Dueling with Dragons 2.0: The Next Phase of Global Corporate Competition

By Nikolaus LangBrian CollieAndreas GockePeter UllrichChristian MoldenhauerBob Zhai, and David Jin

The past few years have seen tremendous upheaval in a number of global industries. In 2000, giant Western companies such as Ericsson, Nokia, and Nortel Networks ruled the world’s telecommunications-equipment industry. Now, Chinese companies such as Huawei Technologies and ZTE have risen to the top. In the process, they have forced established multinational corporations (MNCs) into joint ventures or even out of the market. In the photovoltaic industry of 2005, U.S., European, and Japanese companies accounted for 90 percent of global production. Today, four of the world’s five top players, including market leaders Yingli Solar and Trina Solar, are based in China.

Other industries are in danger of similar disruption as the competitive landscape in  emerging markets1 1 We define an emerging market as any economy that is not Australia, Japan, Korea, New Zealand, North America, Singapore, or Western Europe. Notes: 1 We define an emerging market as any economy that is not Australia, Japan, Korea, New Zealand, North America, Singapore, or Western Europe. matures. The number of emerging-market-based companies with at least $1 billion in annual sales—the global challengers, as we call them—has more than tripled, to roughly 1,700 over the past decade. Even though most of these companies remain smaller than the reigning MNC champions in their industries, they are growing much faster.

The Boston Consulting Group continuously monitors the state of global competition in various industries. We have observed that companies based in emerging markets generally take four steps to become global leaders.

First, they emerge as nascent competitors at home. Second, they become national champions by attaining a strong to dominant position in their home markets. Third, they spread their wings and become global challengers. With the fourth and final step, they establish themselves as global leaders. (See Exhibit 1.) In a 2011 study, we showed how companies from China navigated this journey in industries such as telecommunications equipment, solar and wind power, and power generation equipment. (See Dueling with Dragons: China’s Rapid Rise in Heavy Equipment, BCG Focus, July 2011.)

In a new report, we analyzed the implications for MNCs and the top emerging-market players (EMPs) in three businesses: automotive supply, construction equipment, and chemicals. (See Dueling with Dragons 2.0: The Next Phase of Global Corporate Competition.) Through our analysis, we have determined the strategies that MNCs and EMPs should employ to win. We selected these industries because they illustrate three stages in the process. The stages are characterized by the market penetration and revenue size of the ten leading EMPs.

  • The Shifting Competitive Balance in the Automotive-Supply Industry. This industry is in an early stage of global competition. The leading MNC incumbents still dominate, with a global market share of 95 percent. However, the leading EMPs have experienced staggering growth of about 21 percent per year over the past six years and are by now all sizable companies. While a few EMPs—such as Nemak, Motherson Sumi Systems, and Bharat Forge—are already globalized, many EMPs, including Chinese players Weichai Group and Huayu Automotive Systems, are just starting to reach beyond their home markets.
  • Battling for Global Leadership in Construction Equipment. Global competition in this industry is at an intermediate stage. Several Chinese EMPs, including Sany Group and XCMG Group, are now among the largest companies and have invested massively to build a global footprint over the past six years.
  • How the Global Chemical Industry Has Become a Battle of Equals. This industry is in a very advanced stage of global competition. Several EMPs have already become global leaders. The largest, such as Sinopec and Saudi Basic Industries (Sabic), are already about the same size as the largest MNCs: BASF and Dow Chemical.

In sum, we have found that a sea change is under way in all three industries. Even though the automotive-supply, construction equipment, and chemical industries have significantly different natures and competitive landscapes, MNCs in each are facing urgent challenges to their leadership from EMPs. In one scenario, which explores aggressive EMP growth and is based on the assumption that EMPs are able to maintain the growth rate of the past five years, EMPs would represent three of the five largest companies globally in terms of sales in the foreseeable future in all three industries. Indeed, the chemical industry has already reached this point. The construction equipment industry will reach it in 4 years; the automotive-supply industry, in 13 years. (See Exhibit 2.) This hardly means that the game is over for the incumbents, however. In each of the three industries, several MNCs are proving to be agile enough to defend their leadership positions and even to grow in new markets.

Key executives of both MNCs and EMPs expect that competition will intensify in all three industries. Improving global competitiveness, therefore, must be a top priority on CEOs’ agendas. Companies must acquire a clear understanding of the market forces, technological trends, and customer demands that are reshaping their industries. According to the results of our analysis, organizations need to develop a winning mix of strategies and pursue them relentlessly. In many cases, a transformation of the business will be required.