New Global Business Leaders

November 2013 | Rating

The world is changing before our very eyes. Even 15 years ago, it was reasonable to use the word “unipolarity” to talk about the power balance in politics and economics. Benchmarks for success in business were also set by Western companies. The structure of the present world order is much more diverse. The role of the locomotive of economic growth lies with developing countries, and companies that originated there are increasingly conquering heights set by Western businesses. BCG ranked 100 countries with emerging markets that have the chance to determine the shape of the global economy in the coming decades.

In recent years, developing countries have justifiably earned the title “driver of economic progress.” Already, their markets are voluminous and will be even more so in the foreseeable future, thanks to the constantly high rate of economic growth. At the same time, a national accumulation of wealth is taking place, as consumer savings grow in response to the increase in income. Overall, this leads to an improvement in the general welfare of the citizens in those countries. Thus, in 2012, private wealth grew 7.8% worldwide, mostly thanks to developing countries in Asia. Prosperity indicators in Asia (13.8%) and Latin America (10.5%) were significantly higher than the global average. Furthermore, BCG projects that by 2017, developing countries will account for 70% of all increases in private wealth.

Because of these factors, developing countries have not only noticeably improved their investment attractiveness, but have also spawned their own global companies. Over the past five years there have been at least 1,000 companies headquartered in developing countries with sales of more than $1 billion annually. Some of them have aggressively captured their own local markets, but most are expanding abroad. And according to the Boston Consulting Group, the 100 fastest-growing companies in the BCG 2013 rating have the potential to become world leaders in their respective industries. Collectively, these 100 companies have acquired goods and services valued at more than $1.7 billion and invest more than $330 million per year. Over the past five years, “challengers’ ” sales have grown quicker and had significantly higher return rates than companies in the S&P 500 index. Between 2006 and 2011, these companies added an additional 1.4 million jobs to the global economy, while employment in non-financial S&P 500 companies remained unchanged.

The top 100 of the 2013 Global Challengers included developing countries with annual revenues of more than $1 billion, of which 10%, or $500 million, was earned abroad. BCG analysts say that this level of income is the minimum amount needed to function successfully in the global market. In 2006, only 10 countries fit these criteria, but in 2013 it was 17. This growth directly testifies to the rise of new economic centers around the world. In addition to a company’s income, the rating accounted for factors such as the number of jobs created, amount of international investments, and other indicators of a company’s international presence. Many of the global challengers in BCG’s rating are already ahead of the traditional leaders from Europe and the U.S. in a number of these parameters, and they are becoming the new trendsetters for the global markets.

As in the previous rating, most of the companies that have a chance to enter the global market are located in China (30 challengers), India (20), and Brazil (13). But the number of Chinese companies has fallen since 2011. And if you follow the pattern from 2006, it becomes clear that Chinese brands are gradually losing their advantage and their status as an indisputable leader. In 2006, there were 44 companies from China counted among the global challengers; in 2009 there were 39; and by 2011 the number had fallen to 33. Companies from India, Brazil, Mexico, and Russia are demonstrating more stable signs of their presence in the global arena. Stable, but not growing.

Other countries that have increased their presence in the top 100 most promising companies include South Africa (5 in 2013 compared to 3 in 2011), Malaysia (2 up from 1 in 2011), and Turkey (3 up from 2). This indirectly suggests a gradual replacing of the BRIC countries with countries that have more dynamic and innovative economies. Initially, challenger companies used cheap labor and large domestic markets (none compare to India and China) as their main competitive advantages, but now more countries have started betting on developing innovation. Annual expenses for R&D from these companies more than doubled between 2007 and 2011. The new leaders of globalization are not only relying on price competition, but also on investing in innovation, creating new business models, and acquiring foreign companies.

The span of industries represented on the 2013 BCG global challenger list is widening. The new list includes representatives from the financial services (Citic Group and China UnionPay), health care equipment (Mindray), and electronic commerce (Alibaba Group) industries. It’s interesting to note that all of the new industries in the rating are from China.

But the list is still heavy on industrial-goods companies (38) and resource and commodity companies (20), which account for twice the share of the Challengers list than these industries occupy on the S&P 500. The S&P 500 is an index of 500 American publicly traded companies with the largest capitalization. The services sector, with 24 entries in the BCG rating, has a more impressive weight in the S&P 500, however. But it should be noted that the services sector in developing countries is showing a positive growth trend, with the number of companies quadrupling in the Challengers’ rating compared to 2011.

It’s also worth paying attention to changes in the number of state-owned corporations in the rating. Over the course of its existence, their number has gradually gone down. In 2013 there were 26 state-owned corporations, or 10 fewer than in 2006. The main reason for this, according to experts, is the fact that state-owned corporations in developing countries often enjoy the support of the government in operating on the domestic market, and this limits their success abroad. In order to enter into the global market, state support is more of a burdening factor.

While it was initially declared that these new companies were the closest competition to transnational corporations and therefore it was worthwhile keeping an eye on them, the realization has recently dawned of the enormous opportunities that will result from Western companies partnering with those that are being nominated for the title of global leaders.

Text: Christopher Stein