In a Cutthroat Environment, Challengers Are Formidable Competitors

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In a Cutthroat Environment, Challengers Are Formidable Competitors

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    In This Article
    • Challengers understand how to tailor products for emerging markets.
    • As the digital divide shrinks in emerging markets, challengers are connecting with consumers in new and novel ways.
    • Africa, Southeast Asia, and Latin America are nascent battlegrounds for multinationals and global challengers.

    2013 BCG Global Challengers

    The 2013 BCG global challengers—100 fast-growth, globally expansive companies from emerging markets—are catching up and sometimes surpassing multinationals. They are expanding their business portfolios, reaching the rapidly expanding consumer class in emerging markets, exploring new businesses based on the rising connectivity of the emerging world, and moving into underserved fast-growing markets.

    Moving into New Businesses

    Many challengers are expanding into new businesses and across the value chain. In 2011, Wipro enhanced its sector expertise by acquiring the oil-and-gas IT practice of U.S.-based Saic, and in 2012, Wipro acquired Promax Applications Group, an Australian analytics company specializing in trade promotion, a promising opportunity for growth as consumer spending rises in India. Meanwhile, Mindray has broadened its product line and entered the health-care-IT space through acquisitions.

    Captivating the New Consumer

    Many challengers have learned to cater to consumers across emerging markets. VimpelCom, a telecom provider founded in Russia that generates 40 percent of its revenues in the country, and Naspers, a South African media company, are two fast-expanding services companies that were born in countries traditionally driven by commodities.

    Indian companies Bharti Airtel and Godrej Consumer Products have leveraged their insights from the challenging Indian market to expand into other developing markets—notably, Africa. Bharti Airtel began its domestic mobile-phone service in 1995, when India only had 1 million phone lines—all of which were landlines. It is now the nation’s largest mobile provider and an emerging force in Africa. Godrej allows local managers in Africa to set local marketing and sales strategies and to tailor their offering, such as top-selling hair products, to local needs.

    Emerging markets frequent require products tailored for local conditions. One example is the chotuKool—an inexpensive, environmentally friendly, and portable refrigerator made by a sister company of Godej Consumer Products. ChotuKool, which means “little cool,” weighs less than eight kilograms and addresses the rural Indian market and its intermittent power supply. It is battery-operated, consumes less than half the power used by a regular refrigerator, and uses high-end insulation to protect its contents if the batteries die.

    Challengers are also experimenting with innovative banking and financial services. Alibaba Group, the Chinese e-commerce player, has created Alipay, an escrow-payment system. The buyer does not release payment until he has received and validated the merchandise. Alipay helped unleash explosive growth in e-commerce by overcoming mistrust in online transactions and low credit-card adoption. In 2010 Alipay surpassed PayPal as the world’s largest online third-party payment, ranked by number of users.

    Meanwhile, in Mexico, mobile telecom provider América Móvil has partnered with BBVA Bancomer to offer banking services through its mobile network, much like mobile operator Safaricom did in Kenya with M-Pesa. Elsewhere, VimpelCom has partnered with Google to offer Google Play content. Charges are debited from consumers’ prepaid accounts, circumventing the lack of credit card availability in developing countries.

    Capturing the Digital Opportunity

    The digital divide between mature and fast-growing markets is starting to shrink. By 2016, 3 billion consumers—or 45 percent of the world’s population, will use the Internet. Nearly 800 million of them will be Chinese, about the same number of Internet users in France, Germany, India, Japan, the U.K., and the U.S. combined.

    Companies are taking advantage of this connectivity. Naspers, founded as a newspaper company in South Africa in 1915, has emerged as a global player in the media and the Internet markets through its stakes in Tencent and

    Alibaba Group’s, China’s business-to-business e-commerce leader, has expanded its presence in the U.S. in 2010 by acquiring Vendio, an e-commerce site, and Auctiva, which provides listing and marketing tools to vendors on e-commerce websites such as eBay. had more than
    5 million U.S. users as of mid-2012.

    Even traditional industries, such as airlines and credit cards, are facing competitive threats created by digital connectivity. AirAsia was the first Southeast Asian carrier to introduce e-ticketing in 2002. In 2011, it partnered with Expedia, the first venture between a low-cost carrier and an online travel agent.

    China UnionPay, while still small, is providing financial services in more than 125 countries globally. It has a running start in winning the emerging-market consumers as they migrate toward financial services.

    Exploring Frontiers of Fast Growth

    Over the past six years, China and India have become the most common targets for multinational corporations looking to expand overseas. Many of the global challengers, however, have expanded their sights to Africa, new growth spots in the Middle East, Southeast Asia, and Latin America.

    Africa. With more than 1 billion people and $3 trillion in total GDP, Africa is a larger market than Brazil or Russia. While some global consumer companies, such as Unilever, Nestlé, and Coca-Cola, entered the market decades ago, Africa has become a more recent focus of consumer-oriented challengers. Godrej Consumer Products, for instance, has acquired several hair-care businesses in South Africa and the Tura brand in personal care in West Africa. At Bajaj Auto, Africa accounts for 41 percent of its overseas sales of light motorbikes—exceeding sales in its overseas markets in Asia.

    Heavy-industry companies are also arriving in Africa to meet the growing demands of a continent under construction. For instance, Sany Group, the Chinese mining-machinery company, signed its first equipment contract in Africa in 2010. Chinese contractors now account for 37 percent of the African construction market, according to African Business magazine. Nearly 42 percent of the contractors’ overseas revenue now comes from Africa, the magazine reports.

    In telecommunications, the global challengers have focused heavily on Africa as it skips fixed lines altogether and goes straight to mobile. Huawei and ZTE—two Chinese equipment makers—have leveraged their experience working with low-income or rural markets at home to develop products for Africa. India’s Bharti Airtel entered the continent by acquiring the African operations of Kuwait’s Zain. It then applied its knowledge of low-cost markets to expand organically through its subsidiary Airtel Africa.

    Southeast Asia. Southeast Asia is on the move. For most of the past decade, the region has been enjoying a surging economic renaissance. Nearly 100 million people will enter the consumer class by 2015, most of them in Indonesia, the Philippines, Thailand, and Vietnam, driving projected annual growth of 12 percent in consumer spending.

    Latin America. This region is also growing sharply. Strong commodity prices helped such countries as Chile, endowed with remarkable natural resources, expand real annual GDP in excess of 4 percent in the post-2009 recovery. In BCG’s new Sustainable Economic Development Assessment, an approach to systematically assessing and comparing the socioeconomic development across 150 countries, Brazil made the greatest improvement over the past five years. Several other Latin American nations, including Peru and Uruguay, are also in the top 20 nations. Meanwhile, Chile, Colombia, and Peru have forged an alliance that is binding together their financial and commercial markets.

    Hot Spots. Though best known for their larger economies, the Middle East and Latin America both have smaller markets with strong growth. Real GDP in Qatar and Colombia, for example, has expanded by more than 4 percent annually over the past five years, outpacing regional heavyweights Saudi Arabia and Brazil. Prospects for both countries remain bright.

    Next article: Challengers Are Going Global Through M&A and Partnership »


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