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India's Emerging
Global Challengers
A report by The Boston Consulting Group and
The Confederation of Indian Industry (CII)
April 2006
Confederation of Indian Industry The Boston Consulting Group
BCG
The Boston Consulting Group
India's Emerging Global ChallengersCII-BCG
India's Emerging Global Challengers
This report is based on a forthcoming BCG Report:
by Marcos Aguiar, Arindam
Bhattacharya, Thomas Bradtke, Pascal Cotte, Stefan Dertnig, Michael Meyer, David C. Michael, and Harold
L. Sirkin.
April 2006
The New Global Challengers: How 100 Top Companies from
Rapidly Developing Economies (RDEs) are Going Global – and Changing the World,
Rahul Jain
Project Leader
Vikram Bhalla
Vice President and Director
Nisheeta Bajaj
Consultant
India's Emerging Global ChallengersCII-BCG 1
Confederation of Indian Industry
The Boston Consulting Group
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Supported by:
Government of India
Ministry of Commerce and Industry
Department of Industrial Policy and Promotion
2 India's Emerging Global ChallengersCII-BCG
THE BOSTON CONSULTING GROUP www.bcg.com© The Boston Consulting Group, Inc. 2006. All rights reserved.
For information or permission to reprint, please contact:E-mail: imc-info@bcg.com charanya.krishnan@ciionline.org
Mail: The Boston Consulting Group Confederation of Indian Industry14th Floor, Nariman Bhavan 105, Kakad Chambers, 1st Floor227, Nariman Point 132, Dr Annie Besant Road, WorliMumbai 400 021 Mumbai 400 018India India
Fax: 91 22 5549 7001 91 22 2494 5831, 2493 9436
Since its founding in 1963, has focused on helping clients achieve
competitive advantage. Our firm believes that best practices or benchmarks are rarely enough to create
lasting value, and that positive change requires new insights into economics, markets, and organisational
dynamics. We consider every assignment a unique set of opportunities and constraints for which no standard
solution will be adequate. BCG has 60 offices in 36 countries and serves companies in all industries and
markets. For further information, please visit our website at www.bcg.com.
is a non-government, not-for-profit, industry-led and industry-
managed organisation, playing a proactive role in the development of Indian industry. Founded over 110
years ago, it is India's premier business association, with a direct membership of over 5,800 organisations
from the private sector as well as public sectors, including small and medium enterprises and multinationals,
and indirect membership of over 95,000 organisations from around 325 national and regional sectoral
associations.
The Boston Consulting Group (BCG)
The Confederation of Indian Industry (CII)
3India's Emerging Global ChallengersCII-BCG
Table of Contents
A Word from the Authors
1. The New Global Challenge
Many Companies on the Move
RDEs as Platforms for New Types of Global Competitors
2. The RDE 100 Emerging Global Challengers
Where They Come From
The Industries They Represent
Why They Are Going Global
Their Huge Economic Muscle
The Shareholder Value They Create
How Global They Are Today
3. How the RDE 100 Are Going Global
Six Strategic Models for Globalisation
How They Are Growing: by Buying or Building
Where They Are Growing: Next Door and Around the World
4. The Competitive Strengths and Weaknesses of Emerging Global Challengers
Low-Cost Resources
Home-Market Environments
Operations
Innovation
Supply-Chain Management
Going to Market
Management Talent
Strategy and Roadmaps
India's Emerging Global ChallengersCII-BCG4
Table of Contents
5. Lessons for and from Indian Companies
Evolution of Indian industry
The Indian 21: An Overview
Primary Motive in Internationalising
Form of Entry and Underlying Globalisation Models
M&A Activity
Globalisation Strategies
The India Advantage
The Future Global Agenda
6. Looking Ahead
Implications for Challengers
Implications for Incumbents
Closing Thoughts
India's Emerging Global ChallengersCII-BCG 5
India's Emerging Global ChallengersCII-BCG6
A Word from the Authors
Executives of leading multinational companies recognise that a new set of emerging challengers are becom-
ing important players in both developing and developed markets around the world. These companies are
gaining global market shares, making major acquisitions, and emerging as important customers, business
partners, and competitors of the world's largest companies. And they are developing quickly.
