Managing Director & Senior Partner
Each list of global challengers is more diverse than the prior one. With the addition of the Philippines this year, headquarters for the 2014 BCG global challengers can be found in 18 countries, nearly double the ten countries represented in the inaugural 2006 list. (See Exhibit 1 and Exhibit 2.)
In that first list, China and India supplied nearly two-thirds of the challengers. In 2014, the number of Chinese and Indian challengers has fallen below 50 percent for the first time. Smaller countries are picking up the slack. Thailand (five challengers), Turkey (four), and Chile (three) are at all-time highs. (See “Methodology for Selecting the 2014 BCG Global Challengers.”)
We began our analysis by compiling a list of potential global challengers based in emerging markets, focusing on companies located in developing Africa, Asia, Central and Eastern Europe, the Commonwealth of Independent States, Latin America, and the Middle East.
Our initial master list of potential global challengers was drawn from local rankings of the top companies in the markets listed above. As in previous years, we excluded joint ventures and companies with significant overseas equity holders but included state-owned companies that compete internationally. A few of the global challengers and graduates are headquartered in global financial or commercial centers, but their operations take place primarily in rapidly developing economies. We have listed these companies in the markets that house most of their operations.
Next, we applied a set of quantitative and qualitative criteria. Companies needed to have annual revenues of at least $1 billion—a threshold that ensures they have the resources to go global. We sought companies in which overseas revenues totaled either 10 percent of total revenue or $500 million. In export-oriented industries, such as mining, oil, and gas, we also required that companies possess overseas assets of at least 10 percent of total assets or $500 million. We made a few exceptions when we strongly believed that companies would meet these thresholds in the next two years. A final set of quantitative measures were related to growth and performance.
We sought companies with credible aspirations to build truly global footprints, excluding those that could pursue only export-driven models. Accordingly, we analyzed each company’s international presence, the number and size of its international investments, M&A activity over the past five years, and the strength of its business model. We also compared the size of each company with the size of other challengers and multinational competitors in its industry.
We based our final selection on these criteria as well as feedback from industry experts around the world.
In identifying graduates, we looked for top global competitors in an industry that reported foreign sales of at least 60 percent of total revenue. Graduates also needed to demonstrate a commitment to maintaining a global footprint.
Global challengers are growing more quickly than are comparable companies. From 2000 through 2013, the revenues of global challengers grew by an annual rate of 18 percent, on average, compared with 7 percent for global peers and 6 percent for the nonfinancial S&P 500.
Job growth has been equally impressive. From 2008 through 2013, the 2014 BCG global challengers increased their employment by 32 percent, compared with 11 percent for the nonfinancial S&P 500. Even more striking, the average revenue per employee of the global challengers exceeds that of the nonfinancial S&P 500 companies—$479,000 compared with $440,000. (For other statistics about the global challengers, see Exhibit 3.)
Each global challenger report provides an opportunity to welcome new members and applaud the graduates. The 13 newcomers in 2014 are grouped by three themes that help describe the reasons for their entry to the list. A fourth theme—growing through acquisitions—cuts across the groupings and applies to several companies from several industries.
Capturing Middle-Class Consumers. As the world becomes increasingly middle class, global challengers are emerging to serve these new consumers. From 2009 to 2020, the size of the global middle class will expand from 1.8 billion to 3.2 billion, and nearly all of the new members will live in emerging markets. By 2020, the number of middle-class people will exceed the number of poor people. The following are the new global challengers that are best serving this massive middle class:
Meeting Digital Needs. Many companies in emerging markets have been rapidly developing innovative and advanced digital services, helping consumers improve their lives and companies strengthen their capabilities. Two new challengers are taking advantage of these trends:
Building and Supplying the World. Seven of the newcomers belong to the industrial-goods and resources sectors from which global challengers have traditionally come. But their success is increasingly driven by innovation rather than low costs.
Growing Through Acquisitions. Many of the new challengers have achieved growth, market share, and momentum through acquisitions. (See Exhibit 4.) Jollibee is a strong example. In 2004, the company bought Yonghe King, a noodle, rice, and dim sum chain that has about 80 outlets. Today, Yonghe King has 314 restaurants in China. Jollibee followed up by buying Hong Zhuang Yuan, which serves congee, in 2008, and San Ping Wang, a noodle restaurant, in 2012. Today, China is Jollibee’s largest foreign market.
Other new challengers have also been busy. Tencent has made more than 100 overseas acquisitions in the past two years as part of its globalization push. UPL has acquired 14 companies in the past ten years, primarily in the U.S. and Europe. Yildiz has expanded into new markets and new categories.
Five former global challengers graduated from the list because they became leaders in their respective industries. Before this report, a total of seven challengers had graduated, so 2014 represents a big coming out on the world stage for emerging markets. When selecting graduates, we followed broad guidelines about financial performance and overseas footprint. But we also looked qualitatively at companies that have successfully developed talent, innovation, and other initiatives that are core to our C2L program. This year’s graduates include the following companies: