The 2011 BCG Global Challengers

The 2011 BCG Global Challengers

          
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The 2011 BCG Global Challengers: Companies on the Move

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  • The 2011 BCG Global Challengers

    BCG has selected a list of 100 global challengers that are already sizable, are globally expansive, and are taking a run at traditional multinational companies. As in past reports, our point in this exercise was not to pick industry winners but to spotlight the innovative business models, strategies, and challenges emerging from the plethora of constraints in RDEs.

    In selecting this year’s list, we undertook a rigorous screening process. (See “Methodology for Selecting the 2011 BCG Global Challengers,” below.)

    Methodology for Selecting the 2011 BCG Global Challengers

    We began our analysis by compiling a list of potential global challengers from companies based in RDEs. We focused on companies located in Asia, Central and Eastern Europe, the Commonwealth of Independent States, the Middle East, and Latin America. In this report, we also expanded the geographic reach of our analysis to include the African continent; we took this step to reflect the dynamic growth of the economies there.

    Our initial master list of potential global challengers was drawn from local rankings of the top companies in the geographic markets listed above. We excluded joint ventures and companies with significant overseas equity holders. We decided to consider a few companies that are headquartered in financial capitals—such as London, Hong Kong, and Singapore—on the condition that these companies’ operations take place primarily in RDEs. These companies are listed in the RDE that houses most of their operations.

    Next, we applied a set of quantitative and qualitative criteria. We deemed company size important, as smaller companies have fewer resources to mount aggressive globalization efforts. We sought companies that already had high international revenues or large cross-border M&A deals; we also sought companies with credible aspirations to build truly global footprints, and we excluded those that could pursue only low-end, export-driven models. We determined this globalization potential by analyzing each company’s international presence, the number and size of its international investments over the past five years, and the strength of its business model. We measured the size of each company relative to that of other challengers and multinational competitors in their industries. We wanted to ensure that the global challengers are credible contenders to become market leaders.

    We based our selection of the final 100 on these criteria and feedback from industry experts around the world.

    Who They Are

    The global challengers list is as dynamic as the markets in which its members are located, with 23 new members in this report. (See Exhibit 5.)

    exhibit

    In most cases, previous entrants that do not appear on the current list continue to be strong contenders in their respective industries, but they may not be expanding globally as aggressively as the currently listed companies are. Some companies have dropped from the global challengers list because they suffered during the economic downturn and are now focused on bringing their businesses back to health.

    In addition to the new entrants, we are also introducing in this report challenger emeriti—a new group we created to recognize companies that now more closely resemble traditional multinationals than newcomers.

    The 23 new additions to the BCG Global Challengers list are the following companies:

    Anshan Iron and Steel Group (China) is one of world’s top-ten steel producers, with revenues of more than $15 billion. Over the past few years, the company has made a series of overseas and domestic acquisitions, including the 2010 acquisition of China’s Panzhihua Iron and Steel Group. The combined production capacity will propel Anshan to become one of the world’s leading steel producers.

    Bharti Airtel (India), with more than 200 million subscribers, ranks among the largest telecom operators worldwide. The company generated revenues of $8.8 billion in fiscal 2010 and has grown by an average of 38 percent annually over the last five years. Spreading out from its base in India, Airtel has aggressively pursued acquisitions in other RDEs. With its $10.7 billion acquisition of Zain Africa’s mobile operations in 15 countries, the company now has a presence in 19 countries.

    Bidvest Group (South Africa) is a diversified holding company with interests in food services, freight, manufacturing, and automobile sales. It is the largest food-distribution company outside the United States. The company had revenues of $14.4 billion in fiscal 2010 and has a strong footprint in Africa, Europe, Asia, and Australia.

    Bumi Resources (Indonesia) is among the fastest-growing coal companies in the world. In 2009, Bumi posted revenues of $3.2 billion, with the majority generated overseas. The company has a strong sales presence in Japan, India, Hong Kong, Taiwan, and Europe and has recently entered the Chinese market.

    China State Construction Engineering Corporation (China) is a leading construction company, ranking sixth on Engineering News-Record’s Top 225 Global Contractors for 2010 and earning 2009 revenues of $22.4 billion. The company has undertaken more than 5,000 projects in 100 countries and has a significant presence in North Africa, United Arab Emirates, India, and the United States.

