Managing Director & Partner
This article is an excerpt from 2018 BCG Global Challengers: Digital Leapfrogs.
Many global challengers have proven to be formidable global competitors. A principal reason is that they honed their business models and capabilities in the challenging circumstances that define most emerging markets, where advantages that other companies take for granted, such as good logistics and infrastructure, often represent substantial hurdles. More and more emerging-market companies are turning to digital technologies to help them overcome or get around such barriers. When these companies start to expand from their home bases, they use digital tools and know-how to establish themselves quickly in international markets, often shouldering aside more traditional competitors with their digital muscle.
Emerging Markets: A Driving Digital Force
Meet the 2018 Global Challengers
Digital Innovation on the World Stage
Our analysis of digital adoption by global challengers surfaced four common traits:
Many also pursue accelerated digital transformations as a company-wide strategy.
Improving Productivity and the Core Business. The shift toward Industry 4.0 is a global phenomenon, and emerging-market companies often view this trend as an opportunity to seize a larger value-added share of global value chains. Companies in emerging markets face particular challenges, for which they develop their own solutions. To sidestep the large capex requirements that new technologies often require, for example, they seek greater speed and efficiency using data-related technologies, such as big data and AI. They also invest in innovation ecosystems in their home countries (including suppliers, public entities, and talent sources) to mitigate their dependence on developed nations’ technologies and capabilities.
In China, a major transition is underway from reliance on low-cost, labor-intensive manufacturing toward such Industry 4.0 capabilities as the Internet of Things and the control of cyberphysical systems and automation. The government’s Made in China 2025 initiative provides incentives for companies to enhance their international competitiveness by achieving breakthroughs in the various industrial sectors. Many Chinese companies are pursuing new technologies through global M&A. Approximately 20% of the almost $200 billion in outbound acquisitions by Chinese companies in 2016 involved tech companies. (See The 2017 M&A Report: The Technology Takeover, BCG report, June 2017.)
China’s Midea Group, a manufacturer of electrical appliances, is one example of a global challenger that is also an Industry 4.0 pioneer. Since 2015, Midea has completed at least five acquisitions in five countries that complement its tech foundation and improve competitiveness. The acquisition of KUKA moved the company into high-growth robotics. Its purchase of Servotronix, in February 2017, allowed it to further automate its manufacturing plants thanks to the acquired company’s technological leadership in motion control. “We want artificial intelligence technology applied to robotics and applications,” Midea’s vice president, Hu Ziqiang, told Bloomberg. “There’s huge potential for us to expand.”
OCP Group of Morocco is investing in an ecosystem of partnerships to expand its research and Industry 4.0 capabilities. In 2014, the company launched Mohammed VI Polytechnic University, which focuses on research and learning in mining and chemistry, to help further Morocco’s development and provide a source of technically trained talent for the company. The university also provides a platform for broader collaboration with other institutions. OCP has long collaborated with universities worldwide, including the Massachusetts Institute of Technology, Columbia University, HEC Paris, and Mines ParisTech.
OCP has also established joint ventures with leading international companies, including IBM (digital transition), DuPont (environmental footprint), and Jacobs (technical engineering). It is building its own Industry 4.0 capabilities, using robots to automate manual production processes, the Internet of Things to make plants more efficient, and advanced analytics to improve production and drive process innovation.
Engaging in Customer Journeys. Global challengers keep a strong focus on digitally engaging customers and consumers, which both fuels their growth and facilitates innovation. Xiaomi, a digital native, has used a combination of simple and lean operations and online distribution to propel it to a leading position in the smartphone market. The company uses inexpensive online media as its principal marketing tool. High digital customer engagement and fast market penetration have enabled Xiaomi to expand rapidly outside of China into other emerging markets. The company was able to enter India and catch up with the market leader in only one year.
In India, Mahindra Group, the parent company of Mahindra & Mahindra and Tech Mahindra, is pursuing new forms of digital engagement with customers in multiple subsidiaries. A new hotel app accounts for 35% of bookings at the company’s hotels and resorts. An AI-backed advisory portal for farmers was downloaded 200,000 times in its first three months. Capitalizing on the rise of the sharing economy, the company has launched two startups: Trringo, which is known as “Uber for tractors,” and SmartShift, a platform that pools small commercial trucks for sharing. In Brazil, BRF is piloting blockchain technology to track products moving through its supply chain and allow customers to check the source of products, along with other information, online.
Disrupting with New Business Models. Disruption is not a developed-markets-only phenomenon. Even in relatively nascent markets, new entrants wielding new technologies and capabilities can leapfrog the status quo. Take the example of Reliance Jio, a mobile network operator (and subsidiary of Reliance Industries) that launched beta services in December 2015 and has since then totally upended the mobile telecom market in India. Unencumbered by legacy 2G and 3G network technology, Jio invested in building an advanced LTE mobile network that takes advantage of superior sub-GHz LTE spectrum, a tower network that is substantially fiberized, data analytics, and advanced automation, to cover more than 85% of the population (100% in urban areas). Jio also built an extremely low-cost network (based in part on owned rather than rented towers); its costs are less than half its competitors’. The result is a high-quality mobile network that has gained about a 15% market share and carries some 1.7 billion gigabytes of data traffic every month (the highest rate in the world) at the lowest prices in the world—0.05 rupees/MB.
Embedding Digital Enablers. Digital global challengers don’t just apply technology—they embed new technology-enabled capabilities throughout their organizations. Malaysia’s AirAsia, for example, uses technology in multiple ways to improve efficiency and bring down costs. Advanced analytics inform yield management and pricing decisions. Cloud-based efficiency solutions help ensure high aircraft utilization and streamlined operations. An online platform provides a lean distribution system with no need for expensive travel agents or physical stores. The company was the first airline in the region to go ticketless, in 2002; 85% of bookings are made directly through its website. One result of these digital enablers is that AirAsia is among the lowest-cost airlines in the world, with a cost per available seat kilometer of only $.034, less than both regional competitors and global low-cost carriers.
In India, Godrej Consumer Products has used embedded technology to transform the sales operation in its fast-moving consumer goods business. The company uses best-in-class technology and advanced analytics for better sales decision making and has built cutting-edge sales force capabilities through technology-enabled learning. Its entire sales force is equipped with devices rich in performance-boosting applications. These digital enablers are having multiple impacts. The company has identified significant improvement in sales growth from more effective customer service. It can plan better for future production, thanks to digitally enabled tracking of stock at distributor outlets. Sales managers and senior executives have access to real-time online sales and purchase reports. Sales team productivity is on the rise because of better information, and the company has a one-stop billing system that streamlines interactions with distributors, hence creating one version of truth.
Global challengers often see digital as an all-in proposition. They try to accelerate digital transformations through company-wide efforts and shared mandates, assigning their best people to digital leadership positions in order to drive their efforts forward. For example, Mahindra Group has undertaken a group-wide digital transformation journey with three key pillars: improving the customer experience, accelerating the digital transformation of business models, and aggressively evaluating the latest emerging technologies.
For global challengers, emerging markets are dynamic proving grounds. The best companies use them as springboards for their global ambitions. As we have highlighted in past publications, the competitive advantages honed at home and wielded abroad—such as talent and organization and go-to-market models—have proved to be powerful weapons. (See “How Challengers Have Achieved Global Leadership,” BCG article, June 2016.) But as the globalization paradigm shifts and the digital economy expands, even the most powerful traditional competitors need to develop digital strategies and capabilities. (See “New Business Models for a New Global Landscape,” BCG article, November 2017.) Where they start depends on their current circumstances, but the need to move is becoming more and more urgent.