New giants from world's emerging economies have much to offer us
By TREVOR HATTON
THERE is more than an Alpine freeze as the most powerful politicians and business people assemble in the Swiss mountain resort of Davos. This year there is a cold irony that the World Economic Forum is meeting during a global financial crisis.
Globalisation, the formative idea of our age, continues to affect our economic geography in ways that we are only beginning to understand. The rise of the "multi-polar world" is reshaping our perspective.
We have been examining a striking phenomenon of this new world order: emerging economies which are producing business giants at a staggering rate to challenge the west.
Some of these companies are already household names, like Samsung of South Korea, China Mobile or India's Reliance Industries. They are business success stories changing the rules and being followed by many others.
Emerging economies now account for 70 companies in the Fortune Global 500 List of the world's biggest companies, up from 20 a decade ago. They have been expanding new businesses at a frenetic pace with more than 1,100 mergers and acquisitions worth some $128 billion in 2006.
As these emerging market multinationals, or EMMs, have continued to grow, they have brought with them a new breed of investor: sovereign wealth funds. The debate around how and where these organisations are investing in other countries, especially in Europe, will be high on the Davos agenda.
But adopting policies to protect developed markets may well push sovereign wealth funds to concentrate on emerging markets where growth is booming and where there is the potential to generate even higher returns.
The Bric countries of Brazil, Russia, India and China have been followed by South Korea, Mexico, Malaysia, Poland, Saudi Arabia, Singapore, Thailand and Turkey as the advance guard of emerging economies. They are being joined by the next phase of countries attempting to pursue more success: the Czech Republic, Egypt, Hungary, Indonesia, South Africa, Venezuela and Vietnam.
Financial crises are not always the disasters people would have us believe. They have proved to be defining events for EMMs. Following the Asian financial crisis of 1997-8, which quickly spilled over into Russia, Brazil and then the rest of Latin America, they were forced to reduce debts, overhaul banking procedures and introduce flexible exchange rate regimes. The crisis turned into an opportunity and produced a surge of EMMs seeking global expansion.
Today, the main emerging market energy companies, often dubbed the "New Seven Sisters", control almost one-third of the world's oil and gas production and more than one-third of its total oil and gas reserves.
While EMMs are often cast as inexperienced newcomers to global competition, a more accurate description is that many are street-wise operators who are prepared to take bold risks. They have mastered the art of innovation by adapting new ideas to their marketplaces and have overcome talent shortages caused by any skills gap by introducing worker education programmes. Their springboard towards global expansion has often been made through diaspora populations around the world.
They are sometimes regarded as imitators who adopt western products, from pharmaceuticals to mobile phones, but their approach is to start by deciding what the consumer wants and work backwards. This compares to developed economies where there is less market research on consumer tastes and buying behaviours.
Samsung introduced washing machines in India with a special "sari wash" programme. Haier became a leader in China's white-goods market, despite heavy competition, because of its knowledge of the nuances of the Chinese consumer. When the company discovered that rural markets used their washing machines to clean vegetables, Haier made sure that vegetable peel would not clog the machine's pipes. The next generation of their washing machines can even produce goat's milk cheese.
When going global, EMMs pursue three principal brand strategies. First, they extend their existing brands to markets where they are likely to resonate with consumers. Mexico's Grupo Modelo has pushed its Corona beer to become a global market leader and the fastest-growing beer import in the United States.
Second, they acquire well-known brands in the developed world to leapfrog immediately into established market space. When Tata Group bought Tetley Tea for $432m in 2000, it provided the Indian conglomerate with access to large European markets.
Third, they frequently tailor their brands to meet local preferences.
Their arrival should not be seen as a challenge to the competitive position of developed market economies. The business leaders and policy makers at Davos this week have a significant opportunity to consider EMMs as a rich source of new ideas and business practices.
• Trevor Hatton is managing director of Accenture in Scotland.
The full article contains 785 words and appears in The Scotsman newspaper.Last Updated: 23 January 2008 9:24 PM |