    Chint Group (China) is a leading player in the low-voltage transmission and distribution industries and has recently expanded into solar energy. It exports to more than 90 countries. Chint has a strong focus on R&D and has begun over the past five years to create its own brands rather than simply supply equipment to other companies.

    El Sewedy Electric (Egypt) is one of the leading electrical-equipment manufacturers in Africa and the Middle East, specializing in cables and power transformers. The company’s revenues grew by 35 percent annually, on average, from 2004 through 2009 and reached $1.7 billion in 2009. El Sewedy focuses on underpenetrated markets and is the sole producer of power transformers in many African countries. Its new wind-energy business is a pioneer in renewable energy in the Middle East and North Africa.

    Geely International (China) is one of the fastest-growing car manufacturers in China. In 2010, Geely agreed to pay $1.8 billion for Volvo Cars. Geely intends to preserve Volvo Cars’ existing manufacturing facilities in Sweden and Belgium while exploring opportunities to manufacture Volvo vehicles in new production facilities to be built in China for the local market.

    Indorama Ventures (Thailand) is the largest global producer of polyethylene terephthalate (PET), which is used to make plastic bottles, and it is the only PET producer with a manufacturing presence in the United States, Europe, and Asia. The company’s revenues have grown annually by 60 percent since 2005, reaching $2.3 billion in 2009, with 85 percent of these revenues generated overseas. Indorama Ventures focuses on cost control, tight integration, and a contrarian growth strategy that has helped the company build scale through acquisitions in mature markets.

    LAN Airlines (Chile) has domestic operations in five South American countries—Argentina, Chile, Colombia, Ecuador, and Peru. It has a strong focus on operational efficiency. In August 2010, LAN Airlines announced a merger with TAM, the largest airline in Brazil. In 2009, the combined revenues of the airlines totaled $8.4 billion.

    LDK Solar (China) is a leading integrated manufacturer of photovoltaic products and the world’s largest producer of multicrystalline wafers. In 2009, 75 percent of its $1.1 billion in revenues originated outside China. Since 2006, LDK Solar’s revenues have more than doubled annually.

    Lupin Pharmaceuticals (India) is a rapidly growing pharmaceutical firm with both generic and branded products and a sizable presence in the United States and Japan. The company has made recent acquisitions in Australia, Germany, Japan, Philippines, and South Africa, and it reported revenues of $1 billion in fiscal 2010.

    Mabe (Mexico) is the largest home-appliance manufacturer in Latin America. It has leveraged strategic alliances with such companies as General Electric and Fagor to drive international growth. The company has 18 manufacturing facilities in the Americas, and its products are sold in 70 countries. The company’s revenues reached $4.5 billion in 2009.

    Magnesita Refratários (Brazil) is the third-largest—and the only fully integrated—global producer of refractory products (materials resistant to the high temperatures that are used in steel and cement production). The company has 28 manufacturing facilities in South America, the United States, and Europe, and it reported 2009 revenues of $1.1 billion.

    Norilsk Nickel (Russia), which returns to the challenger list after a hiatus in 2009, is the largest vertically integrated mining company in Russia and the largest global producer of nickel and palladium. It generated revenues of $10.2 billion in 2009 and has sales networks across 20 countries.

    PTT (Thailand), a state-owned oil and gas company, generated 2009 revenues of $46 billion, nearly half of which came from its international trading business. The company aspires to become a member of the Fortune 100 and plans over the new decade to invest $100 billion—half of it overseas. It has 44 exploration and production projects in 13 countries.

    Saudi Basic Industries Corporation (Sabic) (Saudi Arabia) is the largest and most profitable Middle Eastern company outside the oil industry and one of the world’s largest manufacturers of chemicals, plastics, and fertilizers. A series of acquisitions has expanded Sabic’s presence across more than 40 countries. In 2009, Sabic had revenues of $27.5 billion.

    Sappi (South Africa) is the leading producer of several types of fine paper. Most of its facilities are located in Europe and North America. In fiscal 2009, Sappi had revenues of $5.3 billion, with 87 percent originating outside Africa.

    Sasol (South Africa) is the largest producer of synthetic fuel and among the largest coal-mining companies in the world, with revenues of $16.1 billion in 2010—half from international sales.