BCG recently assessed the activities and strategies of these recently globalising companies. We identified and
profiled a hundred of them, focusing on those with large businesses, significant global activity, a clear
commitment to further globalisation, and solid prospects for continued success. A global team of senior BCG
consultants, based principally in Beijing, Mumbai, Moscow, and São Paolo but also spanning other rapidly
developing economies (RDEs) contributed to this effort. The results will be published in May 2006 in
another BCG Report, titled
The present report, incorporates much of the information and analysis
prepared for but has been edited to focus closely on India. We have also added a
chapter devoted specifically to the implications of the emergence of global challengers for Indian compa-
nies.
We are indebted to the authors of our colleagues Marcos Aguiar, Arindam
Bhattacharya, Thomas Bradtke, Pascal Cotte, Stefan Dertnig, Michael Meyer, David C. Michael, and Harold
L. Sirkin. We would also like to acknowledge the valuable contribution of Hardik Manek to the Indian section
of the study, as well as the editorial assistance of Kathleen Lancaster and of WordCraft Editing and Writing
Ltd.
The 100 leading RDE-based companies highlighted in were already, in 2004,
earning combined revenues of $715 billion and growing at an average of 24 percent per year. Among these
companies are 21 that are based in India. In 2004, these Indian companies earned combined revenues of $61
billion and were growing at around 30 percent per year. They represent a new breed of Indian companies
those that are actively seeking to expand in international markets and are willing to compete with established
names in their home markets.
BCG's analysis of these sample companies has yielded important insights into the broader trend of RDE-
based companies that are expanding globally. This trend is only just beginning. Ultimately its implications
will affect industries and markets throughout the world. We hope that you find this report interesting and
helpful. As ever, we will be pleased to hear from you and have your comments.
The New Global Challengers: How 100 Top Companies from Rapidly Developing
Economies are Going Global –and Changing the World.
India's Emerging Global Challengers,
The New Global Challengers,
The New Global Challengers,
The New Global Challengers
Rahul Jain
Project Leader
Mumbai
jain.rahul@bcg.com
Vikram Bhalla
Vice President and Director
Mumbai
bhalla.vikram@bcg.com
Nisheeta Bajaj
Consultant
Mumbai
bajaj.nisheeta@bcg.com
India's Emerging Global ChallengersCII-BCG 7
8 India's Emerging Global ChallengersCII-BCG
1 The New Global Challenge
9
A revolution in global business is underway.
Companies from rapidly developing economies
(RDEs) such as Brazil, China, India, and Russia,
armed with ambitious leaders, low costs, appealing
products or services, and modern facilities and
systems, are expanding overseas and will radically
transform industries and markets around the world.
As this movement unfolds, established incumbent
companies will meet the new RDE-based challengers
in many arenas: in the competition for supplies, in
the search for talent, in the quest for innovation, on
the acquisition front, and in markets at home and
abroad. Each of these encounters will pose threats,
but will also offer opportunities for partnering and
cooperation. So it will be vital for all companies,
regardless of their home location, to understand
these developments and take action ahead of them,
lest their competitive positions deteriorate.
At the same time, the globalising companies from
the RDEs also face a set of unique opportunities and
challenges. They will have to ensure that they fully
leverage their strengths as they target the incum-
bents' markets. They will also have to learn
how to manage global organisations, build global
brands, undertake global M&As and partnerships,
and so on. Many of these companies are at an
important juncture of their global evolution, and
how they act and develop will shape their own
agendas as well as the global agenda.
The handful of RDE-based companies that have
recently captured media attention prominent
examples include Chinese manufacturers Haier and
Lenovo and Indian software houses Infosys and
Wipro. These examples represent only a small
fraction of a much larger phenomenon. The number
of RDE-based companies that are actively expanding
beyond their home markets, or planning to,
approaches several thousands.
Already, RDE-based companies have started
assuming leadership positions in lucrative devel-
oped markets and have established beachheads in
other RDEs. Here are just a few examples:
rapidly
Many Companies on the Move
Bharat Forge (India) is now the world's second-
largest forging company.
BYD (China) is the world's largest manufacturer
of nickel-cadmium batteries and has a 23 percent
share of the mobile-handset battery market.
Cemex (Mexico) has developed into one of the
world's largest cement producers.
Chunlan (China) has a 25 percent share of the
Italian air-conditioner market.
