Emerging-Market Companies Are Winning, Thanks to Ability to Read and Respond to Consumer Demand

BCG List of 50 Top-Performing Emerging-Market Companies Finds Consumer Insight, Digital Prowess, and the Ability to Attract Top Talent Are Key Drivers of Success

BEIJING—Emerging-market companies focused on their home countries are thriving—and beating larger MNC rivals—thanks to deep insight and understanding of the growing consumer class in those markets. The Boston Cosulting Group (BCG) highlights 50 such companies, dubbed “local dynamos,” in a new report. The report, titled Emerging-Market Companies Up Their Game, is being released today.

These innovative and agile local dynamos have at least $100 million in annual revenue and generate enviable growth and shareholder returns. An index comprising the 38 publicly traded dynamos showed that they generated total shareholder returns of 18% from 2014 through 2017, more than double the performance of the MSCI Emerging Markets (7%) and well ahead of the S&P 500 (12%). A key driver of local dynamos’ strong returns was robust topline growth. From 2014 through 2017, that same group of local dynamos generated compound annual revenue growth of 15%, topping revenue growth posted by companies on the MSCI Emerging Markets Index (10%) as well as the S&P 500 (2%).

Local dynamos are capitalizing on four forces driving growth in emerging markets. These include:

  • Population Growth. Emerging markets will be home to 900 million additional people by 2030, while developed-market populations will remain stable.
  • Rise of the Consumer Class. Thanks to increased median incomes, spending in emerging markets has jumped by $7 trillion since 2007.
  • Fast Urbanization. Since 2007, emerging-market urban centers have collectively seen their population increase by 500 million, with China accounting for nearly half of that growth.
  • Digital First. The number of internet users in emerging markets has jumped by 1.8 billion since 2007. And most of these users are mobile natives.

A powerful driver of success for many of these companies has been the ability to target the rising expectations of the growing ranks of digitally savvy consumers in those markets—many of whom reside in expanding urban centers. “Private consumption has accounted for at least 50% GDP growth in emerging markets since 2010,” says Rahool Panandiker, a BCG partner in Mumbai and a coauthor of the report. “BCG’s local dynamos are close to consumers in their home markets. As a result, they are able to respond rapidly to changes in preferences while keeping costs low by adopting lean manufacturing and digital automation.”

Adapting to Rapid Change

Local dynamos are thriving at a time when the performance of emerging markets—while slower than in recent years—continues to outpace that of developed markets. At the same time, the performances of emerging-market countries have diverged. Some nations, such as China and India, continue to post robust growth, while Russia and certain Latin American countries have faced tough going, thanks largely to the end of the commodity boom which had fueled growth in both regions.

Harnessing Digital and Other Key Success Factors

Beyond understanding emerging-market consumers, BCG has identified four other key success factors that enabled local dynamos to outperform their regional and global MNC peers in growth and shareholder returns as well as successfully navigate an increasingly challenging economic landscape.

  • Developing Digitally Native Business Models. Most local dynamos (60%) disrupt their markets by harnessing digital technologies. And exploding mobile-phone penetration across emerging markets (44% in 2017) allows them to scale digital businesses quickly.
  • Creating Digital Ecosystems. Local dynamos build powerful digitally based partnerships to expand and enhance their products and services. These ecosystems typically involve large and diverse sets of partners, outside the company’s industry, that can help the company rapidly develop compelling new offerings.
  • Expanding Service Offerings. Like MNCs and other global players, local dynamos increasingly provide compelling services that add value, thanks to global connectivity and the growth of the knowledge-based economy.
  • Building Talent Advantage. They are able to attract and retain top-tier talent in their markets, in part due to their willingness to match the compensation and benefits offered by MNCs.

“Local dynamos are rewriting the rules of the road in emerging markets. Understanding and emulating the successful practices of local dynamos companies, or striking partnerships with them, can help MNCs win in these markets,” says Ted Chan, a BCG partner in Greater China and a coauthor of this report.

A copy of the report can be downloaded Emerging-Market Companies Up Their Game.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

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