Professional Documents
Culture Documents
Globalization's New Logic: The Rise of Developing-World Multinationals - World Politics Review
Globalization's New Logic: The Rise of Developing-World Multinationals - World Politics Review
Developing-World
Multinationals
World Politics Review
07 May 2008
http://www.worldpoliticsreview.com/article.aspx?id=2073
Simon
Roughneen
Infosys and Wipro have revolutionized the $650 billion technology services industry. In
2006, a takeover of Arcelor, Europe's biggest steelmaker, by India-based Mittal Steel
established the world's largest steel company. The newly constituted Arcelor-Mittal is the
worlds first steel company with an output exceeding 100 million tons annually. Adding to
his celebrity-entrepreneur status, company founder Lakshmi Mittal topped the U.K.
Sunday Times' "Rich List," published March 20, for the fourth year running, with assets
now valued at over $45 billion. (The Times' list profiles "Britain's richest 2000."
Although Mittal retains his Indian passport, he and his family spend much of their time
in
London.)
These are but the most high-profile examples. Sirkin, who is a senior partner at Boston
Consulting Group, said, "high profile M&As aside, there are hundreds of companies
from India, China, Brazil and elsewhere that are challenging household-name
competitors from the OECD countries, and this challenge is global and growing."
Of course, all this does not mean that Dell or General Motors or Siemens are dead in the
water. Far from it. Sirkin's book, due for release June 12, describes a world where
"everything, everywhere will be up for grabs, and competition will be just as
widespread." In 2006, UNCTAD noted that foreign direct investment in developing
economies
still
exceeds
outflow
by
more
than
$200
billion.
The global gold rush could be undermined by worldwide recession, however, with the
U.S. and EU slowing or already stagnant. Rising food and energy prices are feeding
inflation and eating into disposable incomes among the world's rising middle classes.
Although it's too early to tell, these trends could undermine some of the base upon which
emerging-economy
enterprises
are
building
their
global
strategies.
But for now, emerging economy multinationals are on a roll. Causes vary, but to
generalize, for one, economies of scale matter: India and China have very large and
growing domestic markets to fuel growth globally. And they have a head start on Western
competitors in their home markets. Low local costs coupled with the communications
revolution mean companies can go global sooner and faster than was the case in the
1960s-1980s, when German, Japanese and then Asian Tiger businesses came to
worldwide prominence.
But it is not all about colonialism-in-reverse. Many companies in the developing world
are also expanding into other developing-world markets. On April 25, 2008, for example,
a Financial Times story was subheadlined "Could India be about to shake up the global
telecoms industry?" The report concerned Indian company Bharti Airtel's bid for Africa's
largest wireless company, MTN. The report asserted that "the industry's winners and
losers are being increasingly defined by exposure to emerging markets."
A significant and growing proportion of global trade and investment activity runs
between developing economies, where massive new middle classes are emerging. An
extra 1.8 billion people will join these ranks globally during the next 12 years, according
to Foreign Policy editor Moises Naim. With huge and increasingly affluent markets
emerging in the so-called BRIC countries of Brazil, Russia, India and China, and across
Southeast Asia, companies in these countries are looking to other developing economies
as
viable
markets.
Sino-Indian trade grew 38 percent during 2006, as the former overtook the United States
to become the world's second-largest exporter, behind Germany. The World Bank Group
estimates that south-south corporate investment more than tripled to $47 billion from
1995 to 2003. Currently it is probably closer to $60 billion. Speaking at the 2006 World
Economic Forum, the chairman of India's Satyam Computer Services, B. Ramalinga
Raju, told an audience that "culture can be as important to multinational success as
capital." Companies used to operating in developing economies have an advantage where
American or European companies can be daunted by political instability, corruption and
a perception that consumers cannot afford to buy their products.
In addition, the developing world's emerging giants have had to beat not only local
competition but Western multinationals as well. And that has meant making profits at
prices that Europe and the U.S. would find unthinkable. Greater exposure to competition
sets this wave apart from the success of Asian companies during the latter part of the
20th century, where protectionist models allowed Mitsubishi, Samsung and others to
grow
at
home
before
becoming
global
players.
Even if developing-world companies do not mount major global challenges, many are
having significant success against Western multinationals in serving middle-income
consumers at home. Grupo Positivo in Brazil has 18 percent of the domestic computer
market, larger than the combined share of Hewlett-Packard and Dell, its two closest
competitors.
Tata's acquisition of JLR was preceded by the advent of its Nano, a $2,500 automobile
aimed squarely at meeting growing Indian demand for cheap personal transportation. By
going low, Tata has set the bar high for other auto manufacturers who are eyeing the 200
million-strong Indian middle class. Low-cost domestic strategies can also lead to success
abroad: Mahindra & Mahindra (M&M) dominates the Indian market with its small
tractors. But a 2006 Businessweek survey showed that two-thirds of the tractors sold in
the United States are 70 horsepower or less. Now, M&M is undercutting Deere and other
established tractor makers in the U.S. Similarly, Brazilian aircraft maker Embraer utilized
its national base to fly past Canada's Bombardier, becoming the world's No. 3 aircraft
maker and winning midsize-jet orders that otherwise would have gone to Airbus and
Boeing.
Expect current trends to continuing as developing-world companies continue to see the
strategic benefits of going global: not only to grow in new markets, but also to acquire
the intangible assets like branding and intellectual capital that give Western rivals a
competitive advantage, for now. Thus, more combinations of developing-world and
Western companies are likely. Sirkin believes developing world companies will continue
to "outbid Western competitors" to buy access to new technologies and markets.
http://www.analyst-network.com/article.php?art_id=2046