Global challengers bcg 2013

Allies and
Adversaries
2013 BCG Global Challengers

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Allies and Adversaries

Arindam Bhattacharya

Thomas Bradtke

Tenbite Ermias

Whitney Haring-Smith

David Lee

Eduardo Leon

Michael Meyer

David C. Michael

Andrew Tratz

Masao Ukon

Bernd Waltermann

January 2013 | The Boston Consulting Group

Contents

3 Executive Summary

5 The Game Has Changed

6 Coming of Age
The New Challengers
State Ownership: From Help to Hindrance
A New Era

11 The 2013 BCG Global Challengers
The Challengers by Country
The Challengers by Industry Sector
Value Creation: A Tale of Two Eras
New BCG Challengers
Signs of Success: The Graduates
The Capabilities Beyond Cost Advantage

2
0 New Adversaries: A Cutthroat Competitive
Environment
Moving into New Businesses
Captivating the New Consumer
Capturing the Digital Opportunity
Exploring Frontiers of Fast Growth

2 3 New Allies: Challengers Going Global
Three Different M&A Strategies
Game-Changing Partnerships

8
2 Reassessing Global Relationships
Opportunities for Challengers
Opportunities for Multinationals
Opportunities for Governments

3 1 For Further Reading

3 2 Note to the Reader

2 | Allies and Adversaries

Executive Summary

T he 2013 BCG global challengers—a list of 100 fast-globaliz-
ing companies from rapidly developing economies (RDEs)—
are driving global growth.

•• From 2008 through 2011, the revenues of global challengers grew
by an annual average of 16 percent. Their average revenues now
exceed those of the nonfinancial S&P 500 companies.

•• From 2006 through 2011, the 2013 BCG global challengers added
1.4 million jobs, while employment at nonfinancial S&P 500
companies remained flat.

•• The 2013 BCG global challengers are from 17 countries—7 more
than our first list covered when it was published in 2006—reflect-
ing the growing pursuit of global growth.

•• More than 30 of the 2013 BCG global challengers are consumer-
focused companies—a sign of the rapid rise of consumer spending
in their markets and abroad.

•• They buy more than $1.7 trillion of goods and services and invest
more than $330 billion in capital spending a year, providing a huge
market for their suppliers.

The 2013 challengers also reflect a turbulent global economy.

•• Twenty-six of the challengers are new to the list. They displaced
former global challengers that have fallen behind or refocused on
their home markets.

•• Since 2006, meanwhile, only seven companies—two this year—
have “graduated” from the list by virtue of having sustained
industry leadership. It is more common to drop off the list than
move beyond it.

The Boston Consulting Group | 3

As global growth shifts to emerging markets, the 2013 BCG global
challengers will compete more directly with multinationals.

•• Global challengers are active in a broader set of industries,
including for the first time financial services, health care equip-
ment, and electronic commerce.

•• Many challengers already have positions to defend in markets that
multinationals covet, such as Southeast Asia, Latin America, and
Africa.

At the same time, global challengers and multinationals will
need to learn how to cooperate.

•• As the global marketplace becomes more demanding, partner-
ships, joint ventures, and other collaborations will be needed.

•• Global challengers and multinationals are increasingly collaborat-
ing in order to exchange technology, enter new markets, develop
products, and enter long-term supplier relationships.

Global challengers, multinationals, and governments all have
constructive roles to play in generating economic growth.

•• The global challengers need to keep building capabilities beyond
low costs, strengthening stakeholder management, and exploring
new growth areas.

•• Multinationals should localize their approaches to emerging
markets, understand when they should collaborate rather than
compete with challengers, and seize the potential for beneficial
partnerships.

•• Governments should not unduly restrict cross-border M&A and
investment activity, develop regional specialties to drive local
investment, and encourage economic development more broadly.


The Game Has Changed

E merging markets have become the
world’s economic engines. They are large
and becoming larger, thanks to annual GDP
content to focus on their home market, while
others are expanding abroad. And many of
those that are going overseas aspire to be
growth exceeding 6 percent and a rapidly global leaders in their industries. These are
growing class of consumers with disposable the global challengers. They are the compa-
income. nies that will shape the global economy over
the next decade.
These markets have become highly prized by
companies everywhere, not just for their In publishing our fifth edition of the BCG
growth but also as sources of talent, capital, global challengers—a list of 100 fast-growing
and companies. Over the past five years, and fast-globalizing companies from rapidly
more than 1,000 companies headquartered developing economies (RDEs)—we hope to
in emerging markets have reached at least illuminate this new economic terrain and its
$1 billion in annual sales. Many of these are players.


Coming of Age

G lobal challengers have arrived;
these companies from RDEs are not
mere curiosities operating in distant regions.
capabilities. In doing so, they are fundamen-
tally altering industries ranging from aircraft
manufacturing and medical devices to e-com-
Collectively, the challengers purchase more merce and mobile telephony.
than $1.7 trillion of goods and services and
invest more than $330 billion in capital The Boston Consulting Group (BCG) pub-
expenditures a year. (See Exhibit 1.) lished its first list of 100 global challengers in
2006. The original list was meant to be a
Global challengers are full-fledged competi- wake-up call to executives of multinationals.
tors making game-changing moves. They are Today, global challengers are not just compet-
winning with a broad range of strategies and itors but also lucrative customers and poten-

Exhibit 1 | Global Challengers by the Numbers

BCG Global Challengers 100
New challengers in 2013 26
Countries represented 17

Average Annual Growth (2008–2011)
Total shareholder return 20%
Revenues 16%
Earnings before interest and tax (EBIT) 10%

Employment and Productivity (2006–2011)
Jobs created 1.4 million
Average annual increase in revenue per employee 12%

The Business Opportunity (2011)
Total revenue $2.6 trillion
Total costs of goods sold $1.7 trillion
Capital expenditures $330 billion

Sources: Bloomberg; S&P Capital IQ; BCG analysis.


