A “BRIC” house: Emerging multinationals pose threat to established global players
By Frank O Smith, senior contributing editor (fosmith@thewritinggroup.com) -- Manufacturing Business Technology, 9/1/2008 12:00:00 AM
Globalization is reshaping more than the reach of markets, according to a new study by global business consultancy Capgemini and U.K.-based Cambridge University.
The report focuses on growth of newly ascending multinationals in four emerging economies collectively known as BRIC—for Brazil, Russia, India, and China.
“The emerging multinationals comprise a thriving species and a threat to established multinationals,” says Nick Gill, global manufacturing leader at Capgemini. “They're going to market with different approaches that are changing the model such that if Western companies aren't watching out, they'll be caught wanting.”
Report authors assert these four economies will overtake the G6 economies—the U.S., the U.K., Japan, Canada, Germany, and France—by 2040, and the multinational corporation (MNC) giants of tomorrow will emerge from these economies.
When looking at the Global 1000, says Gill, “Five years ago only about 10 percent of companies and 5 percent of total market cap were located in emerging markets. Today about 20 percent of the companies and 20 percent of the market cap are with emerging multinationals.”
The dynamics at play are slightly different in each country, though all share some important commonalities. One of the most glaring is the increase in foreign direct investment (FDI).
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As with other emerging multinationals such as Brazil, Russia, and China, India’s foreign direct investment (FDI) has jumped significantly in the last four years. |
Gill says much of the investment is in mergers and acquisitions, targeting companies in the G6. This includes Lenovo's acquisition of IBM's Personal Computing Division; Tata Motors' purchase of Jaguar and Land Rover; and Vale of Brazil acquiring Australian and Canadian raw material extractors to create the second-largest mining company in the world.
Russian FDI has been climbing steadily for six years; India's has jumped significantly in the last four; and Brazil has skyrocketed in the last two. China's level of investment is on the rise, but more slowly due to government restrictions.
"When the shackles come off in China, we'll see some significant changes,” says Gill.
According to Zhang Ruimin, CEO of Haier, a Chinese multinational, “In the globalization era, there are two categories of companies: one is the international company, and the other is one taken over by the former group. There isn't a third category.”
Shifts in dynamics are both strategic and tactical. According to Gill, emerging multinationals often are better positioned to enter adjacent developing markets than traditional Western companies due to overall lower cost structures that let them move in and capture low-margin sectors that traditional players wouldn't deem attractive.
Emerging companies also are capitalizing on innovations they've engineered in cheaper, lighter parts—for example, in automotive applications—and are now transferring these innovations to enter more upscale Western markets focused on better fuel efficiency.
“This is really hitting home in the U.S. given higher fuel prices,” says Gill, adding that the first line of defense is awareness for what's happening in smaller markets where you don't play.
“Joint ventures can be a two-edged sword,” warns Gill. “They run the risk of giving partners the opportunity to gain proficiency and become direct competitors.”
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