability to to look and feel like integrate acquired companies. In 2009,Some RDE-based companies have made established global 79 percent of Cemex’s $20.2 billion in rev-such significant progress in globalizing that enues were generated internationally.they are starting to look and feel like es- multinationals.tablished global multinationals. We call SABMiller (South Africa) is the world’ssuch companies challenger emeriti and identified them second-largest brewer, with operations and distributionusing the following four key criteria: agreements in 75 countries. Its sells both premium beers with global brands and leading local beers. SABMiller is◊ Size and Scale Required to Operate Globally. Achieved an- the number-one or number-two brewer in many of its nual sales in 2009 of at least $20 billion markets including the United States and several countries in Africa, Latin America, and Europe. In fiscal 2010, al-◊ International Sales. Had at least 75 percent of 2009 most 80 percent of SABMiller’s revenues of $26 billion sales originate outside the country where headquar- originated outside South Africa. tered—or from international customers Vale (Brazil) is the second-largest diversified mining com-◊ Industry Leadership. Ranked as a top-five global com- pany in the world, with a presence in 38 countries and petitor in their industry activities in exploration, operations, and sales. It is the world’s largest producer of iron ore and the second-larg-◊ Global Presence. Maintained global operations and est producer of nickel. Among large companies tracked footprint by BCG’s Value Creators team, Vale has the best ten-year record of creating value for shareholders. The companyThe globalization journey is not over for these compa- has succeeded through strong management practices, ag-nies, and they will continue to face challenges, as do all gressive pricing strategy, and successful acquisitions. Inglobal companies. But the challenger emeriti are further 2009, 85 percent of Vale’s revenues of $23.9 billion wereahead than their peers in the RDEs. generated internationally.Five companies qualified as challenger emeriti. This list Wilmar International (Indonesia), a leading global agri-includes two companies from South Africa that were not business company, has an integrated business model thatnamed in prior global challenger reports but were listed covers origination, processing, branding, and distribution.in The African Challengers, a BCG report published in June It is the largest global processor and merchandiser of2010. Had our analyses in the 2009 global challenger re- palm and lauric oils and a major oil-palm plantation own-port covered the African continent, these South African er. It is the largest oilseed crusher, edible-oil refiner, andcompanies, which are already beginning to resemble manufacturer of consumer pack oils in China. In India, ittheir global peers, would have met our criteria for global is one of the largest edible-oil refiners and a leading pro-challengers. ducer of consumer pack oils. Wilmar sells its products in more than 50 countries, and, in 2009, 77 percent of Wil-Anglo American (South Africa) is one of the leading di- mar’s $24 billion in revenues originated outside South-versified-mining companies in the world and the largest east Asia.C   M 
  18. 18. The Countries and Industries of the 2011 Five Trends That Will Shape the FutureGlobal Challengers Across the 100 global challengers, we have identified atThe global challengers come from 16 countries. (See Ex- least five emerging trends that will shape commerce—hibit 6.) not just for the global challengers but for all companies that play on the world stage.Although China, India, Brazil, Mexico, and Russia stilldominate the list of home nations for the global challeng- ◊ The emergence of Chinese contractorsers, countries in other regions are starting to compete forattention. In particular, Africa, with four global challeng- ◊ The rush for natural resourcesers this year, will likely emerge as a region worth watch-ing. It is rich in natural resources, has emerged as a ◊ The rise of diversified global conglomeratesgrowth market for several industries, and has newfoundambition. ◊ The challenges of building global consumer brandsThe global challengers have historically been well distrib- ◊ The increasing reliance on partnershipsuted across industries. Industrial goods (with 35 challeng-ers) and resources and commodities (with 24) continue to The Emergence of Chinese Contractors. A group oflead the list. The construction industry (with 6 challeng- previously unknown construction players from China hasers) moved up the list, reflecting the increased focus on emerged to win prestigious multibillion-dollar projects.infrastructure in RDEs. These companies are building a broad range of struc- Exhibit 6. The Global Challengers Represent 16 Countries and Several Industries 