tial partners. More broadly, they are emblems From Diverse Lands. Our 2006 list was
of the new order in which emerging markets dominated by China—where 44 of them
will power global growth. were based. But newcomers from other
countries have pushed some former chal-
lengers off the list—there are now just 30
The New Challengers Chinese companies. The number of home
Let’s examine some of the highlights of the countries is steadily broadening. The past
2013 BCG global challengers. two lists have added companies from Egypt,
Colombia, Qatar, Saudi Arabia, and South
Growth. From 2008 through 2011, the reve- Africa.
nues of global challengers grew by an annual
average of 16 percent. Global challengers had R&D. Initially, the global challengers relied
higher average revenues in 2011 than nonfi- on low costs and large captive domestic
nancial S&P 500 companies did. (See Exhibit markets—in the case of China and India—as
2.) From 2008 through 2011, the combined their primary sources of competitive advan-
earnings of the global challengers expanded tage. Now, many are increasingly investing in
by an annual average of 10 percent and total innovation, and their annual spending on
shareholder return (TSR) grew by 20 percent. R&D more than tripled from 2007 through
2011. (See Exhibit 4.)
Job growth has been equally impressive.
From 2006 through 2011, the 2013 BCG glob- Focus on New Consumers. From 2010
al challengers added 1.4 million jobs, while through 2020, emerging economies will add
employment at nonfinancial S&P 500 com- 270 million households with discretionary
panies remained constant. Even more strik- income that make them attractive to consum-
ing, the average revenue per employee of er-facing companies. Global challengers stand
the global challengers now exceeds that of to benefit from this shift, since nearly one-
the nonfinancial S&P 500 companies. (See third are consumer-products or consumer-ser-
Exhibit 3.) vices companies.

Exhibit 2 | Average Annual Revenues Are Larger at Global Challengers Than at S&P 500 Companies

Average annual revenue per company ($billions)

Average annual revenue per company ($billions)
30
26.5

25
21.0
19.2 20.0
20 19.0 17.9 18.6
16.6 17.3 17.5
15.3 15.8
15 14.0 14.5

10 9.8

5

0

Year of report 2006 2008 2009 2011 2013

Year of revenue 2005 2007 2008 2010 2011

S&P 500 Nonﬁnancial S&P 500 2013 BCG global challengers
Sources: Bloomberg; S&P Capital IQ; BCG analysis.


Exhibit 3 | Employment and Productivity Are Rising
Challengers added 1.4 million jobs . . . . . . and became more productive
Employment (millions) Revenue per employee ($thousands)
21 450
417
20
400
371
19
350

300
5
285

4 250
242

3 200
2006 2007 2008 2009 2010 2011 2006 2007 2008 2009 2010 2011
Nonﬁnancial S&P 500 2013 global challengers
Sources: S&P Capital IQ; Bloomberg; BCG analysis.
Note: The employment and revenue data cover the 78 challengers for which financial and employee information were
available.

Many of these challengers have embarked on sumer Products bought Indonesia’s Megasari
an acquisition spree. For instance, in mobile Makmur Group.
telecom, VimpelCom bought Wind Telecom
for $6 billion in 2011. In travel, Chile’s LAN Through such deals, some challengers have
Airlines bought Brazil’s TAM Airlines for risen quickly. But no challenger is guaranteed
$2.7 billion, creating the largest South Ameri- success. A challenger is more likely to be
can airline, Latam Airlines Group. In fast- pushed off the list by the next new rising star
moving consumer goods, India’s Godrej Con- than to rise above it. Twenty-six of the 2013

Exhibit 4 | Global Challengers Are Rapidly Increasing Their Investments in R&D
Top 100 companies receiving U.S. patents 2013 BCG global challengers
Average R&D expenditures
by company ($millions)
2,000

14
1,800

1,600

226

200

0
2007 2008 2009 2010 2011 2007 2008 2009 2010 2011
Percentage change
Sources: S&P Capital IQ; U.S. Patent and Trademark Office patent archive; BCG analysis.


BCG global challengers are new to the list, Many of the displaced challengers continue
the largest reshuffling to date. Meanwhile, to thrive in their home markets. China Mo-
since the initial list was published in 2006 bile, last named a global challenger in 2009,
only seven companies—two this year—have remains a market-leading carrier at home.
“graduated” by achieving sustained industry The China State Construction Engineering
leadership. Corporation, a challenger in 2011, has contin-
ued to grow at home and abroad. It broke
ground in 2011 on a $3.4 billion resort project
State Ownership: From Help to in the Bahamas but has shifted more of its at-
Hindrance tention to the domestic market.
State ownership or control has been the
birthright of many of the global challengers.
But fewer of the companies on BCG’s list car-
ry that lineage than ever before. Only 26 of
Fewer challengers are state
the 2013 BCG global challengers are state owned or state controlled
controlled; this is down from 36 on the 2006
list. (See Exhibit 5.)
than ever before.
While the state is still the visible hand in the
economies of these markets, many companies At least five factors explain the setbacks of
under state ownership or control have either state-owned and state-operated enterprises
chosen not to go global or stumbled when on the global stage. First, their relative com-
they tried. Since our 2011 report, companies petitive advantage resides in their domestic
with greater success overseas displaced 12 markets, where the state may encourage
state-owned or state-controlled companies them to focus. Second, private-sector compa-
from the list of global challengers. Most but nies generally have had more success than
not all of the former challengers were Chi- state enterprises in meeting the needs of con-
nese. Nine state-owned or state-controlled sumers. Third, their people practices tend to
companies are new to the list, demonstrating be less flexible than those of private enter-
that some such companies continue to push prises, limiting their ability to leverage talent
overseas. abroad. Fourth, they historically have been

Exhibit 5 | State Ownership and Control Are in Decline
Number of state-controlled and state-owned challengers
36
34
6 31
29
4 10
26
9
8 Other

30
27
24
20 18 China

2006 2008 2009 2011 2013
Number of Chinese
challengers 44 41 36 33 30

Percentage of state-
owned or state-controlled 68 66 67 61 60
Chinese challengers

Source: BCG analysis.
Note: The analysis does not include challenger graduate companies.


more conservative in putting capital at risk in uct portfolios to pursue opportunities in
large M&A transactions overseas. Fifth and emerging markets, facing challengers on their
finally, they can face resistance from stake- home turf. And some challengers, notably the
holders in other countries as they seek to ex- conglomerate Alfa and the baker Grupo Bim-
pand. While many state companies have over- bo, both of Mexico, are expanding into the
come these challenges, others are at risk of home markets of multinationals.
falling behind globally.
Paradoxically, as competition between multi-
To succeed outside of their home countries, nationals and challengers has become more
state-controlled enterprises will need to at- cutthroat, these companies are also more like-
tract talent, take risks, develop successful ly to find it desirable to enter partnerships.
business models, and appease the concerns Bargaining power is more balanced, so part-
of key stakeholders in their target markets. nerships no longer need to be established sole-
ly on the basis of the low costs of challengers
or the high gloss of Western brands but rather
A New Era on a wide range of complementary skills.
Increasingly, challengers and multinationals
are competing head to head. Multinationals We have entered the era of allies and adver-
have modified their cost structures and prod- saries.