CIMC (China) has a 50 percent share in the
marine-container market, supplying the world's
top ten shipping companies.
Embraco (Brazil) is the world leader in compres-
sors, with 25 percent share.
Embraer (Brazil) has surpassed Bombardier as
the market leader in regional jets.
Galanz (China) commands a 45 percent share of
the microwave market in Europe and 25 percent
in the US.
Hisense (China) is the number one seller of flat-
panel TVs in France.
Johnson Electric (China) is the world's leading
manufacturer of small electric engines.
Nemak (Mexico) is one of the world's premier
suppliers of engine castings.
Pearl River (China) is the global volume leader in
piano manufacturing.
Ranbaxy (India) is among the top ten generic
pharmaceutical companies in the world.
Techtronic (China) is now the number one
supplier of power tools to Home Depot in the
US.
Wipro (India) has become the world's largest
third-party engineering services company.
To be sure, not all challengers will be successful.
Some players may meet the same fate as D'Long, a
Chinese investor company that in 2003 with great
fanfare acquired Dornier, a German aircraft manu-
facturer, only to go bankrupt a year later. But many
others will break through to become established
global players. Just as many companies based in
India's Emerging Global ChallengersCII-BCG
10
Korea and Japan are now firmly global, so too will
today's RDEs produce future global leaders. Indeed,
the RDEs themselves possess characteristics that
constitute particularly powerful platforms for the
creation and development of future global compa-
nies.
Why are we now seeing the emergence of such global
challengers from RDEs? Certainly, a variety of fast-
moving globalisation forces are spurring this trend.
These include the dramatic surge in low-cost
communication technologies, the internet, WTO,
and economic reforms in key RDEs. In addition, we
highlight here the development of RDE markets as
strong enablers for the creation and growth of
globally ambitious companies. And once they begin
developing, many of these companies realise that
they need to move beyond their home markets in
order to grow further, create value, and sustain long-
term competitiveness. Below, we briefly explore the
role of RDE countries as platforms for new Global
Challengers; later in the report we address the
companies' own motives for globalisation.
Markets such as China, India,
and Russia are sufficiently large and fast-growing to
support large domestic companies. For example the
Tata Group of companies, of which globalisers such
as Tata Steel and Tata Tea are a part, has a domestic
revenue base of approximately $13 billion. The
rapid growth of RDE markets in general over the
past decade means that domestic companies have an
opportunity to become quite large on their home
turf.
All RDEs have an
abundance of low-cost basic labour, and most offer
other resources at low cost. Domestic companies in
these markets are often better at exploiting these
low-cost resources than foreign companies are. We
discuss this issue extensively later in the report.
RDEs have rapidly growing markets, some of
which are very large.
RDEs have low-cost resources.
RDEs as Platforms for New Types of Global Competitors
Difficult operating environments in RDEs produce
some highly capable companies.
RDEs are training grounds for competing with
global incumbents.
The challenges of
operating in RDEs include selling profitably to low-
income customers, dealing with immature logis-
tics/distribution environments, navigating ambigu-
ous legal environments, handling rapid external
change, and managing despite shortages of manage-
ment talent. A company that has addressed these
issues in its home market will have an advantage in
seeking to grow in similar markets abroad.
Increasingly, RDEs are key
markets for multinational companies that are the
incumbent leaders in developed-country markets.
RDE-based companies have the opportunity to learn
from these competitors in their midst. Companies
such as Ranbaxy, Tata Motors and Videocon, for
example, compete aggressively in their home
markets against global incumbents such as Pfizer,
Ford and Philips respectively.
Despite providing all these advantages, RDE
markets in themselves do not allow companies to
attain global scale, no matter how big or fast-growing
they are. Ultimately, many RDE-based companies
find that they must seek opportunities abroad for
growth, value, and competitiveness. We will discuss
this point further.
