President & Chief Executive Officer
Battling in Asia and Beyond
A decade ago, few outside of India had ever heard of Apollo Tyre. Today, the company manufactures on three continents and has recently agreed to buy U.S.-based Cooper Tire & Rubber Company for $2.5 billion, a deal that could make Apollo Tyre the world’s seventh-largest tire maker. Likewise, Shuanghui International Holdings was, until recently, largely unknown outside of China. With its $4.7 billion bid to acquire Smithfield Foods, the biggest pork producer in the U.S., it is poised to become one of the largest meat processors worldwide.
These recent deals illustrate that some companies based in developing nations are coming of age as world-class multinationals. The deals are also indicators of perhaps the greatest change in the global economy since the Industrial Revolution—the steady shift of economic power from the mature economies of the West to the emerging markets of Asia. A new class of companies is leveraging the region’s rapid growth, and they are positioning themselves to transform entire global industries. A telling fact: 83 of the global Fortune 500 companies are based in the emerging Asian economies of China, India, Malaysia, and Thailand.
These trends make Asia arguably the world’s most strategic and most complex battleground for global leadership. The imperative to succeed in Asia has never been greater. While growth prospects remain modest in the mature economies of the developed world, Asia’s rapidly developing economies are still expected to grow 5 to 8 percent annually. China and India, combined, are projected to have nearly 1 billion middle-class consumers by 2020, a market worth $10 trillion. In Indonesia, 67 million people—about the size of the entire U.K. population today—will join the middle and affluent classes over the next decade. Even though a number of emerging Asian economies show signs of slowing, their growth will still be substantial, and history shows that companies can often achieve step changes in competitive positions and market share.
The battle will be waged among many players: long-established local companies in each country, multinational corporations, and a group that we call the Asian global challengers. These challengers—fast-growing, globally minded companies with roots in emerging markets—are on track to establish international leadership positions and to fundamentally alter their industries. To identify and understand the success formulas of these rising giants, since 2006, The Boston Consulting Group has been publishing an annual list of the 100 top global challengers. Fifty-eight of this year’s 100 companies are based in Asia and represent a diverse array of industries, including energy, financial services, medical equipment, and e-commerce. We have also studied 50 challengers each in China and Southeast Asia.
The path to global leadership will be neither secure nor smooth. Many Asian challengers remain far from the forefront in potentially disruptive new technologies that are expected to transform fields such as energy, computing, materials, and manufacturing. And many Asian challengers have yet to prove that they can ride out a major economic change in the region, such as a sharp slowdown in China. Indeed, the title of our recent report on China’s challengers, The End of Easy Growth, refers to the difficulties ahead.
Asia’s best-managed companies, however, have risen to such challenges in the past. They navigated the Asian financial crisis and the recent global recession and reemerged stronger than before. And they have proved to be remarkably resilient in adapting to new technologies and using them to gain competitive advantage.
Asian challengers also have many advantages in their favor. First, they dominate at home. In fact, our recent Globalization Readiness survey revealed that only 13 percent of global companies say that they have an advantage over local companies when competing in emerging markets. More important, to penetrate other emerging markets, challengers have developed business models and capabilities that often exceed those of most multinationals. Now, the challengers are upping their game to win on the global stage.
Many of these challengers have much to teach other companies and are moving beyond their traditional advantages of low costs, privileged access to home markets, and state support. Their key success strategies include the following.
Captivating the Value Consumer. Multinationals tend to focus on Asia’s growing ranks of high-income and middle-class consumers. But many challengers have built successful business models by also targeting the next billion consumers—the enormous number of Asians who are now living below the poverty line but may soon leap into the middle class. India’s Bharti Airtel, for example, built successful business models that included developing products tailored to the modest budgets of mass consumers at home. The company then used its knowledge of low-cost markets to seize share in other emerging markets. Bharti Airtel began its domestic mobile-phone service in 1995, when India had only 1 million phones—all on landlines. Now Bharti is India’s largest mobile provider and has entered Africa.
Capturing the Middle Market. Many global leaders build strategies around promoting products and brands that can command premium prices. However, many consumers and corporate buyers, especially in emerging markets, are willing to forego leading brands and the latest technological features to instead buy products that offer the best value for the money. In targeting the middle market, challengers are building the scale, expertise, and technology capabilities to go global. China’s Mindray used this strategy to become the world’s third-largest maker of patient-monitoring devices. It began by moving up from the low-end to the middle market in China, selling equipment at highly competitive prices to local hospitals. It then broke into the middle to low-end market in the U.S. and Europe. In 2008, it acquired Datascope, an established brand at major U.S. hospitals. Since 2007, Mindray sales have increased 32 percent annually, and overseas sales now account for 58 percent of the company’s revenues.
Using Current Financial Strength to Make Acquisitions. The global financial crisis weakened companies in the West, and many challengers have used their access to capital to acquire companies with advanced technology and new-market share. China’s Sany Heavy Industry, a leading maker of low-cost concrete pumps, became a global leader by buying financially troubled Putzmeister of Germany. PTT Public Company, Thailand’s state-owned oil and gas company, now has 44 exploration and production projects in 13 countries and plans to invest $100 billion over the next decade—half of it overseas.
Leveraging Strategic Partnerships. Many challengers are now well positioned to forge strategic alliances as equal partners with multinationals to develop new products or establish themselves more firmly in key markets. Indian motorized-vehicle manufacturer Bajaj Auto, for example, formed an alliance with Japan’s Kawasaki to obtain technology support for new-product development and to address a wider range of markets at home and abroad. Dr. Reddy’s Laboratories, also of India, is jointly developing inexpensive versions of cancer therapies with Germany’s Merck.
The competition is certain to heighten in Asia as incumbents respond and new challengers emerge. This will require companies to alter their strategies.
What must Asian challengers do to sustain and even enhance their leadership positions?
What should multinationals do to capture the growth opportunities in Asia and to engage the challengers?
Industry boundaries are blurring, and the pace of competition is accelerating. The prize has never been greater. Although the current environment presents some economic challenges, companies should use this period to strengthen their market positions in ways that build long-term advantage. In the decades ahead, the ability to win on the Asian battlefield may well determine the long-term success and global stature of many companies.