    Shanghai Electric Group (China) is one of China’s top-three manufacturers of electric equipment and one of the largest elevator manufacturers, with 2009 revenues of $8.4 billion. It has acquired technical and managerial know-how through more than 50 joint ventures with leading players such as Siemens and Mitsubishi. In 2010, Shanghai Electric acquired Goss International, a U.S. provider of engineered goods, for $1.5 billion.

    Sinohydro (China) is a leading construction firm that has captured more than half of the global hydropower-construction market. Revenues in 2009 exceeded $11 billion. The company has more than 200 projects under construction in 46 countries. Its presence is particularly strong in Southeast Asia, the Middle East, and Africa.

    Yanzhou Coal Mining Company (China) is the first Chinese coal company to be listed on both the New York and Hong Kong stock exchanges. In 2009, the company generated $3 billion in revenues and acquired Felix Resources for $3.2 billion, making it the largest Chinese investor in Australia.

    Zoomlion (China) is a leading construction-machinery company and the largest manufacturer of concrete-making machinery. The company, which reported $3 billion in revenues in 2009, has grown annually by 60 percent since its founding in 1992. Zoomlion’s strong R&D culture has helped generate a wide range of products. In 2008, the company extended its presence to more than 70 countries when it acquired Italy’s CIFA, a manufacturer of concrete equipment.

    In addition to the 23 new companies on the 2011 list, there are five new names among the list of challengers. Brasil Foods (Brazil) is the product of a merger in 2009 of Sadia and Perdigão, both of which were listed previously as challengers. DP World (United Arab Emirates) replaces its parent company, Dubai World. Grupo Alfa (Mexico) replaces its manufacturing subsidiary Nemak. Tata Tea has changed its name to Tata Global Beverages (India). United Company Rusal (Russia) replaces its parent company, Basic Element.
    The 2011 BCG Global Challenger Emeriti

    Some RDE-based companies have made such significant progress in globalizing that they are starting to look and feel like established global multinationals. We call such companies challenger emeriti and identified them using the following four key criteria:

    • Size and Scale Required to Operate Globally. Achieved annual sales in 2009 of at least $20 billion

    • International Sales. Had at least 75 percent of 2009 sales originate outside the country where headquartered—or from international customers

    • Industry Leadership. Ranked as a top-five global competitor in their industry

    • Global Presence. Maintained global operations and footprint

    The globalization journey is not over for these companies, and they will continue to face challenges, as do all global companies. But the challenger emeriti are further ahead than their peers in the RDEs.

    Five companies qualified as challenger emeriti. This list includes two companies from South Africa that were not named in prior global challenger reports but were listed in The African Challengers, a BCG report published in June 2010. Had our analyses in the 2009 global challenger report covered the African continent, these South African companies, which are already beginning to resemble their global peers, would have met our criteria for global challengers.

    Anglo American (South Africa) is one of the leading diversified-mining companies in the world and the largest global producer of platinum and diamonds. Anglo American has extensive mining operations in South Africa, Australia, and Latin America.

    Cemex (Mexico) is the third-largest producer of cement and the largest producer of ready-mix concrete in the world. It operates in more than 50 countries in the Americas, Europe, the Middle East, and the Pacific Rim. Cemex’s success rests on its effective operations and marketing strategies, as well as its proven ability to integrate acquired companies. In 2009, 79 percent of Cemex’s $20.2 billion in revenues were generated internationally.

    SABMiller (South Africa) is the world’s second-largest brewer, with operations and distribution agreements in 75 countries. Its sells both premium beers with global brands and leading local beers. SABMiller is the number-one or number-two brewer in many of its markets including the United States and several countries in Africa, Latin America, and Europe. In fiscal 2010, almost 80 percent of SABMiller’s revenues of $26 billion originated outside South Africa.

    Vale (Brazil) is the second-largest diversified mining company in the world, with a presence in 38 countries and activities in exploration, operations, and sales. It is the world’s largest producer of iron ore and the second-largest producer of nickel. Among large companies tracked by BCG’s Value Creators team, Vale has the best ten-year record of creating value for shareholders. The company has succeeded through strong management practices, aggressive pricing strategy, and successful acquisitions. In 2009, 85 percent of Vale’s revenues of $23.9 billion were generated internationally.

