Global Leaders, Challengers, and Champions

Global Leaders, Challengers, and Champions

          
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Global Leaders, Challengers, and Champions

The Engines of Emerging Markets
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  • 2016 BCG Global Challengers

    This article is an excerpt from  Global Leaders, Challengers, and Champions: The Engines of Emerging Markets  (BCG report, June 2016).

    The recent struggles of emerging markets are so well known that it can be hard to distinguish the fast-growing trees from the forest. Despite the slowdown in macroeconomic growth, the drop in commodity and currency prices, the crash of equity markets, and the rise of geopolitical risks, the top companies from these markets have kept on expanding overseas.

    The economies of some emerging markets may have paused, in other words, but not their strongest and most global companies. The global challengers, BCG’s list of 100 rapidly globalizing companies from emerging markets, are doing just fine.

    BCG published its first list of global challengers ten years ago to highlight the achievements of companies that, in the words of the accompanying report, were “changing the world.” If anything, we underestimated in that report the future potential of the global challengers—and the larger group of successful emerging-market companies to which they belong. (See “A Tale of Three Markets.”) In this, the tenth anniversary of that inaugural list, we look more broadly at emerging markets and the dynamic companies that they produce. These include a group of nearly 1,500 companies we call “champions,” which are smaller than the challengers but still growing and expanding impressively. Collectively, the challengers and champions are powering ahead, undaunted by the concerns of Western analysts and commentators.


    A TALE OF THREE MARKETS

    In the last several years, companies from emerging markets have grabbed market share from multinationals in several key categories within countries. Here are just three examples:

    • Handsets in China. Local players, notably Meizu, Oppo, and Xiaomi, increased their share of this expanding market from 19% to 57% from 2009 through 2014. Multinationals grew handsomely, at 24% annually, but local players grew more than twice as fast.

    • Cement in Kenya. Multinational cement makers increased their revenue by 8% annually in Kenya from 2009 through 2014, so they may think they are doing well. In fact, their market share dropped from 55% to 40% because local companies are growing more than three times faster.

    • Business Process Consulting in India. From 2006 through 2014, the market share of multinational business process outsourcers dropped from 85% to 61%, while Indian companies more than doubled their global market share. Indian BPOs, such as Tata Consultancy Services, have grown at three times the rate of similar multinational companies.

    Despite the recent slowdown, emerging markets have benefited tremendously from years of compound growth. For example:

    • The top companies from emerging markets grew three times faster than their counterparts in mature markets from 2009 through 2014. (See Exhibit 1.) From 2005 through 2014, the average revenues of the largest emerging-market company in each of 63 industrial sectors expanded from $15 billion to $43 billion. Revenues for Huawei, for example, ballooned to $61 billion in 2015, a 37% increase from the prior year. In IT services, India’s Tata Consultancy Services and HCL Technologies have achieved double-digit growth almost every year.

    • In sectors as varied as household appliances, construction and engineering, industrial conglomerates, construction materials, and real estate development, companies from emerging markets have captured global market shares exceeding 40%. For example, the three air conditioning manufacturers with the largest market share in the world are China’s Gree, Midea, and Haier.
    exhibit

    To be sure, the road ahead will be more challenging than the one just traveled. Despite the growing middle class and increasing disposable income in many of these markets, global challengers are not immune to macroeconomic forces. They cannot necessarily count on the purchasing power of mature markets to fuel growth or on foreign investors to fund their capital needs. More than $500 billion of net capital flew out of emerging markets in 2015. Commodity players cannot depend on China’s once insatiable appetite for raw materials.

    Still, we are bullish on the long-term growth of many of these markets and even more so on the homegrown companies they have produced. Global challengers know how to win in volatile and uncertain times.

    These companies are still developing world-class capabilities. And unlike ten years ago, when their primary competitors were multinationals, global challengers today face a new generation of local competitors. Finally, both the challengers and their homegrown competitors are vying for a pool of local revenues that is expanding less quickly, forcing them to seek growth elsewhere. Given these headwinds, global challengers—and companies that aspire to that status—must focus equally on growth and competitiveness. We still expect the overwhelming majority of them to thrive in this new world order. They are proven winners.

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