The 2013 BCG Global
Challengers

T he 2013 list represents the most
diverse group of global challengers yet,
with wider geographic and industrial
The new list includes representatives from
the financial services (Citic Group and China
UnionPay), health care equipment (Mindray),
breadth than ever before. (See Exhibit 6.) and electronic commerce (Alibaba Group) in-
They are hard at work transforming them- dustries.
selves into global champions. (For details on
the selection criteria, see the sidebar “Meth-
odology for Selecting the BCG 2013 Global
Challengers.”)
BCG’s 2013 list represents
the most diverse group of
The Challengers by Country global challengers yet.
The 2013 BCG global challengers are from
17 countries, 7 more than in 2006. (See
Exhibit 7.) As in previous years, China and But the list is still heavy on industrial-goods
India boast the highest numbers, with 30 companies (38) and resource and commodity
and 20 global challengers, respectively. companies (20), which account for twice the
Brazil is next with 13, followed by Mexico, share of the challengers list than these indus-
with 7, and Russia, with 6. South Africa in- tries occupy on the S&P 500. The services sec-
creased its number of challengers from three tor, with 24 entries, is still underrepresented
in 2011 to five in 2013. Malaysia, with two, compared with the S&P 500 index. (See Ex-
and Turkey, with three, increased their num- hibit 8.)
ber of BCG global challengers by one each.
The BRIC nations (Brazil, Russia, India, Chi-
na), once home to 84 challengers, are now Value Creation: A Tale of Two
down to 69. Many markets beyond the Eras
BRICs are now producing global challengers Global challengers have generated long-term
as well. value for their shareholders. Over the past 12
years, they have outperformed the S&P 500,
the MSCI Emerging Markets Index, and their
The Challengers by Industry global peers (multinationals from the same
Sector industry and based in a mature market).
The span of industries represented on the Their average annual TSR of 17.3 percent is
2013 BCG global challenger list is widening. nearly 3 times greater than that of the MSCI


Exhibit 6 | There Are 26 New Global Challengers—and 2 New Challenger Graduates


Argentina • PetroChina Malaysia South Africa
• Tenaris • Sany Group • AirAsia • Aspen Pharmacare
• Shanghai Electric Group • Petronas • Bidvest Group
Brazil • Sinochem • MTN Group
• Brasil Foods • Sinohydro Mexico • Naspers
• Camargo Corrêa Group • Sinoma International • Alfa • Sasol
• Embraer Engineering • América Móvil
• Gerdau • Sinopec • Femsa Thailand
• Iochpe-Maxion • Trina Solar • Gruma • Charoen Pokphand Group
• JBS • Wanxiang Group • Grupo Bimbo • Indorama Ventures
• Marcopolo • Yanzhou Coal Mining Company • Mabe • PTT
• Natura • Zoomlion • Mexichem • Thai Union Frozen Products
• Odebrecht Group • ZTE
• Petrobras Qatar Turkey
• Tigre Colombia • Qatar Airways • Koç Holding
• Votorantim Group • Grupo Empresarial Antioqueño • Sabanci Holding
• WEG Russia • Turkish Airlines
Egypt • Gazprom
Chile • El Sewedy Electric • Lukoil United Arab Emirates
• Falabella • Norilsk Nickel • Etihad Airways
• Latam Airlines Group1 India • Severstal
• Bajaj Auto • United Company Rusal
China • Bharat Forge • VimpelCom
• Alibaba Group • Bharti Airtel
• Aviation Industry • Crompton Greaves Saudi Arabia
Corporation of China • Dr. Reddy’s Laboratories • Saudi Basic Industries
• China Communications • Godrej Consumer Products Corporation (Sabic)
Construction Company • Hindalco Industries
• China International • Infosys2
Marine Containers Group • Larsen & Toubro
• China Minmetals • Lupin Pharmaceuticals
• China National Chemical • Mahindra & Mahindra
Corporation (ChemChina)
• Motherson Sumi Systems
• China National Oﬀshore
Oil Corporation • Reliance Industries
2013 BCG Challenger Graduates
• China Shipbuilding • Sun Pharmaceutical Industries
Seven companies with large sustained global
Industry Corporation • Tata Chemicals
positions have moved beyond challenger status.
• China UnionPay • Tata Consultancy Services
• Tata Motors Brazil South Africa
• Citic Group
Vale Anglo American
• Geely International • Tata Steel
SABMiller
• Goldwind • Vedanta Resources Indonesia
• Haier • Wipro Wilmar International Saudi Arabia
• Huawei Technologies Saudi Aramco3
• Johnson Electric Indonesia Mexico
• Golden Agri-Resources Cemex United Arab Emirates
• Lenovo Group
Emirates
• Li & Fung • Indofood Sukses Makmur
• Mindray

New global challengers are listed in green.
1
Latam Airlines Group is the result of a 2012 merger of Brazil’s TAM Airlines and 2011 challenger LAN Airlines.
2
Infosys is the new name of Infosys Technologies, a 2011 challenger.
3
Although Saudi Aramco was not a 2011 challenger, we have designated it as a graduate because it is already a global leader in the oil and gas industry and is
on its way to becoming a global integrated energy player.