    Wilmar International (Indonesia), a leading global agribusiness company, has an integrated business model that covers origination, processing, branding, and distribution. It is the largest global processor and merchandiser of palm and lauric oils and a major oil-palm plantation owner. It is the largest oilseed crusher, edible-oil refiner, and manufacturer of consumer pack oils in China. In India, it is one of the largest edible-oil refiners and a leading producer of consumer pack oils. Wilmar sells its products in more than 50 countries, and, in 2009, 77 percent of Wilmar’s $24 billion in revenues originated outside Southeast Asia.

    The Countries and Industries of the 2011 Global Challengers

    The global challengers come from 16 countries. (See Exhibit 6.)

    exhibit

    Although China, India, Brazil, Mexico, and Russia still dominate the list of home nations for the global challengers, countries in other regions are starting to compete for attention. In particular, Africa, with four global challengers this year, will likely emerge as a region worth watching. It is rich in natural resources, has emerged as a growth market for several industries, and has newfound ambition.

    The global challengers have historically been well distributed across industries. Industrial goods (with 35 challengers) and resources and commodities (with 24) continue to lead the list. The construction industry (with 6 challengers) moved up the list, reflecting the increased focus on infrastructure in RDEs.

    Five Trends That Will Shape the Future

    Across the 100 global challengers, we have identified at least five emerging trends that will shape commerce—not just for the global challengers but for all companies that play on the world stage.

    • The emergence of Chinese contractors

    • The rush for natural resources

    • The rise of diversified global conglomerates

    • The challenges of building global consumer brands

    • The increasing reliance on partnerships

    The Emergence of Chinese Contractors. A group of previously unknown construction players from China has emerged to win prestigious multibillion-dollar projects. These companies are building a broad range of structures: bridges and power plants in Southeast Asia, highways and railways in Africa, and even a casino in the United States.

    Over the past decade, the average annual value of overseas contracts for Chinese construction companies has expanded at a rate of 29 percent. These players are climbing the global rankings and capturing both market share and top positions. In the most recent Top 225 Global Contractor list published by Engineering News-Record, Chinese firms hold three of the top five—and 19 of the top 100—slots.

    Three reasons are behind the success stories. The first, of course, is cost. Even on overseas projects, Chinese competitors frequently enjoy a labor cost advantage over competitors from the United States, Europe, and Japan. They also tend to be vertically integrated and can buy equipment and material from domestic suppliers or their own subsidiaries. Shanghai Zhenhua Heavy Industry, the world’s largest manufacturer of heavy machinery, for example, provides container cranes for the projects of its parent, China Communications Construction.

    The second reason is the talent and experience of Chinese contractors. Chinese contractors have gained valuable experience domestically that they can apply on international projects. China, for example, has built 4,000 miles of high-speed rail lines, including the Wuguang Passenger Railway that allows trains to reach peak speeds of 245 miles per hour. China is also home to the Three Gorges Dam, the world’s largest hydroelectric project, completed in 2006, and the Hangzhou Bay Bridge, the world’s longest sea-crossing bridge, opened in 2008.

    The final reason is that the Chinese government and state-owned banks provide diplomatic and financial support to contractors. The Chinese government has important ties with Africa, Southeast Asia, and the Middle East—the three areas where 90 percent of Chinese overseas orders originate.

    The Rush for Natural Resources. Global challengers are searching for natural resources to fuel their growth. From January 2006 through August 2010, challengers in the resources and commodities industry announced 154 cross-border mergers and acquisitions, far more than any other sector and nearly twice the 86 M&A deals completed in the five previous years.

    These deals have two significant objectives: to satisfy the local thirst for natural resources and to develop footholds in growth markets. In Thailand, for example, PTT is looking for foreign assets to meet fast-growing domestic demand. About one-half of its planned investment will focus on overseas expansion. Brazil’s Petrobras plans to acquire long-term sources of liquefied natural gas in the Asia-Pacific region.

    In Russia, where more than 60 percent of export revenues are generated by oil and gas and 14 percent by metals, companies are especially motivated and activated acquirers. (See “Going Global,” below.)

    Going Global

    The Russian challengers, all of which operate in the natural resources industry, completed 143 cross-border deals from 2000 through August 2010—accounting for 22 percent of these deals closed by all 100 global challengers.

