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More technology, media, and telecommunications (TMT) companies based in emerging economies have ascended to the top ranks of the world’s creators of shareholder value, according to a new report by The Boston Consulting Group (BCG). This is one core finding of "Swimming Against the Tide: How Technology, Media, and Telecommunications Companies Can Prosper in the New Economic Reality."

Seven of the top ten telecom performers, five of the top ten media performers, and four of the top ten technology performers are based in India, Taiwan, Mexico, China, and other emerging economies. The top-ten groups also tend to feature companies that have embraced the digital revolution, such as Tencent Holdings and Google.

“Emerging-market companies are spreading their wings to play larger roles on a global stage,” says coauthor David Dean, a senior partner in BCG’s Munich office. “Many of these countries have moved beyond being primarily a source of cheap labor to become important centers of technical innovation.”

The report presents detailed analyses of the total shareholder return (TSR) at 126 companies for the five-year period from 2005 through 2009. It also identifies the top ten value creators in each of the three sectors. Among the key findings:

• Of the 126 companies analyzed, 81 are based in emerging economies—64 percent of the total.
• Overall, the TMT sectors posted mediocre performance. Annual TSRs for the technology and telecom sectors were in the middle of the pack at 6.2 percent and 5.3 percent, respectively, and media companies were near the bottom at 2.5 percent. That compares with a 6.6 percent average for the sample of 712 companies in all industries, as detailed in BCG’s twelfth annual Value Creators report.

• However, there are companies that posted very strong TSR performance—from 22 to 26 percent annually for the top ten companies in each of the three sectors.
• Technology TSR leaders include Apple (45.6 percent annual TSR), MediaTek (32 percent), and Infosys Technologies (21.2 percent).
• Top media performers include Tencent Holdings (106.3 percent), Naspers (33.3 percent), and Net Serviços de Comunicação (30.3 percent).
• Top telecom performers include América Móvil (27.1 percent), China Mobile (26.0 percent), and Bharti Airtel (25.6 percent).

Trends in Value Creation

TSR consists of six component parts: revenue growth, changes in profit margins, the valuation multiple, cash dividends, share repurchases, and debt repayments. Of these components, revenue growth accounts for 70 to 80 percent of the TSR of superior performers in all three sectors—but other TSR drivers vary by sector. For example, most technology companies showed low growth in margins and low cash-flow contribution. Among media companies, sales growth was driven almost exclusively by the focused Internet players, and the sector also had moderate cash-flow contribution. The telecom sector had high cash-flow contribution but shrinking margins.

The digital revolution has affected all three sectors, for better and worse. “A few established media players, such as Naspers and Pearson, have thrived by shifting their business lines to digital models, but most have struggled to adapt,” says Dominic Field, a coauthor of the report and a partner in BCG’s Los Angeles office. 

Media companies now have an opportunity to find new growth through the rapid adoption of tablets and e-readers. Telecom companies, meanwhile, are trying to reorient their strategies to the rapid growth of mobile data. And for both technology and telecom companies, cloud computing holds the promise of growth.

In addition to analyzing TSR rankings, Swimming Against the Tide also explores the implications of below-average economic growth in much of the developed world.
A disciplined approach to cost and cash management will remain important, as seen by the performances of Koninklijke KPN and Rogers Communications, which generated substantial TSRs despite operating in developed markets.

The ability of companies in the TMT sectors to develop innovative products and business models will play a critical role in creating shareholder value. To that end, the authors of the report say that adaptive strategies, which emphasize experimentation and the ability to anticipate fast-moving opportunities, have become more effective than scale, size, or market position.

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