Methodology for Selecting the BCG 2013 Global
Challengers
We began our analysis by compiling a list of companies in which overseas revenues
potential global challengers from companies either totaled 10 percent of total revenue or
based in RDEs. As in the 2011 report, we $500 million. In export-oriented industries,
focused on companies located in developing such as mining, oil, and gas, we also
Asia, central and eastern Europe, the required companies to possess overseas
Commonwealth of Independent States, the assets of at least 10 percent of total assets
Middle East, Latin America, and Africa. or $500 million. We made a few exceptions
when we strongly believed that companies
Our initial master list of potential global would meet these thresholds in the next two
challengers was drawn from local rankings years. A final set of quantitative measures
of the top companies in the geographic were related to growth and performance.
markets listed above. As in previous years,
we excluded joint ventures and companies We sought companies with credible
with significant overseas equity holders but aspirations to build truly global footprints,
included state-owned companies that excluding those that could pursue only
compete internationally. A few of the global export-driven models. Accordingly, we
challengers are headquartered in global analyzed each company’s international
financial or commercial centers, such as presence, the number and size of its
London or Amsterdam but their operations international investments, M&A activity
take place primarily in RDEs. We have over the past five years, and the strength of
listed these companies in the markets that its business model. We also compared the
house most of their operations. size of each company with the size of other
challengers and multinational competitors
Next, we applied a set of quantitative and in its industry.
qualitative criteria. Companies needed to
have annual revenues of at least $1 billion, We based our final selection on these
a threshold that ensures they have the criteria and feedback from industry experts
resources to go global. We sought around the world.

Exhibit 7 | The Global Reach of the Challengers
BCG 100 global challengers
Number of challengers by country

10 13 17 18 19 Others
7 6 3
6 7 6 5 South Africa
7 6
12 6 Russia
13 7
7 Mexico
14
13
21 13 Brazil
20
20
20
20 India

44 41 36 33 30 China

2006 2008 2009 2011 2013
Number of
countries 10 14 14 16 17


Exhibit 8 | Industrial Goods and Service Sectors Topped the List—While
Resources and Commodities Returned to 2006 Levels
BCG 100 global challengers
Number of challengers by industry
5 4 Consumer durables
13 9
15 Fast-moving • Food and beverages (8)
14 14 consumer goods • Pharmaceuticals (4)
15
16 17 • Fossil fuels (9)
Resources and • Mining and metals (6)
20 commodities
24 • Steel (4)
21
20 23
• Telecommunications (5)
24 Services • Airlines (5)
20 • Construction and engineering (5)
23
17 17

• Engineered products (9)
• Automotive equipments (9)
37 38 Industrial goods
32 30 32 • Chemicals (7)
• Industrial conglomerates (5)

2006 2008 2009 2011 2013

Emerging Markets Index. The average annual Caring for and Feeding a Growing
TSR of the S&P 500 and global peers, by com- Middle Class
parison, is negligible. (See Exhibit 9.) Aspen Pharmacare (South Africa) is the
largest generic-drug manufacturer in the
The picture changes dramatically when the Southern Hemisphere and has 18 manu-
time frame is compressed to the past year facturing facilities located throughout
(from late October 2011 to November 2012). the world. Its products reach more than
During that time, the S&P 500 and global 150 countries. In 2011, almost half of its
peers both outperformed the global challeng- $1.8 billion revenues were generated out-
ers by wide margins, while the challengers side of South Africa. Aspen acquired 25
barely beat the MSCI Emerging Markets In- brands in Australia from GlaxoSmithKline
dex. (See Exhibit 10.) for $268 million in 2012. Aspen has been
one of the best-performing South African
This recent weakness has at least two expla- stocks with a three-year average annual TSR
nations. First, the global challengers above 100 percent.
bounced back earlier from the global finan-
cial crisis, while the recovery of companies Golden Agri-Resources (Indonesia) is one of
based in mature markets has been much the world’s largest producers of palm oil. In
more recent. Second, declining stock prices 2011, 89 percent of its $6.0 billion revenues
of several large challengers in the commodi- originated overseas. Over the past three
ties sector have pulled down the average, years, Golden Agri-Resources has delivered
masking the relatively strong performance average annual TSR of 14 percent, outper-
of smaller players. forming other market players.

Godrej Consumer Products (India) is a con-
New BCG Challengers sumer goods company with leading home-
Among the most interesting challengers are care, personal-wash, and hair-care products.
the 26 newcomers to the 2013 list. They are Its 2011 revenues reached $1 billion. Godrej
grouped by the features that help describe has focused its acquisitions on emerging mar-
their entry to the list of global challengers. kets. Recent acquisitions include Megasari


Exhibit 9 | Global Challengers Outperformed from 2000 to 2012 . . .
Total shareholder return (TSR) index (Base=100)
1,000

800 Average annual TSR (%)

Global challengers 17.3
600

MSCI Emerging Markets Index 6.1
400

Global peers1 3.6
200

S&P 500 –0.2
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sources: Thomson Reuters Datastream; BCG analysis.
Note: The index base of 100 was set on January 3, 2000, and the data were analyzed through November 5, 2012. All indices were weighted by the market
capitalization of their constituent stocks. The challengers delivered an even stronger TSR, about 30 percent annually, on an equal-weight basis. The index is
based on data from 80 global challengers that were publically listed and from 388 global peers.
1
Global peers are multinational companies that are headquartered in developed economies and operate in same industries as the global challengers.

Makmur Group in Indonesia, Darling Group enues of $10.2 billion. Grupo Nutresa, Inver-
in Senegal, and Issue Group and Argencos in siones Argos, and Grupo de Inversiones
Argentina. Suramericana constitute the core of the con-
glomerate, in which members have owner-
Grupo Empresarial Antioqueño (GEA) (Co- ship stakes in one another but do not have a
lombia) is a conglomerate with total 2011 rev- central headquarters. GEA is expanding be-

Exhibit 10 | . . . But They Underperformed the Past Year
Average annual TSR (%)
Total shareholder return index (Base = 100)
120
S&P 500 17.2

Global peers1 12.8

110 7.8
Global challengers
MSCI Emerging Markets Index 6.1

100

90

80
November January March May July September November
2011 2012 2012 2012 2012 2012 2012
Sources: S&P Capital IQ; BCG analysis.
Note: The index base of 100 was set on October 22, 2011, and the data were analyzed through October 22, 2012. All indices were weighted by the market
capitalization of their constituent stocks. The index is based on data from 83 global challengers that were publically listed and from 388 global peers.
1
Global peers are multinational companies that are headquartered in developed economies and operate in same industries as the global challengers.