    Steel giant Severstal, for example, has an established record of acquiring and integrating assets in both developed and emerging markets. Severstal’s $1 billion deal for PBS Coals in the United States will provide the raw materials and lower transportation costs needed to enable its expansion. In 2010, Severstal inked deals to secure iron-ore exploration rights in the Congo and Gabon.

    Rosatom, the state-owned nuclear-power monopoly and a leading global manufacturer of nuclear fuel and reactors, is seeking geographic diversification and access to lower-cost uranium reserves. In 2010, it acquired a controlling stake in Canadian Uranium One. More broadly, Rosatom is seeking to become a global leader in nuclear technologies through international partnerships and M&A.

    Oil and gas companies are not sitting still either. In addition to scouting for new reserves, these companies are aiming to vertically integrate. In recent years, they have made a large number of downstream acquisitions (in pipelines, refineries, and filling stations) across the world to gain better access to their customers.

    As we saw with the rise of Chinese contractors, many of these acquisitions have strong financial, regulatory, and diplomatic support from RDE governments. The debt of many state-owned challengers is guaranteed implicitly or explicitly by their home-country government. In 2009, the Russian government set up a unit to advise on foreign M&A in the energy sector. Many Russian and Chinese companies have signed foreign-venture deals in Nigeria and Australia during official visits by state dignitaries.

    The Rise of Diversified Global Conglomerates. Seven global challengers are conglomerates; the most notable is the Tata Group in India, which has operations in the chemical, communications, IT, beverage, automotive, and steel sectors. (Six of the Tata Group companies qualify as challengers in their own right.) The other diversified challengers are Grupo Alfa in Mexico, Koç Holding and Sabanci Holding in Turkey, and Camargo Corrêa Group, Odebrecht Group, and Votorantim Group in Brazil.

    These companies are at different stages of globalization and diversification. At one end of the spectrum are Tata and Votorantim, major global contenders. Votorantim’s recent acquisition of Aracuz led to the creation of Fibria, the largest competitor in the pulp and paper industry. The Votorantim Group’s member companies are also among the top-five global zinc companies and the top-ten global cement producers. At the other end are the conglomerates with less diverse global portfolios. Grupo Alfa from Mexico, for example, is the world’s leading manufacturer of high-tech aluminum cylinder heads and engine blocks and has interests in refrigerated products and polyester businesses. Companies have also adopted different management approaches to globalization. For Tata, globalization was a way to distribute risk and lessen its dependence on the Indian economy. Although its operations are independently managed by group companies, the corporate center plays an important role in defining shared values and vision, developing brand and marketing strategies, facilitating people development, measuring performance, and creating common M&A practices.

    Over the last decade, the Tata Group has completed cross-border acquisitions whose value exceeded $17.5 billion. Among others, Tata Steel acquired the Anglo-Dutch steel group Corus; Tata Chemicals acquired General Chemical Industrial Products, which is based in the United States; Tata Motors acquired three car and truck lines; and Tata Global Beverages acquired Tetley Tea.

    The Tata Group works collaboratively with its acquisitions. The acquired companies generally remain separate organizations and have operational freedom, even when they operate in the same or related businesses as the acquiring company does, as was the case for Tetley and Corus. Tata also emphasizes the retention of top managers. The glue that holds the acquisitions together is Tata’s corporate center.

    Koç Holding in Turkey takes a more decentralized approach, letting subsidiaries seek growth opportunities. For instance, Koç’s Arçelik subsidiary recognized that the domestic Turkish market was saturated and began to expand its appliance business in Europe and beyond. To date, Arçelik is the most global of Koç’s subsidiaries.

    The Challenges of Building Global Consumer Brands. In their bids to transcend business models that are based on low costs and to expand the markets they serve, some global challengers are trying to create global brands.

    Historically, many durable-consumer-goods companies from RDEs have entered developed markets as original equipment manufacturers, distributing goods through better-known Western brands. This model has reached its limits, as manufacturing costs have risen and demand for appliances in developed markets has dropped since the global recession. Wages in China’s Guangdong province, for example, rose by 11 percent in 2010. In India, copper prices more than doubled in 2009. Since 2008, meanwhile, demand in North America has dropped by 10 percent and by 3 to 5 percent in Western Europe. Also, many established global companies have created manufacturing operations in RDEs, a move that erodes cost advantages held by companies based in developing markets.