16 Argentina China India Mexico South Africa United Arab Countries Brazil Egypt Indonesia Russia Thailand Emirates Chile Hungary Malaysia Saudi Arabia Turkey Consumer durables 5 Other1 11 Fast-moving ◊ Food and beverages: 9 United Arab Emirates 3 16 ◊ Pharmaceuticals: 3 South Africa 3 consumer goods ◊ Other: 4 Thailand 4 Russia 6 ◊ Construction: 6 Mexico 7 Services 20 ◊ Telecommunications: 4 ◊ IT/business process outsourcing: 3 ◊ Shipping: 3 Brazil 13 ◊ Other: 4 ◊ Mining and metals: 9 Resources and 24 ◊ Steel: 8 India 20 commodities ◊ Fossil fuels: 6 ◊ Other: 1 ◊ Automotive equipment: 9 China 33 Industrial goods 35 ◊ Chemicals: 9 ◊ Engineered products: 6 ◊ Other: 11 BCG global BCG global challengers by country challengers by industry Source: BCG analysis. 1 The other countries are Argentina (1), Chile (2), Egypt (1), Hungary (1), Indonesia (2), Malaysia (1), Saudi Arabia (1), and Turkey (2). T B C G
  19. 19. tures: bridges and power plants in Southeast Asia, high- These deals have two significant objectives: to satisfy theways and railways in Africa, and even a casino in the local thirst for natural resources and to develop footholdsUnited States. in growth markets. In Thailand, for example, PTT is look- ing for foreign assets to meet fast-growing domestic de-Over the past decade, the average annual value of over- mand. About one-half of its planned investment will fo-seas contracts for Chinese construction companies has cus on overseas expansion. Brazil’s Petrobras plans toexpanded at a rate of 29 percent. These players are climb- acquire long-term sources of liquefied natural gas in theing the global rankings and capturing both market share Asia-Pacific region.and top positions. In the most recent Top 225 Global Con-tractor list published by Engineering News-Record, Chinese In Russia, where more than 60 percent of export reve-firms hold three of the top five—and 19 of the top nues are generated by oil and gas and 14 percent by met-100—slots. als, companies are especially motivated and activated ac- quirers. (See the sidebar “Going Global.”)Three reasons are behind the success stories. The first, ofcourse, is cost. Even on overseas projects, Chinese com- As we saw with the rise of Chinese contractors, many ofpetitors frequently enjoy a labor cost advantage over these acquisitions have strong financial, regulatory, andcompetitors from the United States, Europe, and Japan. diplomatic support from RDE governments. The debt ofThey also tend to be vertically integrated and can buyequipment and material from domestic suppliers or theirown subsidiaries. Shanghai Zhenhua Heavy Industry, the Going Globalworld’s largest manufacturer of heavy machinery, for ex-ample, provides container cranes for the projects of its The Russian challengers, all of which operate in theparent, China Communications Construction. natural resources industry, completed 143 cross-bor- der deals from 2000 through August 2010—accountingThe second reason is the talent and experience of Chi- for 22 percent of these deals closed by all 100 globalnese contractors. Chinese contractors have gained valu- challengers.able experience domestically that they can apply on in-ternational projects. China, for example, has built 4,000 Steel giant Severstal, for example, has an establishedmiles of high-speed rail lines, including the Wuguang Pas- record of acquiring and integrating assets in both de- veloped and emerging markets. Severstal’s $1 billionsenger Railway that allows trains to reach peak speeds of deal for PBS Coals in the United States will provide245 miles per hour. China is also home to the Three Gorg- the raw materials and lower transportation costs need-es Dam, the world’s largest hydroelectric project, com- ed to enable its expansion. In 2010, Severstal inkedpleted in 2006, and the Hangzhou Bay Bridge, the world’s deals to secure iron-ore exploration rights in the Con-longest sea-crossing bridge, opened in 2008. go and Gabon.The final reason is that the Chinese government and Rosatom, the state-owned nuclear-power monopolystate-owned banks provide diplomatic and financial sup- and a leading global manufacturer of nuclear fuel and reactors, is seeking geographic diversification and ac-port to contractors. The Chinese government has impor- cess to lower-cost uranium reserves. In 2010, it ac-tant ties with Africa, Southeast Asia, and the Middle quired a controlling stake in Canadian Uranium One.East—the three areas where 90 percent of Chinese over- More broadly, Rosatom is seeking to become a globalseas orders originate. leader in nuclear technologies through international partnerships and M&A.The Rush for Natural Resources. Global challengers aresearching for natural resources to fuel their growth. From Oil and gas companies are not sitting still either. In ad-January 2006 through August 2010, challengers in the re- dition to scouting for new reserves, these companies are aiming to vertically integrate. In recent years, theysources and commodities industry announced 154 cross- have made a large number of downstream acquisitionsborder mergers and acquisitions, far more than any other (in pipelines, refineries, and filling stations) across thesector and nearly twice the 86 M&A deals completed in world to gain better access to their customers.the five previous years.C   M 
