China firms dominate list of top 100 emerging market companies

Led by the Chinese, emerging market companies are becoming significant competitors to established MNCs says new BCG report
Multinational companies will have to start devising strategies for coping with emerging market competitors, according to a new report from the Boston Consulting Group. The report, which analyses the 100 top emerging market companies, says that multinationals will have to respond to the globalising tendencies of Chinese, Indian and Latin American companies. BCG selected the top 100 emerging market companies from a pool of 3,000 candidates.

The top 100 are broken down as 44 Chinese, 21 Indian and 12 Brazilian companies. According to the report, globalisation can be defined as a process whereby companies leave their home markets to chase markets, profits, scale and sometimes raw materials, abroad.

Globalised companies have the sophistication to source the cheapest products worldwide through complex supply chain management, and can access high-growth markets thanks to melding international expertise with local market conditions.

Emerging market challengers are still a long way behind the established MNCs, but the two groups are beginning to knock elbows.

ôCompanies from RDEs (rapidly developing economies) probably wonÆt be taking significant market share in developed countries for a while, but they are taking markets share in rapidly growing developing markets,ö notes BCG in the report.

ôWhat was surprising is how suddenly these companies have appeared on the scene and how fast they are growing,ö it adds.

The RDE 100 have $715 billion in combined revenues and are growing at 24% per year. They derive 28% of their revenues from their international operations, and that portion could jump to 40% by 2010.
These companies benefit from cheap labour, resources and equipment costs, as well as from unique experience in dealing in third-world countries û namely their own. Thus, when Chinese companies invest in Africa, Indonesia or India, they will be more familiar with the obstacles there than expats from developed countries.

The methodology for choosing the companies was based on size, global exposure and the stated ambition to be a global player. The importance of the size criteria caused Chinese state-owned companies be selected in possibly disproportionate numbers, given the governmentÆs cultivation of national champions.

Size does not exclude profitability. BCG found that the sample companies outperformed many of the major index companies in that respect. Thus, the RDE 100 earned $145 billion in operating profits last year, equivalent to a 20% margin over sales, compared to 16% for US S&P companies, 10% for Japanese Nikkei companies and 9% for German DAX companies.

Chinese companies in the group include BYD, the worldÆs largest manufacturer of nickel-cadmium batteries; Chunlan, which has 25% of the Italian air conditioner market; Baosteel, ChinaÆs biggest steel maker; Lenovo, a PC company; Huawei Technology, a telecom equipment maker; Pearl River Piano, the global volume leader in piano manufacturing; China International Marine Containers Goup, which has a 50% market share of the containersÆ market; PetroChina; and Hisense, the number one seller of flat screen TVs in France. In the survey, well-established, world-class Hong Kong companies such as Techtronics Industries, Johnson Electric and Li & Fung are lumped together with mainland companies ûmaking the Chinese selection considerably more attractive than if they had been excluded.

Indian companies have a completely different profile to the Chinese companies. They are generally privately-owned, often have foreign institutional or strategic shareholders, and are all publicly-listed.

Despite fears expressed in developed companies about predatory M&A out of emerging markets, especially India and China, the report says such concerns are overstated, with M&A being a surprisingly small part of the companiesÆ growth strategy. Instead, the companies usually grow organically, a strategy BCG estimates accounts for 80% of their growth.
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