India's Emerging Global ChallengersCII-BCG
11
2 The RDE 100 Emerging Global Challengers
The RDE 100 Selection Methodology
The RDE 100 list was generated through a
detailed screening process. We began with more
than 3,000 companies based in 12 major RDEs,
which in turn had been selected on the basis of
the size of their economies (GDP), the value of
their exports, and the amount of their foreign
direct investments. Our list of RDEs comprised
Brazil, China, the Czech Republic, Hungary,
India, Indonesia, Malaysia, Mexico, Poland,
Russia, Thailand, and Turkey. The initial master
list of candidate companies was compiled on the
basis of rankings of the largest companies in each
of the selected countries, such as China's and
India's Top 500 by , or Brazil's
Top 500 by . An international BCG
research team consisting of business analysts and
economists from China, India, Mexico, Brazil,
and Russia and a panel of senior BCG experts in
Asia, Europe, and the US then conducted a
rigorous four-step triage. In step 1, we ensured
that only truly RDE-based companies were
selected, omitting foreign JVs and RDE subsid-
iaries of multinational corporations. In step 2, we
homed in on those players with revenues of at
least $1 billion (as of 2004), a threshold we believe
is necessary to drive serious globalisation
campaigns. In step 3, we eliminated players
whose current international business presence
amounted to less than 10 percent of revenue (with
exceptions for companies that were close to 10
percent and whose international business activity
had grown swiftly in the recent past).
Asia Business Week
Exame
In step 4, we scored the major globalisation
credentials of those companies that passed all
previous thresholds. The scoring was based on
five criteria: the international presence of the
company as indicated by its owned and operated
subsidiaries, sales networks, manufacturing
facilities, and R&D centres; major international
investments it has pursued in the past five years,
including mergers and acquisitions; its access to
capital for financing international expansion,
whether through free cash flows, stock markets,
or other sources; the breadth and depth of its
technologies and its intellectual property
portfolio; and the international appeal of its
existing offerings and value propositions.
This analytically rigorous approach generated a
list of 80 companies that fully met our criteria.
The remaining 20 companies, which did not pass
the $1 billion minimum revenue hurdle, are
nonetheless included in our RDE 100 because
they have created unique globalisation capabili-
ties or business models. From the original list of
12 countries, no companies from the Czech
Republic, Hungary, or Poland made it through
the screening, primarily because the larger
globalising companies in these countries are
actually subsidiaries of foreign multinationals.
We also included a company from Egypt in the
final list, though Egypt was not among the
markets in our initial screening.
To better assess the globalisation strategies of RDE-
based companies, we have identified 100 large RDE-
based companies that, in our opinion, are at the
leading edge of globalising their businesses. Having
identified this group of companies, we have also
looked at their similarities, differences, and
globalisation patterns, and have derived some
interesting implications from this analysis. Our RDE
100 Emerging Global Challengers are a diverse
group of companies based in ten RDE countries. We
identified these companies from a pool of some
3,000 candidate companies by screening
primarily for size, current extent of overseas
revenues, and prospects for further expansion.
With different strategies and at different stages
of globalisation, these companies share a strong
ambition to grow globally, as well as a set of
competitive advantages that they will leverage to
pursue global growth.
India's Emerging Global ChallengersCII-BCG
Relative to the current size of their national econo-
mies, India and China are disproportionately
represented on the list. China's share of the total
GDP of the group of 100 RDE countries is 29
percent, but its share of companies is 44 percent; for
India the numbers are 13 percent and 21 percent,
respectively. At the other extreme, Russia and
Indonesia are strongly under-represented.
Among the RDEs studied, China and India in
particular have already produced an impressive set
of companies with strong global ambitions. Where
the globalising Chinese and Indian companies differ
dramatically is in their ownership structures. More
than two-thirds of the Chinese companies among the
RDE 100 are state-owned or state-controlled, often
with minority stakes in the hands of strategic
investors (both domestic and foreign) or with
12
Where They Come From
Asia is home to the large majority 70 of our RDE 100 companies, followed by Latin America with 18 and
Central and Eastern Europe with 12. China is by far the dominant home base, with 44 of the RDE 100 located
there, followed by India with 21, and Brazil with 12. (See Exhibit 1)
publicly traded subsidiaries. Of the remaining third,
some companies have a mixed ownership structure,
while only four Chinese companies on the list are
privately owned (including one company actually
domiciled in Hong Kong).
The shares of Indian companies are usually divided
among private owners, strategic investors, and the
general public, with no single investor possessing a
majority stake. All Indian companies on our list are
publicly traded and all have foreign strategic
investors as shareholders. Only one Indian company
on the list is state-controlled. Companies from other
countries display a wide range of ownership pat-
terns. In some countries, such as Mexico, strategic
investors play an important role, while in others,
such as Turkey, the families of the founders still
exercise control.
