In the new world order, global challengers are becoming stronger and multinationals are seeking fresh sources of growth. Challengers and established multinationals are increasingly chasing the same consumers and customers. But there are also opportunities for them to join forces. Those that figure out when to compete and when to collaborate will be better off than those that decide to go it alone. Meanwhile, governments can encourage economic development most effectively through policies that recognize the importance of their homegrown challengers but also allow foreign companies to participate.
The future success of the 2013 BCG global challengers is not guaranteed. Just half of the global challengers selected in 2006 continued to make the cut in 2013. To reach the next level of global expansion, challengers require greater capabilities, greater engagement with both private and public entities, and greater access to new growth opportunities.
Build capabilities beyond cost advantage. The success of global challengers will increasingly rest on innovation, operational excellence, quality, branding, and customer service. These capabilities need to be backed by organizational capabilities such as talent management and brand-building. For example, the shortage of experienced managers in Africa leads to poor efficiency and productivity of both global and local companies in many African countries. Even in China, which graduates a large number of university students each year, talent management was the most commonly cited concern among HR and business executives in China.
Successful postmerger integration remains a key challenge. As more challengers use M&A to vie for industry leadership, they will need to get stronger at smoothly folding large companies into their own and managing the talent, operational, and organizational complexities that come with
Strengthen stakeholder management. As challengers increase their overseas footprint, stakeholder management becomes even more important. Political, nongovernmental, and regulators are critical stakeholders. Challengers should treat these stakeholders as if they are partners—or run the risk that they become opponents.
The global challengers are competing more effectively in more markets and for a greater variety of products and services than ever before. This means that multinationals should be entering and building positions in emerging markets with localized strategies and partnering with these companies when it will help them get ahead.
Develop localized approaches in emerging markets. Many multinationals have enjoyed success in emerging markets through localization and the redesign of their product line. Yum! Brands, the owner of Pizza Hut and KFC, has reinvented its menus for the Chinese market.
Other multinationals are targeting mid-sized cities for growth. For example, Ford opened its ﬁrst dealership in Samarinda, Indonesia, a town of less than 1 million in Borneo, in 2007, and sales rose 30 percent over the next two years. In India, Tommy Hilﬁger expects to add 500 stores, many in mid-sized cities, through a joint venture over the next five years. In China, retail giants Best Buy, Carrefour, and Wal-Mart are rapidly adding stores in mid-sized cities.
Seize the potential for partnership and growth. Cooperation and partnership with global challengers can provide access to new markets and resources, allow for the exchange of technology, and create economies of scale. Wise multinationals are targeting challengers as key customers and partners.
Governments, especially those in mature markets, should recognize challengers as a positive force for growth in jobs and investment. Rather than imposing restrictions, governments should be actively encouraging acquisitions and investments, developing regional hubs in order to attract overseas investment, and avoiding excessive nationalism and protectionism.
Allow cross-border M&A and investment without undue restrictions. Under the right conditions, acquisitions and investment by challengers can create jobs in mature markets. In the U.S., several members of the Chinese 2013 BCG global challengers are becoming major employers. Wanxiang America has 6,000 employees. In the fiscal year ending in March 2011, Tata Consultancy Services alone hired 1,150 people in the U.S. In 2012, Tata-owned Jaguar Land Rover created 2,500 jobs in the U.K. The Tata group of companies collectively employs about 45,000 people in the U.K., making it the largest manufacturing employer in the country.
Challengers have often contributed to job creation after entering a market through M&A or a partnership. A joint venture between Cnooc and Chesapeake Energy to acquire and manage oil and gas assets has created 4,000 to 5,000 new U.S. jobs.
Develop regional specialties to drive local investment. Governments in both mature and emerging markets can play a positive role in helping to develop regional hubs of expertise. The Malaysian government has been setting up public institutions such as technical schools, industrial training institutes, and skills development centers to meet the growing requirements of the industrial sector. These hubs can encourage outside investment and job creation.
Encourage economic development. Challengers are contributing innovation, capital, and jobs to the countries in which they operate. Huawei, for example, sourced about $6.6 billion in parts from U.S. companies in 2011. Governments should embrace and leverage the innovation that challengers can bring to regional development.
The Sustainable Economic Development Assessment can assist governments in economic development by showing where they should be focusing their energies.
The 2013 BCG global challengers are game-changers in their global industries. They are meeting the needs of customers in the world’s high-growth markets, and they bring greater choice to customers everywhere. Challengers are now an established fact of global business. But if they aspire to global leadership they must continue to step up their game. Meanwhile, multinationals must both compete and partner with these challengers in order to thrive.
We are just at the dawn of a major new era of global competition—of challengers and multinationals, of allies and adversaries.
To Contact the Authors