yond its Latin America base, and its products cal capability outside China. Citic also has
are sold in more than 75 countries. strategic partnerships with global leaders
such as Itochu and Deutsche Bank.
Mindray (China) is China’s largest medical-
equipment manufacturer. It had 2011 reve- MTN Group (South Africa) is Africa’s largest
nues of $900 million, more than half of which mobile operator. It has 183 million subscrib-
were generated overseas. Mindray’s business ers and licenses in 21 countries across Africa
model is built around low cost and innova- and the Middle East. About 60 percent of its
tion, allowing it to win market share from revenues originated outside South Africa.
larger competitors.
Naspers (South Africa) is the largest media
Sun Pharmaceutical Industries (India) is company in the developing world, with reve-
a global pharmaceutical company with a nues of $5.3 billion in fiscal 2012. The compa-
strong presence in the U.S. generic markets. ny’s portfolio includes a 34 percent share of
Its 2011 revenues reached $1.7 billion, 62 per- Tencent (China) and a 29 percent share of
cent of which were generated overseas. It Mail.ru (Russia).
has achieved an average annual TSR over
100 percent for the past three years and has VimpelCom (Russia) is the world’s sixth-larg-
the largest market capitalization in the Indi- est mobile operator, as measured by the num-
an pharmaceutical sector. ber of subscribers. In 2011, 40 percent of its
$20.3 billion revenues were generated in Rus-
sia, although the company is headquartered
Alibaba.com is the world’s in Amsterdam. VimpelCom has also complet-
ed several large acquisitions, including the
largest online trading plat- $6 billion purchase of Italy’s Wind Telecom
and a majority stake in Egypt’s Orascom Tele-
form for small businesses. com Holding.

Powering Future Growth
Making Financial, Commercial, and PetroChina (China) is the world’s largest
Digital Connections publicly traded oil producer, with 2011 reve-
Alibaba Group (China) is the largest e-com- nues of $313.3 billion. In the past two years,
merce company in China, with 2011 revenues PetroChina has been on the acquisition trail,
of $2.8 billion. Alibaba.com is the world’s spending $3 billion with Royal Dutch Shell to
largest online business-to-business trading buy Arrow Energy jointly and $1 billion to
platform for small businesses, while Alibaba’s buy assets from Ineos Group.
Taobao Marketplace and Tmall.com are lead-
ing China-based consumer-to-consumer and Sinopec (China) is the largest producer and
business-to-consumer sites, respectively. distributor of chemical products in China,
with 2011 revenues of $397.4 billion. Sinopec
China UnionPay (China) is the world’s sec- conducted several major overseas transac-
ond-largest credit-card network by transactions and investments in 2011 and 2012, in-
tion volume. It reported 2011 revenues of cluding the $2.1 billion purchase of Daylight
$900 million. China UnionPay cards are ac- Energy, the $1.5 billion purchase of a 49 per-
cepted in 125 countries and are responsible cent stake in Talisman, both of Canada, and
for more than 80 percent of the cross-border the acquisition of a one-third stake in five
transaction volume of Chinese credit cards. shale-oil and gas basins for $2.2 billion from
U.S.-based Devon Energy.
Citic Group (China) is a conglomerate with
2011 revenues of $49.3 billion. Citic is active Goldwind (China) was the world’s second-
in M&A. Its subsidiary, Citic Securities, largest wind-turbine manufacturer in 2011,
bought CLSA, an investment research and ad- producing 9 percent of the turbines world-
visory firm, in 2012 for $1.25 billion. The ac- wide. In 2011, Goldwind spent $56 million on
quisition strengthens the company’s analyti- R&D, or nearly 3 percent of its $2 billion in


revenues. Goldwind has a presence in North ment of Nigeria to complete the biggest ce-
and South America, Australia, Europe, Africa, ment factory in sub-Saharan Africa.
and Southeast Asia.
Tigre (Brazil) is the world’s third-largest mak-
Trina Solar (China) is the world’s fourth-larger of PVC pipes, fittings, and accessories, with
est solar panel manufacturer, with 2011 reve- 2011 revenues of $1.6 billion. Tigre’s success
nues of $2 billion. Trina Solar’s vertical inte- is partly based on designing new prod-
gration helps to improve its efficiency and ucts—500 are launched a year—to local mar-
shorten product-development cycles. More ket conditions.
than 80 percent of its sales are generated
overseas. Flying the Skies
Aviation Industry Corporation of China
(AVIC) (China) is a state-owned aerospace
Qatar Airways was named and defense company, with 2011 revenues of
$40.5 billion. AVIC is investing heavily to be-
the world’s best airline at the come a leading competitor in the commercial
aircraft market. China is currently evaluating
Skytrax World Airline Awards. a $16 billion plan from AVIC to fund jet-en-
gine research.

Building and Driving the World AirAsia (Malaysia) is Asia’s largest low-fare,
Iochpe-Maxion (Brazil) is the largest Brazil- no-frills airline and a pioneer of low-cost trav-
ian manufacturer of wheels and chassis, with el. It reported 2011 revenues of more than
$1.6 billion in 2011 revenues. Iochpe-Maxion $1.4 billion and the lowest per-available-seat
completed two major overseas acquisitions cost per kilometer traveled in the world. Air-
in 2012: the purchases of Grupo Galaz for Asia’s recent orders for 375 planes from Air-
$195 million and of Hayes Lemmerz for bus will allow it to take advantage of the ris-
$725 million. ing demand for air travel.

Motherson Sumi Systems (India) is one of Etihad Airways (United Arab Emirates) is
the leading manufacturers of auto mirrors the national airline of the United Arab Emir-
and other components, with 2011 revenues of ates. The airline, which began operations in
$3.1 billion, 70 percent of which originate 2003, carried 8.3 million passengers to 86
overseas. The challenger is a joint venture be- destinations in 55 countries and generated
tween Samvardhana Motherson Group of In- $4.1 billion in revenues in 2011. It has more
dia and Sumitomo Wiring Systems of Japan. than 90 aircraft on order, including 10 Airbus
Unlike other Indian companies, Motherson A380s, the world’s largest passenger aircraft.
Sumi has not slowed its pace of acquisitions. Etihad Airways holds equity investments in
In 2011, Motherson Sumi acquired 80 percent airberlin, Air Seychelles, Virgin Australia, and
of Peguform, the second largest supplier of Aer Lingus.
vehicle door panels in Germany.
Qatar Airways (Qatar) is the state-owned
Sany Group (China) is the largest construc- flag carrier of Qatar with more than 120 des-
tion-equipment group in China and the tinations throughout the world. In 2011 and
sixth largest globally, with 2011 revenues 2012, Qatar Airways was recognized as the
of $12.6 billion. In 2012, Sany acquired Ger- world’s best airline at the Skytrax World Air-
man equipment maker Putzmeister for line Awards.
$474 million.
Turkish Airlines (Turkey) flies to more
Sinoma International Engineering (China) countries—91—from a single hub than any
is the world’s largest provider for cement other carrier. It also has the goal to become
technology, equipment, and engineering ser- the world’s largest airline by 2023. In 2011,
vices, with $4 billion in 2011 revenues. In 84 percent of its $7 billion revenues originat-
2012, Sinoma partnered with Dangote Ce- ed overseas.