E X H I B I T 1
Industrialgoods (33)
Consumerdurables (18)
Resourceextraction
(14)
Food andcosmetics (11)
Other (18)
China (44)
India (21)
Brazil (12)
Russia (7)
Other (10)(1)
Top 100 byindustry
Top 100 bygeography
THE BCG TOP 100 REPRESENT A VARIETYOF COUNTRIES AND INDUSTRIES
Mexico (6)Tech Equipment (6)
(1) Companies from Egypt, Indonesia, Malaysia, Thailand, and Turkey
Sources: BCG RDE Challenger Database; BCG analysis
Including:
• Automotive Equipment (12)• Steel (6)• Engineered Products (5)
Including:
• Household Appliances (6)• Consumer Electronics (8)
Including:
• Fossil Fuels (9)• Non-ferrous Metals (5)
Including:
• Telecom Services (6)• IT Services/BPO (4)
India's Emerging Global ChallengersCII-BCG
The Industries They Represent
The RDE 100 are active in a wide range of industries.
The largest area is industrial goods, which comprises
33 companies active in the automotive equipment
sector, basic materials, and various engineered
products. The second-largest group is consumer
durables, which comprises 18 companies and
includes mainly players in household appliances and
consumer electronics. Resource-extraction is the
third most important cluster, with 14 players. Food,
beverage and cosmetics companies and technology
equipment companies fall into fourth and fifth
place, with 11 and 6 players respectively. The
remaining 19 companies represent a broad spectrum
of industries ranging from pharmaceuticals and
mobile communication services to shipping services
and infrastructure.
13
When we view the industry distribution of the RDE
100 together with their geographic distribution,
certain clusters of regional capabilities emerge. (See
Exhibit 2.) China possesses the most diverse set of
emerging global challengers. Chinese companies
are well represented in consumer electronics,
household appliances, telecommunication and IT
equipment, and automotive equipment manufactur-
ing. India is well represented in automotive equip-
ment manufac tur ing , IT serv i ce s , and
pharmaceuticals, especially generic drugs. There are
a few Indian companies in other sectors as well. Most
other countries have large domestic players in only
one or two clusters, as well as perhaps a few individ-
ual challengers in other sectors. Examples include
raw materials extraction in Russia, household
appliances in Turkey, and food processing in
Thayiland.
E X H I B I T 2
MANY OF THE BCG TOP 100 FALL INTOREGIONAL COMPETENCE CLUSTERS
Mexico:• Beverages (2)
Brazil:• Metals & Mining (2)• Food Processing (2)• Engineered Products (2)
Turkey:• Home Appliances (2)
Russia:• Fossil Fuels (2)• Metals & Mining (3)
India:• Automotive
Equipment (5)• IT Services/BPO (4)• Pharmaceuticals (3)
South East Asia:• Food Processing (3)
China:• Consumer Electronics (6)• Home Appliances (5)• Telco and IT Equipment (6)• Automotive Equipment (6)
Sources: BCG RDE Challenger Database; BCG analysis
number of companiesamong Top 100
(x) number of companiesamong Top 100
(x)
India's Emerging Global ChallengersCII-BCG
Why They Are Going Global
Their Huge Economic Muscle
For RDE-based companies, the move to globalise is
ultimately driven by the need to create sustainable
advantage and shareholder value. International
opportunities can provide a strong platform for
shareholder value creation. Our research indicates
that for 88 of the RDE 100 companies, the key motive
for globalisation is gaining access to new profit pools.
To RDE-based companies, overseas markets may
bring higher margins and revenues, higher volumes
(which contribute to scale economies), and opportu-
nities for growth-enhancing acquisitions.
For the remaining 12 of our RDE 100 companies,
such as India's ONGC, globalisation is driven by the
need to secure access to global sources of raw
materials. The underlying motives may be both
nationalistic and shareholder-value oriented. These
companies, in general, might be less likely to
compete for overseas customers, but instead will
challenge developed-market companies for access to
supply and in M&A transactions.
In aggregate, the RDE 100 earned a total of $715
billion in 2004 revenues, equivalent to the 2004 GDP
of the entire national economies of Mexico or Russia.
