Until recently, such a list of 'global challengers' might have contained only a dozen names; now there are said to be hundreds, while in total several thousand RDE-based firms are actively expanding or planning to expand beyond their home markets.
Top 100 globalisers in this study include China's BYD (the world's largest nickel-cadmium battery maker), Johnson Electric (the world's leading manufacturer of small electric motors), India's Bharat Forge (the world's second-largest forging company) and Ranbaxy Pharmaceuticals (a top 10 generic firm), and Brazil's Embraer (a market leader in regional jets).
These RDE-based companies are said to be increasingly going global as they find their home markets don't have the scale - or resources - to deliver the required shareholder value or competitive advantage. Mostly this is about finding profitable new markets to sell to, though for companies such as Baosteel (China's biggest steelmaker), its expansion into Brazil is about securing raw materials.
Many RDE-based challengers are found to be adept at international expansion partly because of capabilities and disciplines acquired in difficult home markets: they learned to sell profitably to low-income customers; deal with immature logistics and distribution environments; navigate ambiguous legal environments; handle rapid external change; and manage despite shortages of management talent.
On a global stage, they may also be able to innovate quickly and make rapid decisions to take advantage of fast-moving opportunities, it is argued. Clearly, these challengers also have a competitive advantage in their low-cost resource base (often exploiting better than by offshoring foreign companies) such as labour costs of 5%-10% of developed markets and equipment costs up to 60% less.
They also have more modern plant - the average age of assets is 7.2 years against 16.9 years in the US - and access to huge talent pools. By 2010, China will be producing 800,000 graduate engineers, technicians and scientists a year, and India will be producing 600,000 - many times the output of the US. Importantly, RDE-based companies have also learned from foreign multinationals operating in their home markets - and are now turning the competitive tables.
For Western companies, a first step is to find out who their new challengers are - not always straightforward because the new globalisers may not be well covered by the media or publish financial results. Western incumbents then need to work out a strategy for the new reality: should they compete directly, create obstacles to keep the challengers out or attack the newcomers' home markets? Should they partner with one or more challengers to defend against others, or even create their own RDE-based subsidiary to capture the same advantages as the newcomers?
The new global challengers: how 100 top companies from rapidly
developing economies are changing the world,
Marcos Aguiar, Arindam Bhattacharya, Thomas Bradtke, Pascal Cotte,
Stephan Dertnig, Michael Meyer, David C Michael, Hal Sirkin,
Boston Consulting Group, 25 May 2006
Review by Steve Lodge