Signs of Success: The Graduates quality products, harnessing their cash re-
Two former global challengers graduated sources, and investing in R&D.
from the list, meaning that they have
achieved sustainable leadership positions in High-Quality Products. Many challengers are
their global markets. In 2011, the first time still low-cost companies, but this label is more
BCG designated graduates, there were five. likely to describe their business models than
their product offerings. The Middle Eastern
Emirates (United Arab Emirates) includes airlines, for example, operate low-cost struc-
both Emirates airline (listed as a 2011 BCG tures while winning global awards for excep-
global challenger) and a range of other port- tional service and quality. The low-cost
folio companies, including dnata, a growing Ascend D1 quad from Huawei Technologies is
airport-services operator. Emirates airline, among the fastest smartphones in the world.
has reported 24 consecutive profitable years
and has built a strong global brand. Its orders Capital Availability. Challengers took advan-
for the Airbus A380 superjumbo airliner ex- tage of low equity prices from 2008 to 2010 by
ceed by three times that of any other carrier. completing hundreds of cross-border acquisi-
tions that provided access to international
Saudi Aramco (Saudi Arabia) is the largest gas assets and management. They remain well
and oil company in the world. It has extensive financed and possess the resources and scale
Saudi Arabian operations. In its quest to be- to make significant strategic investments.
come a global integrated energy business, it has
ventures all across the world, including the U.S., Innovation. Global challengers increasingly
China, Japan, South Korea, and Saudi Arabia. see the need to become more innovative and
are rapidly increasing their research spend-
ing. About 46 percent of Huawei’s 150,000
The Capabilities Beyond Cost employees are in R&D. Mindray generates
Advantage more U.S. patents per revenue dollar than
The 2013 BCG global challengers are at a many global leaders. Many other companies
turning point in their individual histories— in emerging markets are making similar
and in the history of the economic develop- moves. In 2011, companies from China were
ment of RDEs. Their cost advantage over granted more U.S. patents than companies in
competitors from mature markets is eroding. Israel, Australia, Italy, Netherlands, Sweden,
In response, they have been building new ca- and Switzerland. India also ranked in the top
pabilities—such as manufacturing higher- 15 for the first time. (See Exhibit 11.)

Exhibit 11 | China and India Are Gaining Ground as Recipients of U.S. Patents
2007 2009 2011
Japan Japan Japan
Germany Germany South Korea
Korea South Korea Germany
Taiwan Taiwan Taiwan
Canada Canada Canada
U.K. U.K. France
France France U.K.
Italy China China
Australia Israel Israel
Netherlands Italy Australia
Israel Netherlands Italy
Sweden Australia Netherlands
Switzerland Switzerland Sweden
Finland Sweden Switzerland
China Finland India
0 50,000 0 50,000 0 50,000
U.S. patents granted U.S. patents granted U.S. patents granted

Sources: U.S. Patent and Trademark Office; BCG analysis.


Many of the innovations are aimed at creat- neered an innovative role acting as a middle-
ing new business models rather than tangible man between designers in developed mar-
products. For example, Li & Fung Limited, a kets and Chinese manufacturers. (See the
member of Hong Kong’s Fung Group, has pio- sidebar “Challenger-Led Innovation.”)

Challenger-Led Innovation
Companies in RDEs are getting serious Patent growth in China and India is
about innovation. In the past five years, increasing by more than 30 percent
the number of patents granted by the annually. Overall, challengers are respon-
U.S. Patent and Trademark Office to sible for about 22 percent of the growth in
companies based in RDEs increased at patents issued to investors in RDEs—even
a rate more than three times faster though they represent less than 11 percent
than that of companies in other countries. of the companies from RDEs that received
If this growth continues, up to 25 percent U.S. patents in 2011. China’s Huawei
of the patents issued in 2018 may origi- Technologies broke into the top 100
nate in RDEs—up from just 1 percent patenting organizations in 2011 when it
in 2006. was issued 374 U.S. patents.


New Adversaries
A Cutthroat Competitive Environment

T his “two-speed world”—fast growth
in emerging markets, slow or no growth
in mature ones—has allowed global challeng-
vices companies that were born in countries
traditionally driven by commodities.

ers to become stronger relative to multina- Indian companies Bharti Airtel and Godrej
tionals. They are expanding their business Consumer Products have leveraged their in-
portfolios, reaching the rapidly expanding sights from the challenging Indian market to
consumer class in emerging markets, explor- expand into other developing markets—nota-
ing new businesses based on the rising con- bly, Africa. Bharti Airtel began its domestic
nectivity of the emerging world, and moving mobile-phone service in 1995, when India
into underserved fast-growing markets. only had 1 million phone lines—all of which
were landlines. It is now the nation’s largest
mobile provider and an emerging force in Af-
Moving into New Businesses rica. Godrej allows local managers in Africa
Many challengers are expanding into new to set local marketing and sales strategies
businesses and across the value chain. In and to tailor their offering, such as top-selling
2011, Wipro enhanced its sector expertise by hair products, to local needs.
acquiring the oil-and-gas IT practice of U.S.-
based Saic, and in 2012, Wipro acquired Pro- Emerging markets frequent require products
max Applications Group, an Australian ana- tailored for local conditions. One example
lytics company specializing in trade is the chotuKool—an inexpensive, environ-
promotion, a promising opportunity for mentally friendly, and portable refrigerator
growth as consumer spending rises in India. made by a sister company of Godej Consum-
Meanwhile, Mindray has broadened its prod- er Products. ChotuKool, which means “little
uct line and entered the health-care-IT space cool,” weighs less than eight kilograms and
through acquisitions. addresses the rural Indian market and its in-
termittent power supply. It is battery-operat-
ed, consumes less than half the power used
Captivating the New Consumer by a regular refrigerator, and uses high-end
Many challengers have learned to cater to insulation to protect its contents if the batter-
consumers across emerging markets. Vimpel- ies die.
Com, a telecom provider founded in Russia
that generates 40 percent of its revenues in Challengers are also experimenting with inno-
the country, and Naspers, a South African vative banking and financial services. Alibaba
media company, are two fast-expanding ser- Group, the Chinese e-commerce player, has


