Despite the slowdown in macroeconomic growth, the drop in commodity and currency prices, the crash of equity markets, and the rise of geopolitical risks, the top companies from emerging markets are still rapidly expanding and globalizing.
A new report by The Boston Consulting Group (BCG), "Global Leaders, Challengers, and Champions: The Engines of Emerging Markets," highlights 100 such companies, the BCG global challengers.
“The global challengers are the leading edge of a much larger group of companies from emerging markets that, despite economic uncertainty, are powering ahead with confidence and ambition,” said Dinesh Khanna, a coauthor and leader of BCG’s Global Advantage practice.
The report marks the ten-year anniversary of the first publication of BCG's list of global challengers. Over the past decade, the global challengers have been both resilient and successful. They have grown in size nearly four times faster than peers in mature markets and generated shareholder returns more than five times higher.
The report finds that the top companies from emerging markets grew three times faster than their counterparts in mature markets from 2009 through 2014.
In sectors as varied as household appliances, construction and engineering, industrial conglomerates, and real estate development, companies from emerging markets have captured global market shares exceeding 40%.
Even if GDP growth slows to 5.5%, China and India will add $3.9 trillion in consumption over the next five years, equal to the entire GDP of Germany.
Although the geographic composition of the global challenger list has not changed significantly since 2014, when the last report was published, a few trends are emerging.
Consumer-oriented challengers—such as Discovery, a financial services firm from South Africa—are moving beyond advantages based on cost and access to raw materials.
New challengers—such as Axiata, a leading regional telecom operator based in Malaysia, and Xiaomi, a Chinese maker of smartphones—are appealing to the digital needs of the expanding middle class in emerging markets.
As discretionary consumer spending increases in emerging markets, airlines, such as China Eastern Airlines and Pegasus Airlines of Turkey, are also making strides.
“Ten years ago, the global challenger list was dominated by industrial goods and resources companies competing on cost. Today’s many challengers are appealing to the hopes and dreams of middle-class consumers in emerging markets and elsewhere,” said Michael Meyer, a coauthor and partner based in Singapore.
In recognition of the rapid change and growth in these markets, BCG identified nearly 1,500 additional companies from 44 countries: the champions. These companies tend to be smaller than the challengers but are more profitable and faster growing. From 2005 through 2014, they averaged 18% annual growth and 20% EBIT margins. In 2014, they had revenues equivalent to 6% of global GDP.
“The champions represent the next frontier of competition and value creation in emerging markets,” Khanna said. “If the last decade has been about the global challengers coming of age, the next decade will see a much broader range of companies arising as economic engines.”
As in past Global Challenger reports, BCG also highlighted a group of “graduates,” former challengers that have matured so much that they are virtually indistinguishable from multinationals from mature markets. This year’s graduates are: América Móvil (Mexico), Gazprom (Russia), Hindalco (India), JBS (Brazil), Johnson Electric (China), Tata Consultancy Services, (India), and Tata Motors (India). Altogether, BCG has named 19 graduates.