  20. 20. many state-owned challengers is guaranteed implicitly or The Tata Group works collaboratively with its acquisi-explicitly by their home-country government. In 2009, the tions. The acquired companies generally remain separateRussian government set up a unit to advise on foreign organizations and have operational freedom, even whenM&A in the energy sector. Many Russian and Chinese they operate in the same or related businesses as the ac-companies have signed foreign-venture deals in Nigeria quiring company does, as was the case for Tetley andand Australia during official visits by state dignitaries. Corus. Tata also emphasizes the retention of top manag- ers. The glue that holds the acquisitions together is Tata’sThe Rise of Diversified Global Conglom- corporate center.erates. Seven global challengers are con- To expand the marketsglomerates; the most notable is the Tata Koç Holding in Turkey takes a more de- they serve, someGroup in India, which has operations in centralized approach, letting subsidiariesthe chemical, communications, IT, bever- global challengers are seek growth opportunities. For instance,age, automotive, and steel sectors. (Six of trying actively to create Koç’s Arçelik subsidiary recognized thatthe Tata Group companies qualify as chal- the domestic Turkish market was saturat-lengers in their own right.) The other di- global brands. ed and began to expand its appliance busi-versified challengers are Grupo Alfa in ness in Europe and beyond. To date, Arçe-Mexico, Koç Holding and Sabanci Holding in Turkey, and lik is the most global of Koç’s subsidiaries.Camargo Corrêa Group, Odebrecht Group, and Votoran-tim Group in Brazil. The Challenges of Building Global Consumer Brands. In their bids to transcend business models that are basedThese companies are at different stages of globalization on low costs and to expand the markets they serve, someand diversification. At one end of the spectrum are Tata global challengers are trying to create global brands.and Votorantim, major global contenders. Votorantim’srecent acquisition of Aracuz led to the creation of Fibria, Historically, many durable-consumer-goods companiesthe largest competitor in the pulp and paper industry. from RDEs have entered developed markets as originalThe Votorantim Group’s member companies are also equipment manufacturers, distributing goods throughamong the top-five global zinc companies and the top-ten better-known Western brands. This model has reached itsglobal cement producers. At the other end are the con- limits, as manufacturing costs have risen and demand forglomerates with less diverse global portfolios. Grupo Alfa appliances in developed markets has dropped since thefrom Mexico, for example, is the world’s leading manu- global recession. Wages in China’s Guangdong province,facturer of high-tech aluminum cylinder heads and en- for example, rose by 11 percent in 2010. In India, coppergine blocks and has interests in refrigerated products and prices more than doubled in 2009. Since 2008, mean-polyester businesses. Companies have also adopted dif- while, demand in North America has dropped by 10 per-ferent management approaches to globalization. For Tata, cent and by 3 to 5 percent in Western Europe. Also, manyglobalization was a way to distribute risk and lessen its established global companies have created manufactur-dependence on the Indian economy. Although its opera- ing operations in RDEs, a move that erodes cost advan-tions are independently managed by group companies, tages held by companies based in developing markets.the corporate center plays an important role in definingshared values and vision, developing brand and market- In response to these developments, many traditionaling strategies, facilitating people development, measur- manufacturers have begun to build their brand identitying performance, and creating common M&A practices. in developed markets. To better understand the needs of Western customers, for example, China’s Haier has locat-Over the last decade, the Tata Group has completed cross- ed R&D facilities in the region and hired local staff. It hasborder acquisitions whose value exceeded $17.5 billion. also developed relationships with retailers to expandAmong others, Tata Steel acquired the Anglo-Dutch steel its reach with customers. Mexico’s Mabe has acquiredgroup Corus; Tata Chemicals acquired General Chemical Bosch’s Brazilian subsidiary. Turkish conglomerate KoçIndustrial Products, which is based in the United States; has both invested in developing its own Beko brand inTata Motors acquired three car and truck lines; and Tata major European markets and acquired local brands inGlobal Beverages acquired Tetley Tea. other markets. T B C G