About 28 percent of the RDE 100 collective revenues,
or $200 billion, stem from international sales. The
Indian 21 alone earned a total of $61 billion in
revenues.
Among other impressive statistics:
The RDE 100 grew at an impressive 24 percent
per year from 2000 to 2004. (The India 21 grew
at an even faster rate of 30 percent.) The RDE
100 growth was ten times as fast as the US GDP,
24 times that of Japan, and 34 times that of
Germany. They earned $145 billion in operating
profits, equivalent to a margin of 20 percent over
sales, compared to 16 percent for US S&P 500
companies, 10 percent for Japan's Nikkei
companies, and 9 percent for Germany's Dax
companies. The Indian 21 earned an operating
profit of $15 billion, translating to a margin of 25
percent over sales.
14
The RDE 100 collective portfolio contained
$520 billion in net fixed assets in 2004, which is
more than that of the world's top 20 automobile
manufacturers combined. The RDE 100
invested $110 billion per year. They employed
4.6 million people and had a payroll of approxi-
mately $20 billion. They purchased an estimated
$190-200 billion in raw materials and energy,
$50-60 billion in parts and components, and
$40-50 billion in services such as third-party IT
and engineering, shipping, and logistics.
The RDE 100 spent $9 billion for R&D in 2004,
equivalent to 1.3 percent of sales, to support the
innovation work of their 250,000 to 300,000
engineers and scientists.
On the acquisition front, the RDE 100 have
completed 200 international transactions over
the past five years (publicly announced deals
2001-2005). This number does not take into
consideration the sizeable number of acquisi-
tions in the individual companies' domestic
markets, which also strengthened their plat-
forms for launching global growth. In fact, the 21
Indian companies in the RDE 100 list have been
equally active in global acquisitions. They have
completed some 47 international transactions
over the same timeframe.
India's Emerging Global ChallengersCII-BCG
15
The Shareholder Value They Create
A total of 60 of the BCG RDE 100 are public companies or have publicly traded subsidiaries (considering
only major international capital markets). The total market capitalisation of these entities is $680 billion (as
of March 2006). These companies' RDE collective stock performance has been impressive. From January
2000 to March 2006, their total shareholder return (TSR) increased 2.68 times, while the TSR of companies
listed in Morgan Stanley's Emerging Market Index doubled and that of S&P 500 companies declined slightly.
Performance of the Indian companies on the list was even more notable, with their TSR increasing threefold.
(See Exhibit 3.)
E X H I B I T 3
RDE CHALLENGERS OUTPERFORM BOTH OVERALL EMERGINGMARKETS AND S&P 500 IN TOTAL SHAREHOLDER RETURN
50
100
150
200
250
300
350
TSR index(31/12/1999=100)
24/03/2006
Total shareholder return index(31/12/1999-24/03/2006)
31/12/1999
TSR Indexas of 24/03/2006
% increasesince 31/12/1999
RDE 100
Emergingmarkets
S&P 500
268.3
206.2
97.9
168.3%
106.2%
(2.1%)
Note: TSR index of RDE Challengers based on TSR of 60 RDE companies listed in HK, New York, Mumbai and other major stock exchanges; emerging markets TSR based on
Morgan Stanley Emerging Markets Index
Source: Datastream; BCG analysis
India 21 301.4 201.4%
India's Emerging Global ChallengersCII-BCG
16
How Global They Are Today
As a group, the companies in the RDE 100 already
represent a formidable force in the global economy.
Given their growth rates, most will continue to gain
strength in the coming years. The picture is differ-
ent, however, when we look at individual companies.
While some of the RDE 100 have already established
themselves firmly in the global marketplace, others
are rapidly doing so right now, while some are still at
an early experimentation phase.
In terms of the maturity of their globalisation drive,
our RDE 100 can be divided into three groups: early
movers, fast followers, and the up-and-coming.
At the top is a relatively small
group of ten players that started to globalise early
and have gained global leadership positions in their
industries. Mexico's Cemex, for example, has
developed into one of the world's largest cement
producers. The company has consistently generated
higher returns than its international competitors,
and has developed unique capabilities in the form of
a highly scaleable operating model, the serial
acquisition approach, and a global logistics system.