created Alipay, an escrow-payment system. such as eBay. Alibaba.com had more than
The buyer does not release payment until he 5 million U.S. users as of mid-2012.
has received and validated the merchandise.
Alipay helped unleash explosive growth in e- Even traditional industries, such as airlines
commerce by overcoming mistrust in online and credit cards, are facing competitive
transactions and low credit-card adoption. In threats created by digital connectivity. AirAsia
2010 Alipay surpassed PayPal as the world’s was the first Southeast Asian carrier to intro-
largest online third-party payment platform, duce e-ticketing in 2002. In 2011, it partnered
ranked by number of users. with Expedia, the first venture between a
low-cost carrier and an online travel agent.

Many challengers have ex- China UnionPay, while still small, is providing
financial services in more than 125 countries
panded to Africa, the Middle globally. It has a running start in winning the
emerging-market consumers as they migrate
East, Southeast Asia, and toward financial services.
Latin America.
Exploring Frontiers of Fast
Meanwhile, in Mexico, mobile telecom pro- Growth
vider América Móvil has partnered with Over the past six years, China and India have
BBVA Bancomer to offer banking services become the most common targets for multi-
through its mobile network, much like mobile national corporations looking to expand over-
operator Safaricom did in Kenya with M-Pesa. seas. Many of the global challengers, howev-
Elsewhere, VimpelCom has partnered with er, have expanded their sights to Africa, new
Google to offer Google Play content. Charges growth spots in the Middle East, Southeast
are debited from consumers’ prepaid ac- Asia, and Latin America.
counts, circumventing the lack of credit card
availability in developing countries. Africa. With more than 1 billion people and
$3 trillion in total GDP, Africa is a larger
market than Brazil or Russia. While some
Capturing the Digital Opportunity global consumer companies, such as Unilever,
The digital divide between mature and fast- Nestlé, and Coca-Cola, entered the market
growing markets is starting to shrink. By 2016, decades ago, Africa has become a more
3 billion consumers—or 45 percent of the recent focus of consumer-oriented challeng-
world’s population, will use the Internet. ers. Godrej Consumer Products, for instance,
Nearly 800 million of them will be Chinese, has acquired several hair-care businesses in
about the same number of Internet users in South Africa and the Tura brand in personal
France, Germany, India, Japan, the U.K., and care in West Africa. At Bajaj Auto, Africa
the U.S. combined. accounts for 41 percent of its overseas sales
of light motorbikes—exceeding sales in its
Companies are taking advantage of this con- overseas markets in Asia.
nectivity. Naspers, founded as a newspaper
company in South Africa in 1915, has Heavy-industry companies are also arriving in
emerged as a global player in the media and Africa to meet the growing demands of a con-
the Internet markets through its stakes in tinent under construction. For instance, Sany
Tencent and Mail.ru. Group, the Chinese mining-machinery compa-
ny, signed its first equipment contract in Afri-
Alibaba Group’s Alibaba.com, China’s busi- ca in 2010. Chinese contractors now account
ness-to-business e-commerce leader, has ex- for 37 percent of the African construction
panded its presence in the U.S. in 2010 by ac- market, according to African Business maga-
quiring Vendio, an e-commerce site, and zine. Nearly 42 percent of the contractors’
Auctiva, which provides listing and marketing overseas revenue now comes from Africa, the
tools to vendors on e-commerce websites magazine reports.


In telecommunications, the global challeng- countries as Chile, endowed with remarkable
ers have focused heavily on Africa as it skips natural resources, expand real annual GDP in
fixed lines altogether and goes straight to mo- excess of 4 percent in the post-2009 recovery.
bile. Huawei and ZTE—two Chinese equip- In BCG’s new Sustainable Economic Develop-
ment makers—have leveraged their experi- ment Assessment, an approach to systemati-
ence working with low-income or rural cally assessing and comparing the socioeco-
markets at home to develop products for Af- nomic development across 150 countries,
rica. India’s Bharti Airtel entered the conti- Brazil made the greatest improvement over
nent by acquiring the African operations of the past five years. Several other Latin
Kuwait’s Zain. It then applied its knowledge American nations, including Peru and Uru-
of low-cost markets to expand organically guay, are also in the top 20 nations. Mean-
through its subsidiary Airtel Africa. while, Chile, Colombia, and Peru have forged
an alliance that is binding together their
Southeast Asia. Southeast Asia is on the financial and commercial markets.
move. For most of the past decade, the region
has been enjoying a surging economic Hot Spots. Though best known for their
renaissance. Nearly 100 million people will larger economies, the Middle East and Latin
enter the consumer class by 2015, most of America both have smaller markets with
them in Indonesia, the Philippines, Thailand, strong growth. Real GDP in Qatar and Colom-
and Vietnam, driving projected annual bia, for example, has expanded by more than
growth of 12 percent in consumer spending. 4 percent annually over the past five years,
outpacing regional heavyweights Saudi
Latin America. This region is also growing Arabia and Brazil. Prospects for both coun-
sharply. Strong commodity prices helped such tries remain bright.


New Allies
Challengers Going Global

I n recent years, the nature of the Three Different M&A Strategies
challengers’ M&A activity has changed: The history of M&A by the 2013 BCG global
They are now completing fewer deals than challengers has three chapters—the two
they did prior to the 2008 financial crisis, years prior to the September 2008 onset of
but their deals are larger and aimed at the financial crisis, the two years during the
establishing global leadership. The number crisis, and the two subsequent years of tur-
of overseas deals completed by the 2013 moil. Companies within the same industries
challengers fell from 130 in 2007 to 99 in and countries have tended to respond in simi-
2011, but the average deal size increased lar ways to the global economic climate. We
from $484 million in 2007 to nearly $1.1 bil- describe their movements as expanding in
lion for deals announced in 2012. (See Ex- the turmoil, integrating after the crisis, and
hibit 12.) returning home. (See Exhibit 13.)

