The global challengers are certainly not the first firms to emerge from developing economies to achieve global leadership, but they are taking a different path than their predecessors from Japan and South Korea did. The Japanese and Korean globalization campaigns were built around organic growth—but the global challengers are growing both organically and through M&A.
The Japanese and South Korean pioneers also developed a different set of strengths than the global challengers have. Over time, Japanese companies became known for technological innovation, lean manufacturing, and brands that stood for quality, while South Korean companies developed a reputation for making quality products at affordable prices. The global challengers are more varied in their approach. Notably, they are creating disruptive business models and coming up with new and better ways to get the job done in many industries. Three challengers exemplify this approach: Bharti Airtel, Indorama Ventures, and Grupo Alfa’s Nemak subsidiary. (For more about all 100 global challengers, see the full report The 2011 BCG Global Challengers: Companies on the Move.)
Bharti Airtel has grown to become the world’s fifth-largest mobile operator, as measured by the number of subscribers. From its base in India, the company has expanded into 19 countries—and is the leading mobile provider in 12 of them. The secrets to its success are innovative business models relating to operations and distribution.
In 2004, Airtel developed what is known as its “minute factory” model. Under the model, Airtel took the radical step of outsourcing significant parts of its network—long considered the crown jewel among telecom operators—to Ericsson and other parties. Outsourcing allowed Airtel to flexibly increase and manage its network capacity, essentially “building” minutes with the increased demand, just as a factory line accelerates in line with demand.
This model has delivered multiple benefits to Airtel. First, it allowed Airtel to ramp up its network speedily. By lowering its capital outlays, Airtel gained the financial flexibility to buy more spectrum. Second, as the first mover in telecom outsourcing, Airtel won great terms with vendors, enabling it to lower operating costs below those of its main rivals. Finally, these deals freed up resources and management time and allowed the organization to focus on customer activities.
The company also developed new channels to help alleviate the logistical challenges of doing business in India. It piggybacked on the existing distribution networks of fast-moving-consumer-goods companies and created a standardized process for expanding into new areas. These approaches have helped Airtel add subscribers significantly more rapidly than its nearest rival has.
Airtel’s innovations in outsourcing and distribution have paid off handsomely. With an operating margin of 40 percent, it is the most profitable company in India. Airtel’s average revenue per user is also almost 12 percent higher than that of its nearest competitor, even while its operating costs per minute are 14 percent lower.
Thailand’s Indorama Ventures is a leading polyester and PET company with global production facilities in the United States, Europe, and Asia. The company has grown from the tenth-largest to the top global producer over the past four years by having the courage to challenge conventional wisdom.
First, while most major competitors were drawn by high-growth rates to the East, Indorama Ventures concentrated on the West, particularly the slower-growing but less crowded North American and European markets. Second, in the late 1990s, when other companies began to divest their low-margin PET businesses, Indorama Ventures acquired many of them, often at prices below their replacement cost, and gained advantages of scale. Third, in order to improve their margins, many traditional companies directed R&D and marketing to specialty product lines. Indorama Ventures instead focused on the commodity side of the business and optimized R&D and marketing costs. Fourth, at most companies, the polyester line was part of a much broader portfolio of businesses. By contrast, Indorama Ventures specialized almost exclusively in polyester in order to ensure that it had both its financial resources and best talent devoted to the business.
Indorama Ventures became the low-cost leader in the industry through a relentless focus on operating efficiency. Its plants were running at full capacity in 2009, for example, while the average utilization rate of its competitors was around 85 percent. Indorama Ventures also lowered the cost of purified terephthalic acid (PTA), a key raw material, by locking in supplies and keeping transportation costs down. In the future, it will internally source as much as 80 percent of the raw material for its new U.S. plant in Alabama. Indorama Ventures’ presence on three continents also helps to reduce its transportation costs and lower the risk of trade barriers or duties.
The company’s conviction that polyester is a core business and its focus on cost turbocharged its business. From 2005 through 2009 at Indorama Ventures, revenues grew sevenfold, profits increased ninefold, and its stock price tripled.
Nemak, a subsidiary of Grupo Alfa, is the global leader in producing aluminum auto components such as cylinder heads and engine blocks. From its base in Monterrey, Mexico, it has expanded its manufacturing operations into 12 countries and now generates 90 percent of its revenues from international sales.
The company, which serves all the major automakers, has greatly transcended its humble origins as a joint venture with Ford Motor. As its expertise grew, Nemak improved both its cost structure and technological sophistication. It has partnered with global leaders in automotive technology and made major investments in talent. Rather than simply taking advantage of location and labor costs, Nemak is now a world-class auto supplier known for technological innovation, customer focus, and quality products.
The company has several product-development centers around the world and hires from some of the best universities. It has systematized R&D to reduce inefficiency, promote collaboration, and assure the sharing of best practices. These measures have allowed Nemak to reduce its overall product-development cycle to less than six months—a reduction of 70 percent. Nemak involves customers early in product design in order to meet their needs and control production costs.