  21. 21. In the food and beverage sector, global challengers have forging companies. It gives Bharat Forge an entry into thea different motivation to develop brands. They have well- Chinese auto market, while it enables FAW to leverageknown brands at home and are expanding their global the global sales channel held by Bharat Forge.footprints through acquisitions of brands and distributionnetworks in developed markets. Achieving Scale to Compete Globally. The merger of Perdigão, Brazil’s largest food company, and Sadia, a large poultryIn its campaign to become the world’s largest beef pro- exporter also based in Brazil, created a conglomerate ca-cessor, JBS acquired the Bertin brand in pable of competing against global food gi-Brazil and the Pilgrim Pride and Swift When global ants. The new Brasil Foods—which boastsbrands in the United States. The Swi ac- 42 factories, more than 100,000 employees, challengers partnerquisition also gave JBS access to distribu- sales in 110 countries, and 24 offices aroundtion channels in Japan and Korea. Like- with multinationals, the world—can compete in the Unitedwise, Thai Union Frozen Products, one of they do so from a States, Europe, and the Middle East.the world’s largest exporters of seafood,has established strong market positions position of strength. Sharing High-Risk Investments. India’s Reli-overseas by acquiring leading foreign ance Industries and Mexico’s Grupo Alfabrands. Its first major acquisition was Chicken of the Sea, are partnering along with U.S.–based Pioneer Natural Re-the third-largest brand of canned tuna in the United sources to develop American shale-gas reserves. The ven-States. More recently, it purchased MWBrands, gaining ture plans to build 1,700 drilling sites in unconventionalleading canned-seafood brands in the United Kingdom, locations.Ireland, Netherlands, France, and Italy. Challengers oen pursue more than one of these ap-Grupo Bimbo’s $2.8 billion acquisition of Weston Foods, proaches in their bids to become global. VimpelCom, thewhich boasted 13 percent market share in the United Russian mobile operator, has engaged in M&A activity toStates, made the Mexican company the largest global access new markets, achieve scale, and create synergies.manufacturer of bread. In 2010, Grupo Bimbo agreed It recently announced mergers with the Italian mobileto buy Sara Lee’s North American bakery business for operator Wind and with Egypt’s Orascom; the latter has$959 million, further solidifying sales outside Mexico and a strong footprint in the Middle East and North Africa.complementing the existing scale in its U.S. operations. Once they receive regulatory approval, these deals will create one of the top-five mobile operators in the world—The Increasing Reliance on Partnerships. Global chal- with $21 billion in annual revenues, 174 million subscrib-lengers have been entering partnerships and joint ven- ers, and operations in 20 countries.tures for a long time, but the nature of those relationshipsis changing in two fundamental ways. First, they increas- Furthermore, when global challengers partner with mul-ingly are joining forces with other global challengers rath- tinationals, they do so from a position of strength. In theer than established multinationals. The rising popularity past, these ventures were largely formed to transfer tech-of ventures and partnerships among global challengers nology from the multinational to the challenger or to sat-rests on four pillars. isfy regulatory requirements within RDEs. Now, the two sides are more like partners. In 2010, India’s Dr. Reddy’sSharing Knowledge and Expertise. The best example of this Laboratories partnered with GlaxoSmithKline to markettrend may be the joint venture between India’s Tata Mo- pharmaceutical products in emerging markets. The dealtors and Brazil’s Marcopolo. This venture, formed in 2006, brings together Dr. Reddy’s manufacturing capability andbrings together Tata’s expertise in chassis and Marcopo- portfolio of branded products with the global commerciallo’s know-how in designing and building bus bodies. It is capability of GlaxoSmithKline. Daimler and China’s BYDaimed at capturing share in such growing markets as In- Group, meanwhile, are sharing R&D efforts to developdia, South Africa, Russia, and the Middle East. electric cars in China. The venture capitalizes on Daim- ler’s know-how in electric-vehicle architecture and safetyGaining Access to New Markets. The joint venture of India’s with BYD’s excellence in battery technology and e-driveBharat Forge and China’s FAW Group unites two large systems.C   M 