Other companies in this category include the $1.1
billion Johnson Electric, the world leader in small
electric motors, with more than a 40 percent market
share, headquartered in Hong Kong and building its
advantage on a strong China operating base. Also
well-established globally is Brazil's Embraco, the
$800 million world leader in small compressors,
holding a 60 percent global category share.
The next group of companies,
46 of the 100, are currently making rapid progress in
their globalisation, building on significant initial
experiences. Companies in this group include
China's Haier (household appliances); India's IT
services/BPO majors such as Infosys; India's Bharat
Forge (automotive equipment); and Turkey's Koç
(household appliances). These companies have
ambitious globalisation plans and a critical mass of
international business in their portfolios. They have
already signalled their global ambitions to the
investment community. Other players in this group
include the large RDE resource conglomerates
seeking either access to new raw material sources,
such as India's ONGC, or access to downstream
markets, such as Russia's Lukoil, as demonstrated by
its acquisition of parts of the Getty gas-station
network in the US.
The Early Movers.
The Fast Followers.
While the above-listed companies have already
received considerable public attention, others have
so far kept a relatively low international profile.
These less well-known players include, for example,
China's Pearl River (pianos), China's Hisense
(consumer electronics), Mexico's Nemak (automo-
tive equipment), and Turkey's Vestel (consumer
electronics).
The last group consists of 44
companies. These are players that are at an early
stage of globalisation or whose ambitions until
recently have been more regional than global.
Companies in this category include India's Tata
Steel, Indian pharmaceutical companies, Egypt's
Orascom (telecommunication services), Turkey's
Sisecam (glass), and Brazil's Braskem (chemicals).
Spanning a wide range of industries and home
countries, this group of companies includes many
that merit careful watching in the future.
Regardless of where in the globalisation process each
of our 100 companies stands, all of them share the
ambition to become truly global players. In pursuit
of this goal, they are devising and deploying a variety
of strategic models.
The Up-and-Coming.
India's Emerging Global ChallengersCII-BCG
17
Each of the companies on our RDE 100 list is pursuing globalisation in its own way, implementing a number
of different strategies. Their operations extend to every corner of the world. But certain patterns seem to
emerge from their actions to date.
Each company's overall approach tends to be based on one (or more) of six primary globalisation strategies:
Model 1: Taking RDE brands global
Model 2: Turning RDE engineering into global innovation
Model 3: Assuming global category leadership
Model 4: Monetising RDE natural resources globally
Model 5: Rolling out new business models to multiple markets
Model 6: Acquiring natural resources
We should note that these six strategies, while in principle distinct, often overlap in practice. Moreover, they
all have certain features in common. All of them build on positions of low cost a key competitive advantage
of RDEs. And virtually all the companies are highly adept at learning and adapting, enabling them to learn
the lessons of other, more established companies, as well as benefit from their own bold, entrepreneurial
experience and willingness to adapt to changing market conditions. We discuss the six globalisation models
below, with a closer look at some of the models followed by Indian companies. (See Exhibit 4.)
Six Strategic Models for Globalisation
E X H I B I T 4
3 How the RDE 100 Are Going Global
GLOBALISATION MODELS OF THE INDIAN 21
Source: BCG RDE Challenger Database; BCG analysis
Taking RDEbrands global
Turning RDEengineering intoglobal innovation
Monetising RDEnatural resources
globally
Assuming globalcategory
leadership
Rolling out newbusiness models
to multiplemarkets
Acquiring naturalresources
• Expand to acquire vital raw materials for homemarkets
• Extend business models generally pioneered in homemarkets
• Exploit advantage of domestic natural resources• Use low cost resource advantage while not
compromising on quality
• Establish themselves as specialists and globalleaders in a specific, relatively narrow product range
• Have well defined target markets and focused R&D
• Leverage strengths in engineering and research tomarket innovative technology-based solutions
• Exploit home-market products with global appeal• Often position as value-for-money alternatives to
established brands
India's Emerging Global ChallengersCII-BCG
18
Model 1: Taking RDE Brands Global.
Model 2: Turning RDE Engineering into Global
Innovation.
Of our RDE
100, 28 are growing internationally by taking their
established home-market product lines and brands
to global markets.
Companies in this category build international
momentum by exploiting home-market products
that have broad global appeal or are easy to
customise to new markets. In the target markets in
developed countries, these companies often position
their products as good value-for-money alternatives
to established brands. This positioning now consti-
tutes a sizeable and rapidly growing segment,
propelled by large discount retailers such as Wal-
Mart.