Exhibit 12 | Global Challengers Are Completing Fewer But Larger Deals
Average disclosed deal size ($millions)
Number of deals
1,500
150

6 1,000
100

50 99 23 500

38
0 0
2001 2003 2005 2007 2009 2011 2001 2003 2005 2007 2009 2011
2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012
through through
September September
Announced Closed
Note: Data for 2013 BCG global challengers.


Exhibit 13 | A Tale of Three Countries
China: expanding in Brazil: integrating India: returning
the turmoil aer the crisis home
Total deal value ($billions) Total deal value ($billions) Total deal value ($billions)
30 346 –22 30 30 –28

20 20 20 –85
Cross-border
M&A 79 –80
10 10 10

0 0 0

Total deal value ($billions) Total deal value ($billions) Total deal value ($billions)
30 30 30

20 20 20
Domestic
M&A 160 75
10 10 –5 –59 10 66
36

0 0 0
Challengers leveraged the crisis Challengers bought companies Challengers have returned home
to acquire companies overseas during the crisis but are now to protect themselves from
integrating them uncertainty overseas
Percentage change
Before the crisis—September 2006 to August 2008
During and aer the crisis—September 2008 to August 2010
During the economic turmoil—September 2010 to August 2012

Expanding in the Turmoil. Services companies activity during the financial crisis and are
seized the global financial crisis as an oppor- now digesting those deals. The value of
tunity to build their overseas presence. They outbound deals by Brazilian deals went from
increased the total value of their cross-border $5 billion before the crisis, to $9 billion
M&A by 107 percent from 2006 through 2008 during the crisis and immediately afterward,
and from 2010 to 2012 while reducing the and $2 billion in the most recent period.
value of domestic deals by 76 percent. Godrej Consumer Products has not made any
sizeable deals since its acquisition of Indone-
During that time, VimpelCom became the sia’s Megasari Makmur, its largest ever, in
sixth-largest global telecom company largely May 2010.
through acquisition. Its $6 billion deal to buy
Wind Telecom, including a 52 percent stake Returning Home. Some challengers, especial-
in Orascom Telecom Holding, added 123 mil- ly commodity players and Indian companies,
lion mobile subscribers. were active before the global financial crisis
but have pulled back. Commodity companies,
Global challengers from China also increased especially from Russia, reduced their cross-
their overseas M&A activity during the finan- border deal value by 43 percent between the
cial crisis. The value of their outward-bound 2006–2008 pre-crisis periods and the most
M&A deals rose from $7 billion in the two recent 2010–2012 period. Instead, many of
years prior to the crisis to $30 billion in the two them are doing domestic deals. At the end of
following years, before settling at $23 billion in 2012, United Company Rusal moved to
the last two years. Sany Group’s acquisition of acquire several Russian aluminum companies.
Putzmeister is emblematic of this trend.
The value of outbound deals by Indian chal-
Integrating After the Crisis. Many challeng- lengers has declined from $26 billion in the
ers, notably consumer goods and Brazilian first two-year period to $3 billion in the third
companies, increased their outbound M&A two-year period. They are seeking to augment


their capabilities by integrating a series of While reliable statistics on the growth of part-
smaller domestic acquisitions. (See the side- nerships are scarce, the nature of many re-
bar “The Allure of Home.”) cent partnerships demonstrates how these re-
lationships are evolving to become game
Examining the six years altogether, commodi- changing.
ties challengers still completed the largest
number of cross-borders deals: they closed Technology Exchange. China National
34 percent of all deals completed by challeng- Chemical Corporation (ChemChina) and the
ers even though they represent only 20 per- U.S. company DuPont formed a 50-50 ven-
cent of this group. ture in 2012 that combines DuPont’s leading
fluoroelastomer technology with Chem-
China’s integrated manufacturing. The
Game-Changing Partnerships venture will produce fluoroelastomer gums
As the nature of M&A and dealmaking chang- and precompounds, most likely in a new
es, so does the relative importance of partner- plant in China.
ships with large, established companies from
mature markets. The growing strength of the New Markets. Indian auto player Bajaj Auto
global challengers means that these partner- and Kawasaki, a Japanese maker of motorcy-
ships can be negotiated on more equal terms. cles and other vehicles, have entered an
alliance to jointly market their products.
Traditionally, partnerships between global Bajaj and Kawasaki have been partners in
challengers and multinationals have focused various ventures for about 30 years but have
on access to resources, brands, markets, tech- rarely collaborated on marketing or selling.
nologies, and low costs. These types of collab- The two companies launched a pilot in the
orations will continue, but challengers and Philippines in 2003 that will be expanded to
multinationals will increasingly come togeth- Indonesia in 2013 and possibly to Brazil.
er to develop new products, exchange—rath-
er than transfer—technology, and enter new New Products. Indian pharmaceutical compa-
markets. ny Dr. Reddy’s Laboratories has entered into

The Allure of Home
Not all challengers have found an easy macroeconomic trends explain the shift:
path to profitability overseas. Many rising demand for capital, poor overseas
challengers—and emerging market demand, and shifting currency values.
countries more broadly—have slowed their
overseas investments. Some countries are First, the domestic demand for capital in
reducing their foreign-investment exposure emerging markets—particularly fixed
and refocusing on domestic markets. assets—is bringing money back from
overseas. Brazil’s Petrobras, for example,
This movement of capital back home and announced recently that it was close to
the inflow of capital from developed finalizing the sale of $6 billion in assets in
economies have helped to level the playing the Gulf of Mexico to raise funds to develop
field between mature and emerging fields in Brazil.
markets. Prior to the financial crisis in
2008, mature markets averaged more than Second, the economic crisis in Europe and
$1.1 trillion in inbound investment annu- U.S. has led companies to re-evaluate
ally, twice the amount invested in emerging investments in mature markets. Third,
markets. By 2011, parity had almost been depreciation of local currency, particularly in
reached. Mature markets received $748 bil- Latin America, has decreased the purchasing
lion in inbound investment, while emerging power of many companies overseas.
markets received $684 billion. Three


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