Rosario Silva. Professor. IE Business School
4 March 2014
Traditional corporate giants are being overshadowed by a new type of multinational with close links to emerging markets, which is where the struggle among corporate world leaders will be played out over the next few years.
Over the last twenty years strong new multinational business organizations have been emerging in certain sectors, taking over the leading positions from traditional multinational organizations. These new multinationals go by different names: “emerging multinationals”, “dragon multinationals”, or “world challengers”. Consulting firm Boston Consulting Group (BCG) defines the world challengers as multinationals from fast-developing economies such as China, India, Mexico or Brazil. They include Mexico’s Bimbo group, the largest bread production group in the world, or China’s Haier group, which is a world leader in the household appliance group. The most recent definition, and also the broadest, has been brought to us by Spanish professors Guillén and García-Canal (2010): “The new multinational firms are from upper-middle-income economies such as Spain, Ireland, Portugal, South Korea or Taiwan, emerging economies like Brazil, Chile, Mexico, China, India or Turkey, developing countries such as Egypt, Indonesia or Thailand, and oil-rich countries like the United Arab Emirates, Nigeria, Russia or Venezuela”. In line with this definition, the biggest new non-financial multinationals would be Telefónica, Iberdrola, Hutchison Wampoa, Grupo Ferrovial, Citic Group. Cemex etc.
One of the key features that defines these new multinationals is the speed of their growth and internationalization. BCG estimates that in the period 2000-2009 the global challengers have grown by 18% per annum, compared to the 6% growth rate of firms in the same sectors on the S&P 500 index.
The second salient feature is that they have implemented a successful internationalization process without the same initial level of resources or capacity as traditional multinationals. They have managed to overcome their initial weakness thanks to alliances and joint ventures with other major multinationals, and through the acquisition of local firms that have permitted them to acquire brands, technological expertise and economies of scale to make themselves more efficient. In short these new multinationals have managed to develop cooperation networks with other firms through which they have been able to increase their resource base during the process.
The third main feature of these firm is that many of them have developed a capacity for managing political relations in their country of origin which has permitted them to enter in sectors that were being liberalized and in economies in which there was greater political stability. Egypt’s Orascon Telecom, for example, operates in eleven emerging countries, including North Korea and Pakistan, and it is known for being profitable in complex political environments. The success of Spanish companies in regulated sectors and infrastructures also has to do with honed political skills and a capacity to executive projects efficiently.
Finally, these new multinationals have major potential for future growth. Their knowledge of emerging markets is helping them to develop products and services that are better adapted to the needs of new client segments. For example, the Indian firm Bajaj Auto redesigned its Boxer 100cc motorcycle, which was no longer sold in India, taking it to price-sensitive markets in Africa. Given that emerging economies are expected to grow at twice the speed of developed markets, the mano a mano for world leadership between traditional multinationals and new multinationals will probably be played out in these markets.
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