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Allies and Adversaries: 2013 BCG Global Challengers

 
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    • The global challengers purchase more than $1.7 trillion of goods and services a year.
    • Their annual capital spending exceeds $330 billion.
    • Their average revenues exceed those of the average S&P 500 company.
     
    The Game Has Changed

    Emerging markets have become the world’s economic engines. They are large and becoming larger, thanks to annual GDP growth exceeding 6 percent and a rapidly growing class of consumers with disposable income.

    2013 BCG Global Challengers

    These markets have become highly prized by companies everywhere, not just for their growth but also as sources of talent, capital, and companies. Over the past five years, more than 1,000 companies headquartered in emerging markets have reached at least $1 billion in annual sales. Many of these are content to focus on their home market, while others are expanding abroad. And many of those that are going overseas aspire to be global leaders in their industries. These are the global challengers. They are the companies that will shape the global economy over the next decade.

    In publishing our fifth edition of the BCG global challengers—a list of 100 fast-growing and fast-globalizing companies from rapidly developing economies (RDEs)—we hope to illuminate this new economic terrain and its players.

    Coming of Age

    Global challengers have arrived; these companies from RDEs are not mere curiosities operating in distant regions. Collectively, the challengers purchase more than $1.7 trillion of goods and services and invest more than $330 billion in capital expenditures a year. (See Exhibit 1.)

    exhibit

    Global challengers are full-fledged competitors making game-changing moves. They are winning with a broad range of strategies and capabilities. In doing so, they are fundamentally altering industries ranging from aircraft manufacturing and medical devices to e-commerce and mobile telephony.

    The Boston Consulting Group (BCG) published its first list of 100 global challengers in 2006. The original list was meant to be a wake-up call to executives of multinationals. Today, global challengers are not just competitors but also lucrative customers and potential partners. More broadly, they are emblems of the new order in which emerging markets will power global growth.

    The New Challengers

    Let’s examine some of the highlights of the 2013 BCG global challengers.

    Growth. From 2008 through 2011, the revenues of global challengers grew by an annual average of 16 percent. Global challengers had higher average revenues in 2011 than nonfinancial S&P 500 companies did. (See Exhibit 2.) From 2008 through 2011, the combined earnings of the global challengers expanded by an annual average of 10 percent and total shareholder return (TSR) grew by 20 percent.

    exhibit

    Job growth has been equally impressive. From 2006 through 2011, the 2013 BCG global challengers added 1.4 million jobs, while employment at nonfinancial S&P 500 companies remained constant. Even more striking, the average revenue per employee of the global challengers now exceeds that of the nonfinancial S&P 500 companies. (See Exhibit 3.)

    exhibit

    From Diverse Lands. Our 2006 list was dominated by China—where 44 of them were based. But newcomers from other countries have pushed some former challengers off the list—there are now just 30 Chinese companies. The number of home countries is steadily broadening. The past two lists have added companies from Egypt, Colombia, Qatar, Saudi Arabia, and South Africa.

    R&D. Initially, the global challengers relied on low costs and large captive domestic markets—in the case of China and India—as their primary sources of competitive advantage. Now, many are increasingly investing in innovation, and their annual spending on R&D more than tripled from 2007 through 2011. (See Exhibit 4.)

    exhibit

    Focus on New Consumers. From 2010 through 2020, emerging economies will add 270 million households with discretionary income that make them attractive to consumer-facing companies. Global challengers stand to benefit from this shift, since nearly one-third are consumer-products or consumer-services companies.

    Many of these challengers have embarked on an acquisition spree. For instance, in mobile telecom, VimpelCom bought Wind Telecom for $6 billion in 2011. In travel, Chile’s LAN Airlines bought Brazil’s TAM Airlines for $2.7 billion, creating the largest South American airline, Latam Airlines Group. In fast-moving consumer goods, India’s Godrej Consumer Products bought Indonesia’s Megasari Makmur Group.

    Through such deals, some challengers have risen quickly. But no challenger is guaranteed success. A challenger is more likely to be pushed off the list by the next new rising star than to rise above it. Twenty-six of the 2013 BCG global challengers are new to the list, the largest reshuffling to date. Meanwhile, since the initial list was published in 2006 only seven companies—two this year—have “graduated” by achieving sustained industry leadership.

