Why the West’s monopoly on multinational corporations has ended: Four insights from Boston Consulting Group’s Global Challengers report

As Western nations decline in relative economic importance, Western multinationals increasingly look to the emerging middle-classes of the developing world as an important source of growth.

But they are facing some unexpected competition for the custom of such newly-rich consumers: big, strong companies local to these markets, many with their own global ambitions.

This new competitive landscape is made clear in Boston Consulting Group’s most recent Global Challengers report, which for the past six years has chronicled the fortunes of the developing world’s largest and most promising corporate empires.

The corporates on this list are no start-ups. They already form significant chunks of many of the world’s fastest-growing economies. To qualify for BCG’s list, they had to have annual revenues of at least US$1 billion and have 10% or more of their revenue coming from countries outside their home country.

The path for these companies is far from assured. Half the challengers that were on the BCG’s 2006 list didn’t make the cut in 2013. Many were slowed or cut down by the global financial crisis. Nonetheless, while the companies on the list may change, the trend is clear, BCG writes.

“Challengers are now an established fact of global business,” says BCG. “But if they aspire to global leadership they must continue to step up their game. Meanwhile, [Western] multinationals must both compete and partner with these challengers in order to thrive.”

This year’s crop of challengers survived the global financial crisis – and most got back on their feet faster than their Western counterparts.

Here are four key issues for leaders revealed in BCG’s report.

China and India only account for half of the global challengers

Australians are dazzled by the growth story in China, and to a lesser extent, India. But China and India accounted for just 30 and 20 of the global challengers respectively, making this year’s list the most diverse it has ever been. Brazil boasts 13 global challengers, while Mexico – perhaps unexpectedly – has seven.

In the Asia-Pacific, Indonesia’s Golden Agri-Resources, a palm oil producer, and food manufacturer Indofood Sukses Makmur made the list, as did Malaysia’s oil and gas giant Petronas and budget airline AirAsia.

The list also features four companies from Thailand: agribusiness company Charoen Pokphand Group, textile manufacturer Indorama Ventures, oil and gas explorer PTT and fish-based food products company Thai Union Frozen Products.

The global challengers are spending big on research and development

The companies on the list are aggressively planning for the future, BCG found.

For example, Huawei – the Chinese telecommunications giant most famous locally for being locked out of building national infrastructure by many Western governments over cyber-espionage allegations – employs 46% of its 150,000 workforce in research and development roles. In 2011 it issued 374 US patents, breaking into the top 100 patenting organisations worldwide.

In 2011, companies in China generated more US patents than companies in Australia, Israel, Italy, the Netherlands, Sweden and Switzerland.

If current rates of growth in patent accumulation continue, BCG writes, up to a quarter of patents issued in 2018 will originate in rapidly-developing economies. 

This is driven by necessity. Such companies traditionally have a cost advantage over Western rivals, but this is shrinking, BCG explains.

The low-infrastructure advantage: Global challengers look for growth in unexpected places

While Western companies focus on expansion in China and India, the challengers on BCG’s list are looking to Africa, the Middle East, south-east Asia and Latin America.

“Heavy-industry companies are … arriving in Africa to meet the growing demands of a continent under construction,” BCG writes. Chinese contractors account for 37% of the African construction, according to African Business magazine. Telecommunications companies are also making heavy inroads into Africa.

Because they lack infrastructure in their home countries, they have developed innovations to get around this. These innovations are easily adapted to other countries. For example, to combat a lack of reliable electricity in many parts of India, Godrej Consumer Products developed an inexpensive, energy-efficient and battery-operated portable refrigerator. It is now selling this refrigerator in Africa, many parts of which also lack reliable electricity.

Several of the challengers on the list have pioneered new banking solutions for consumers in developing countries, who often lack easy access to finance. For example, Alibaba Group, a Chinese e-commerce company, has created Alipay, which allows customers to purchase goods online without a credit card, paying only when goods have been received. In Mexico, telecommunications company America Movil offers banking services through its mobile network.

Growth through mergers and acquisitions

The global challengers, particular those in service industries, used the turmoil of the global financial crisis to step up their cross-border mergers and acquisitions. Between 2006-2008 and 2010-2012, the global challengers increased their cross-border M&A activity by 107% and reducing domestic deals by 76%. This was especially the case for the 30 Chinese challengers. In the two years before the GFC, they spent $7 billion on outbound M&A. In the two years during the crisis the figure ballooned to $30 billion before settling at $23 billion in the most recent two-year period.

This has led to many of the challengers vastly increasing in size in recent years, which has changed the dynamics of their negotiations with Western firms. Increasingly global challengers are forming 50-50 joint ventures with Western firms. For example, China National Chemical Corporation (ChemChina) in 2012 formed a 50-50 joint venture with DuPont to develop new forms of synthetic rubbers known as fluoroelasticomer gum.


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