Global champions

The Economist has published today a series of interesting reports about the emerging markets, BRIC countries or how you want to name them. This terminology mainly refers to the countries from South East Asia, as well as China, Brazil, India, Russia as they constitute the v. important markets for both companies from developed and developing countries.



From the topics discussed in this special report, three have drawn my attention:

1) Debate over whether the term "emerging markets" is still relevant
2) The new global champions from emerging markets
3) The opportunities and threats of emerging markets


Concerning the first topic, I've found out how the term "emerging markets" came about. It was Antoine van Agtmael, an equity fund manager, who in 1981 preferred to use this term instead of "third world countries" in order to make investing in such countries more appealing. Nowadays, the SE Asian countries have moved into the "developed countries" league. Furthermore, under "emerging markets" we understand countries which have a high economic growth. However, we somehow neglect the associated risks with this accelerated economic growth. For these reasons, it is argued that the term "emerging markets" isn't appropriate.

Let's get down to business and discuss about the new global champions. While until 15 years ago, the MNC (multinational companies) from developed countries were dominating the global economy, in the recent years MNC from emerging markets have begun to play an increasing role.

How come are they so competitive?
Among their core capabilities I could mention: know-how about the political, way of doing business in the emerging markets, and closeness to the targeted clients from emerging countries, law raw material and labour costs in comparison to their MNC counterparts from developed countries. I am now thinking of: the Indian Tata Group, Infosys and Ranbaxy, Chinese Lenovo and Haier, Brazilian Embraer or the Mexican Cemex.

Do incumbents see them as a threat and do they have reasons for this?
Certainly they are seen as a threat not only for the market shares in the emerging countries, but also for the developed markets. The MNC from emerging markets represent a threat, not so much in the present, but for the future. That is because even though now they are positioned in the lower part of the value chain and they serve mainly low-end customers, they use their acquired revenues to pursue R&D and move up in the value-chain. A relevant example is Ranbaxy, an Indian pharmaceutical company, which used to produce only generics and has now become an R&D driven company which comes up with new drugs.

Nevertheless, and now we're moving to the third topic, the more the emerging countries are developing, the higher the labour costs will be and the MNC from emerging countries will have to develop other competencies in order to be able to compete with the incumbents from developed countries. The MNC from developed countries still have an advance over the EM MNC in the managerial capacity, as most of the senior managers are still American and there are few professionals from emerging countries who have the necessary managerial capabilities to run a MNC.

Finally, even though there are hundred things left to be said, I would conclude by inviting you to follow closely this interesting development in the business world so that you know which companies could be an attractive place to work and which are on the brink of falling down.