    State Ownership: From Help to Hindrance

    State ownership or control has been the birthright of many of the global challengers. But fewer of the companies on BCG’s list carry that lineage than ever before. Only 26 of the 2013 BCG global challengers are state controlled; this is down from 36 on the 2006 list. (See Exhibit 5.)

    exhibit

    While the state is still the visible hand in the economies of these markets, many companies under state ownership or control have either chosen not to go global or stumbled when they tried. Since our 2011 report, companies with greater success overseas displaced 12 state-owned or state-controlled companies from the list of global challengers. Most but not all of the former challengers were Chinese. Nine state-owned or state-controlled companies are new to the list, demonstrating that some such companies continue to push overseas.

    Many of the displaced challengers continue to thrive in their home markets. China Mobile, last named a global challenger in 2009, remains a market-leading carrier at home. The China State Construction Engineering Corporation, a challenger in 2011, has continued to grow at home and abroad. It broke ground in 2011 on a $3.4 billion resort project in the Bahamas but has shifted more of its attention to the domestic market.

    At least five factors explain the setbacks of state-owned and state-operated enterprises on the global stage. First, their relative competitive advantage resides in their domestic markets, where the state may encourage them to focus. Second, private-sector companies generally have had more success than state enterprises in meeting the needs of consumers. Third, their people practices tend to be less flexible than those of private enterprises, limiting their ability to leverage talent abroad. Fourth, they historically have been more conservative in putting capital at risk in large M&A transactions overseas. Fifth and finally, they can face resistance from stakeholders in other countries as they seek to expand. While many state companies have overcome these challenges, others are at risk of falling behind globally.

    To succeed outside of their home countries, state-controlled enterprises will need to attract talent, take risks, develop successful business models, and appease the concerns of key stakeholders in their target markets.

    A New Era

    Increasingly, challengers and multinationals are competing head to head. Multinationals have modified their cost structures and product portfolios to pursue opportunities in emerging markets, facing challengers on their home turf. And some challengers, notably the conglomerate Alfa and the baker Grupo Bimbo, both of Mexico, are expanding into the home markets of multinationals.

    Paradoxically, as competition between multinationals and challengers has become more cutthroat, these companies are also more likely to find it desirable to enter partnerships. Bargaining power is more balanced, so partnerships no longer need to be established solely on the basis of the low costs of challengers or the high gloss of Western brands but rather on a wide range of complementary skills.

    We have entered the era of allies and adversaries.


    Next article: Introducing the 2013 BCG Global Challengers »


      

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    Acknowledgments

    We would like to thank the many executives at the global challengers who agreed to be interviewed. Their insights contributed to the evolving story of the rise of global challengers.

    The research and analysis for this report were conducted by a global team of BCG consultants based primarily in RDEs and under the direction of Whitney Haring-Smith in Hong Kong: Jan Contreras in Monterrey, Andy Jiang in Shanghai, Aarti Kochhar in Mumbai, Jason Mooty in San Francisco, and Matheus Schmidt in São Paulo. A global network of knowledge team members, led by Abdeljabbar Chraïti, provided invaluable support: Benny Chui in Hong Kong, Lori Spivey in Miami, and Evelyn Tan in Singapore. Vital research was also provided by Miriam Benedi Díaz, Noemi Biro, Silmara Costa, Marcin Galczynski, Franziska Höger, Salma Laalej, Kanchanat U-Chukanokkun, Oskar Wilczynski, Pavel Zahradil, and Nomava Zanazo.

    We would also like to thank our colleagues for their invaluable contributions: Marcos Aguiar in São Paulo, Jorge Becerra in Santiago, Ted Chan in Hong Kong, Agustín Costa in Buenos Aires, Nikolaus Lang in Munich, Christoph Nettesheim in Beijing, Burak Tansan in Istanbul, and Jan Dirk Waiboer in Moscow.

    We thank our colleagues Gary Callahan, Mary DeVience, Angela DiBattista, Belinda Gallaugher, Grace Kuo, Mark Voorhees, and Linda Wei for their contributions to the writing, editing, design, production, and marketing of the report.

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