As global challengers look to grow in a slower-growth world, they will face increasing competition not just from multinationals—their historic adversaries—but also from homegrown rivals. We have identified nearly 1,500 companies based in emerging markets that, while not qualifying as global challengers, are still successful, growing companies.
These companies—the champions—tend to be smaller than the challengers but still highly profitable and fast growing.1 Indeed, from 2005 through 2014, they averaged 18% annual growth and in 2014 had revenues equivalent to 6% of global GDP. (See Exhibit 3.) While many of them have regional or global ambitions, others are wholly focused on their home market. (In two earlier reports, we identified 50 “local dynamos,” a group of domestic-oriented companies that were selected to illustrate the dynamism of their home markets. Selection of the champions was largely based on financial benchmarks.)
Champions are companies to watch over the next ten years. Like the global challengers, they are concentrated in China and India. But African, Latin American, and Southeast Asian companies are also well represented. (See Exhibit 4.) The champions have grown faster than the global challengers over the past five years and are more profitable. (See Exhibit 5.) Given their current growth rates, many champions are likely to become top-ten companies in their industrial sector by 2020. (See Exhibit 6.) These companies will also be responsible for most of the world’s economic growth through 2025. (See Exhibit 7.)
In other words, within five years, the top-ten lists of many industrial sectors will be populated by several companies that are virtually unknown today outside their home market. Here are just three examples of champions that demonstrate their dynamism:
- Aurobindo is one of India’s five largest pharmaceutical companies, measured by both sales and market capitalization. It has grown by 18% annually over the past five years, reaching $1.9 billion in sales in fiscal year 2015, and the US Food and Drug Administration has certified more than 230 of its drugs.
- Shenzhen O-film Technology is the largest producer of touchscreens in the world, with 2014 revenues of $3.1 billion. Its annual revenue growth has more than doubled over the past five years. This Chinese company has created five R&D centers around the world and secured more than 1,100 patents. It has invested more than 4% of revenues in R&D since 2011 and used M&A to acquire key technologies. To diversify away from the slowing smartphone market, Shenzhen O-film Technology has invested in smart car, fingerprint sensor, and camera technologies.
- Alsea, of Mexico, is the largest restaurant operator in Latin America, running quick-serve and casual-dining franchises such as Starbucks, Burger King, Domino’s Pizza, and The Cheesecake Factory. It has created economies of scale across these brands by building several distribution centers and relying heavily on shared services. Alsea also has a presence in Spain. Revenues have been growing by more than 25% annually in recent years.
In identifying champions, we sometimes had to rely on limited or incomplete data sets, but here are the general selection criteria we used. They must have annual sales of at least $500 million. Their five-year annual growth rate must be at least 0.8 times that of their home country’s GDP or their industry’s growth rate. Finally, the EBIT margin of a champion must exceed 50% of its industry’s margin. (Challengers, on the other hand, have annual sales of $1 billion, five-year growth rates exceeding their home country’s or industry’s growth rate, and margins exceeding the industry average.) Unlike challengers, champions do not have to meet minimum thresholds for overseas sales or headcount, and they do not need to have global ambitions or the potential to become global leaders.