A group of companies from rapidly developing economies has begun to leapfrog past established multinationals in global industry rankings. In a report, The Boston Consulting Group (BCG) identifies 100 of these so-called global challengers, about half of which could qualify for inclusion in the Fortune Global 500 within the next five years.
Some of the companies—selected from 16 countries—have already achieved international renown, including China’s Huawei Technologies, the world’s second-largest mobile telecom supplier, and Li & Fung Group, the world’s biggest sourcing company. But others are poised to win international recognition in the near future. Overall, the global challengers generated revenues of $1.3 trillion in 2009.
Companies on the Move: Rising Stars from Rapidly Developing Economies Are Reshaping Global Industries is the latest in BCG’s global challenger series, which was launched in 2006 to identify companies shaking up the global economy. In the latest report, BCG identifies 23 new fast-growing companies.
The new global challengers replace those that may have suffered or lost their way during the Great Recession or that may not be expanding as quickly as this year’s listed companies are.
The 100 challenger companies grew annually by 18% and averaged operating margins of 18% from 2000 through 2009. During this period, the annualized total shareholder return of the global challengers that were publicly listed was 17%. If the challengers continue on their current growth path, they could collectively generate $8 trillion in revenues by 2020—an amount roughly equivalent to what the S&P 500 companies generate today.
“The global challengers are entering the new decade from a position of strength. So farsighted multinationals should view them as potential customers and partners and find ways to work with them for mutual benefit,” says Sharad Verma, a BCG partner and a coauthor of the report. “As competition intensifies, the boundaries between these two distinct sets of companies will continue to blur.”
Although China, India, Brazil, Mexico, and Russia still dominate the list of home nations, countries in other regions are starting to foster world-class companies. In particular, Africa, with four global challengers this year (from South Africa and Egypt), is emerging as a region on the move. It is rich in natural resources, has emerged as a growth market for several industries, and demonstrates newfound ambition.
The global challengers have historically been well distributed across industries. Industrial goods, with 35 challengers, and resources and commodities, with 24, continue to lead the list. The construction industry (with six challengers) moved up the list, reflecting the growing importance of infrastructure in developing markets.
The need to fuel growth in rapidly developing economies has set global challengers on the acquisition trail. From January 2006 through August 2010, challengers in the resources and commodities industry announced 154 cross-border mergers and acquisitions, far more than any other sector and nearly twice the 86 deals completed in the five previous years.
But for the moment, many challengers are choosing to focus on solidifying their positions in fast-growing developing markets, rather than breaking into sluggish developed markets. This is due to the fact that the middle class in developing markets will make up 30% of the global population by 2020. “Global challengers can generate tremendous growth by serving local and nearby markets,” says David Michael, leader of BCG’s Global Advantage practice. “Established multinationals will need to work extra hard to understand and break into these markets.”
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