  22. 22. The Success of ChallengersT he global challengers are certainly not the considered the crown jewel among telecom operators— first firms to emerge from developing econ- to Ericsson and other parties. Outsourcing allowed Airtel omies to achieve global leadership, but they to flexibly increase and manage its network capacity, es- are taking a different path than their prede- sentially “building” minutes with the increased demand, cessors from Japan and South Korea did. just as a factory line accelerates in line with demand.The Japanese and Korean globalization campaigns werebuilt around organic growth—but the global challengers This model has delivered multiple benefits to Airtel. First,are growing both organically and through M&A. it allowed Airtel to ramp up its network speedily. By low- ering its capital outlays, Airtel gained the financial flexi-The Japanese and South Korean pioneers also developed bility to buy more spectrum. Second, as the first mover ina different set of strengths than the global challengers telecom outsourcing, Airtel won great terms with ven-have. Over time, Japanese companies became known for dors, enabling it to lower operating costs below those oftechnological innovation, lean manufacturing, and brands its main rivals. Finally, these deals freed up resources andthat stood for quality, while South Korean companies de- management time and allowed the organization to focusveloped a reputation for making quality products at af- on customer activities.fordable prices. The global challengers are more varied intheir approach. Notably, they are creating disruptive busi- The company also developed new channels to help alle-ness models and coming up with new and better ways to viate the logistical challenges of doing business in India.get the job done in many industries. Three challengers It piggybacked on the existing distribution networks ofexemplify this approach: Bharti Airtel, Indorama Ven- fast-moving-consumer-goods companies and created atures, and Grupo Alfa’s Nemak subsidiary. standardized process for expanding into new areas. These approaches have helped Airtel add subscribers signifi- cantly more rapidly than its nearest rival has.Bharti Airtel’s Operations and ChannelInnovations Airtel’s innovations in outsourcing and distribution have paid off handsomely. With an operating margin of 40 per-Bharti Airtel has grown to become the world’s fih-larg- cent, it is the most profitable company in India. Airtel’sest mobile operator, as measured by the number of sub- average revenue per user is also almost 12 percent higherscribers. From its base in India, the company has expand- than that of its nearest competitor, even while its operat-ed into 19 countries—and is the leading mobile provider ing costs per minute are 14 percent lower.in 12 of them. The secrets to its success are innovativebusiness models relating to operations and distribution. Indorama Ventures’ Contrarian BentIn 2004, Airtel developed what is known as its “minutefactory” model. Under the model, Airtel took the radical Thailand’s Indorama Ventures is a leading polyester andstep of outsourcing significant parts of its network—long PET company with global production facilities in the T B C G
  23. 23. United States, Europe, and Asia. The company has grown The company’s conviction that polyester is a core busi-from the tenth-largest to the top global producer over the ness and its focus on cost turbocharged its business. Frompast four years by having the courage to challenge con- 2005 through 2009 at Indorama Ventures, revenues grewventional wisdom. sevenfold, profits increased ninefold, and its stock price tripled.First, while most major competitors were drawn by high-growth rates to the East, Indorama Ventures concentrat-ed on the West, particularly the slower-growing but less The Technological Focus of Grupo Alfa’scrowded North American and European markets. Sec- Nemakond, in the late 1990s, when other companies began todivest their low-margin PET businesses, Indorama Ven- Nemak, a subsidiary of Grupo Alfa, is the global leader intures acquired many of them, oen at prices below their producing aluminum auto components such as cylinderreplacement cost, and gained advantages of scale. Third, heads and engine blocks. From its base in Monterrey,in order to improve their margins, many traditional com- Mexico, it has expanded its manufacturing operationspanies directed R&D and marketing to specialty product into 12 countries and now generates 90 percent of its rev-lines. Indorama Ventures instead focused on the com- enues from international sales.modity side of the business and optimized R&D andmarketing costs. Fourth, at most companies, the polyes- The company, which serves all the major automakers, haster line was part of a much broader portfolio of busi- greatly transcended its humble origins as a joint venturenesses. By contrast, Indorama Ventures specialized al- with