    In response to these developments, many traditional manufacturers have begun to build their brand identity in developed markets. To better understand the needs of Western customers, for example, China’s Haier has located R&D facilities in the region and hired local staff. It has also developed relationships with retailers to expand its reach with customers. Mexico’s Mabe has acquired
    Bosch’s Brazilian subsidiary. Turkish conglomerate Koç has both invested in developing its own Beko brand in major European markets and acquired local brands in other markets.

    In the food and beverage sector, global challengers have a different motivation to develop brands. They have well-known brands at home and are expanding their global footprints through acquisitions of brands and distribution networks in developed markets.

    In its campaign to become the world’s largest beef processor, JBS acquired the Bertin brand in Brazil and the Pilgrim Pride and Swift brands in the United States. The Swift acquisition also gave JBS access to distribution channels in Japan and Korea. Likewise, Thai Union Frozen Products, one of the world’s largest exporters of seafood, has established strong market positions overseas by acquiring leading foreign brands. Its first major acquisition was Chicken of the Sea, the third-largest brand of canned tuna in the United States. More recently, it purchased MWBrands, gaining leading canned-seafood brands in the United Kingdom, Ireland, Netherlands, France, and Italy.

    Grupo Bimbo’s $2.8 billion acquisition of Weston Foods, which boasted 13 percent market share in the United States, made the Mexican company the largest global manufacturer of bread. In 2010, Grupo Bimbo agreed to buy Sara Lee’s North American bakery business for $959 million, further solidifying sales outside Mexico and complementing the existing scale in its U.S. operations.

    The Increasing Reliance on Partnerships. Global challengers have been entering partnerships and joint ventures for a long time, but the nature of those relationships is changing in two fundamental ways. First, they increasingly are joining forces with other global challengers rather than established multinationals. The rising popularity of ventures and partnerships among global challengers rests on four pillars.

    Sharing Knowledge and Expertise. The best example of this trend may be the joint venture between India’s Tata Motors and Brazil’s Marcopolo. This venture, formed in 2006, brings together Tata’s expertise in chassis and Marcopolo’s know-how in designing and building bus bodies. It is aimed at capturing share in such growing markets as India, South Africa, Russia, and the Middle East.

    Gaining Access to New Markets. The joint venture of India’s Bharat Forge and China’s FAW Group unites two large forging companies. It gives Bharat Forge an entry into the Chinese auto market, while it enables FAW to leverage the global sales channel held by Bharat Forge.

    Achieving Scale to Compete Globally. The merger of Perdigão, Brazil’s largest food company, and Sadia, a large poultry exporter also based in Brazil, created a conglomerate capable of competing against global food giants. The new Brasil Foods—which boasts 42 factories, more than 100,000 employees, sales in 110 countries, and 24 offices around the world—can compete in the United States, Europe, and the Middle East.

    Sharing High-Risk Investments. India’s Reliance Industries and Mexico’s Grupo Alfa are partnering along with U.S.–based Pioneer Natural Resources to develop American shale-gas reserves. The venture plans to build 1,700 drilling sites in unconventional locations.

    Challengers often pursue more than one of these approaches in their bids to become global. VimpelCom, the Russian mobile operator, has engaged in M&A activity to access new markets, achieve scale, and create synergies. It recently announced mergers with the Italian mobile operator Wind and with Egypt’s Orascom; the latter has a strong footprint in the Middle East and North Africa. Once they receive regulatory approval, these deals will create one of the top-five mobile operators in the world—with $21 billion in annual revenues, 174 million subscribers, and operations in 20 countries.

    Furthermore, when global challengers partner with multinationals, they do so from a position of strength. In the past, these ventures were largely formed to transfer technology from the multinational to the challenger or to satisfy regulatory requirements within RDEs. Now, the two sides are more like partners. In 2010, India’s Dr. Reddy’s Laboratories partnered with GlaxoSmithKline to market pharmaceutical products in emerging markets. The deal brings together Dr. Reddy’s manufacturing capability and portfolio of branded products with the global commercial capability of GlaxoSmithKline. Daimler and China’s BYD Group, meanwhile, are sharing R&D efforts to develop electric cars in China. The venture capitalizes on Daimler’s know-how in electric-vehicle architecture and safety with BYD’s excellence in battery technology and e-drive systems.