Ford Motor. As its expertise grew, Nemak improvedmost exclusively in polyester in order to ensure that it both its cost structure and technological sophistication. Ithad both its financial resources and best talent devoted has partnered with global leaders in automotive technol-to the business. ogy and made major investments in talent. Rather than simply taking advantage of location and labor costs, Ne-Indorama Ventures became the low-cost leader in the in- mak is now a world-class auto supplier known for techno-dustry through a relentless focus on operating efficiency. logical innovation, customer focus, and quality products.Its plants were running at full capacity in 2009, for exam-ple, while the average utilization rate of its competitors The company has several product-development centerswas around 85 percent. Indorama Ventures also lowered around the world and hires from some of the best univer-the cost of purified terephthalic acid (PTA), a key raw ma- sities. It has systematized R&D to reduce inefficiency, pro-terial, by locking in supplies and keeping transportation mote collaboration, and assure the sharing of best prac-costs down. In the future, it will internally source as much tices. These measures have allowed Nemak to reduce itsas 80 percent of the raw material for its new U.S. plant in overall product-development cycle to less than sixAlabama. Indorama Ventures’ presence on three conti- months—a reduction of 70 percent. Nemak involves cus-nents also helps to reduce its transportation costs and tomers early in product design in order to meet theirlower the risk of trade barriers or duties. needs and control production costs.C   M 
  24. 24. The New DecadeT he global challengers are entering the new In addition to these external constraints, challengers will decade from a position of strength. They also be testing their organizational limits. While global have developed innovative business mod- challengers can learn from the experiences of global mul- els that extend beyond low cost. They have tinationals, they also have unique issues to address. Many succeeded in entering new markets and are global challengers, for example, are still run by founderswell positioned in emerging markets. They are financial- or their family members who have not yet passed the ba-ly fit and can take advantage of opportunities to buy at- ton to the next generation of leadership. Most have nottractive assets and compete against more established yet built global brands or world-class R&D capabilities.companies that may still be in recovery mode. Against this backdrop, global challengers will be compet-If they maintain their growth trajectories, they will ac- ing with established players. This competition will occurquire significant status over the new decade. Within the in three arenas: the battle for emerging customer seg-next five years, 50 of the global challengers could qualify ments, the battle for industry leadership, and the battlefor inclusion in the Fortune Global 500. Within ten years, for new markets.15 to 20 challengers may join the Fortune 100. By 2020,the challengers could collectively generate $8 trillion inrevenues, an amount roughly equivalent to the collective The Battle for Emerging Customerrevenues of the S&P 500 today. SegmentsThese scenarios, however, could easily be disrupted by Over the next 20 years, the fiercest battle will be for theexternal economic events. many billions who are joining the middle class. By 2020, the middle class in RDEs will account for 30 percent ofA shortage of resources or volatility in commodity pric- the world’s population; by 2030, that figure will jump toes could intensify the pressure to secure access to sup- 50 percent.plies. For instance, there is already a shortage in cokingcoal needed to produce steel. Challengers and global mul- It will not, however, be easy to compete in these markets.tinationals alike are on the prowl for fresh supplies. Within RDEs, the “middle class” can be sliced many ways by preferences and spending patterns. The traditional chal-A shortage of talent will intensify the battle for high- lenges of product development, marketing, pricing, sales,quality employees. Talent is increasingly the most valu- and distribution will be multiplied in these markets.able resource for firms. Within RDEs, local and multina-tional companies will battle for the best and brightest. Many global challengers are well poised to reach these consumers because the companies sprang to life servingProtectionism could dampen exports. Global trade is the emerging middle classes in their home markets. Bra-rising again aer falling off during the economic down- zil’s Natura, for example, generates 60 percent of its rev-turn, but protectionist sentiment still lingers. enues from its midrange cosmetics and fragrances. Galanz T B C G

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