The 28 of our RDE 100 companies pursuing this
strategy deal primarily in consumer electronics and
household appliances. Other significant areas are
automotive equipment, speciality foods, and
beverages. These companies had combined reve-
nues of $138 billion in 2004, of which 19 percent or
$26 billion was earned abroad. Their average annual
growth over the past four years has been 24 percent.
A noticeably high number of the companies in this
category (18) come from China.
Representative of this strategy from India is
Mahindra & Mahindra, a $1.9 billion utility vehicle
and tractor manufacturer. With seven manufacturing
plants across India and approximate sales of 122,000
utility vehicles (UVs) and 65,000 tractors, Mahindra
& Mahindra enjoys a domestic market share of 49
percent in UVs and 27 percent in tractors. This
company has started marketing its tractors in nine
countries, key amongst which are China and the US,
the largest tractor markets in the world. The
Mahindra & Mahindra tractor brand is today
recognised in international markets and the com-
pany has emerged as the fourth largest tractor
manufacturer in the world.
Of the RDE 100 companies, the
international growth of 22 is based on marketing
innovative technology-based solutions that leverage
their strengths in engineering and research.
A representative example is Wipro, the Indian
services group. Wipro has expanded rapidly by
providing software coding support, initially during
the Y2K conversion. Since then, as offshore IT
services/BPO flourished, the company has grown
rapidly from $545 million in 2000 to $1.8 billion in
2004. While Wipro achieved its initial breakthrough
mainly on the basis of costs, driven by a mix of low
labour costs and scale advantage, the company now
creates much of its value by completely redesigning
its clients' business processes, a task requiring
comprehensive process innovation capabilities.
Furthermore, Wipro is now taking innovation to the
next level by creating extensive engineering capabil-
ities, making R&D services its next battleground.
The company already claims to be the world's largest
third-party provider of R&D services. Its 12,000-
strong Product Engineering Services (PES) group
offers a complete range of R&D services from
product strategy to hardware design to quality
consulting to clients that sell electronics-based
products. With more than 120 active clients in
industries such as semiconductors, automotive,
platforms and peripherals, consumer electronics,
and medical devices, PES's revenue has grown at 36
percent a year for the past three years and already
accounts for 36 percent of Wipro's total revenue.
Further examples of Indian companies that have
expanded into global markets using this stratery
include other leading IT services/BPO companies
such as Tata Consultancy Services, Infosys, and
Satyam and, more recently, globalised pharmaceuti-
cal companies such as Dr. Reddy's, Ranbaxy, and
Cipla. In addition, Larsen & Toubro, the engineer-
ing and construction group, as well as other compa-
nies in the engineered products space such as Bharat
Forge, Crompton Greaves, and TVS Motors have
adopted this approach. A total of 11 of the Indian 21
firms appear to be pursuing this globalisation
strategy, increasing the value and profile of India's
strength in engineering and research.
Innovation-based globalisation will require RDE-
based players to mobilise engineering and scientific
talent in areas where they can create sizeable and
sustainable advantage over their counterparts based
in developed markets. In many areas, the RDE talent
pool is deep and growing quickly, and RDE compa-
nies are at an advantage as regards monetising this
pool when compared to MNCs setting up RDE-
based R&D centres. In various surveys of employees
asking about preferred employers, home-grown
companies such as Infosys consistently come out on
top, often ahead of some of the leading MNCs.
The 22 of our BCG RDE 100 companies that are
pursuing innovation-based globalisation strategies
are active in areas such as telecommunications
equipment, aerospace, automotive equipment,
pharmaceuticals, and technology services. In 2004
India's Emerging Global ChallengersCII-BCG
19
their combined revenue reached $56 billion, of
which 39 percent or $22 billion was earned abroad.
Average annual growth over the past four years has
been 33 percent. As mentioned earlier, a particularly
high number of companies in this category 11 are
based in India, with a revenue base of around $13
billion.
Of the BCG RDE 100, 12 are growing internationally
by establishing themselves as specialists and global
leaders in one specific, relatively narrow product
category.
Companies in this category have in common a
relatively well defined target market for their
products; considerable depth in their chosen niches
(which in some instances amounts to global category
leadership); super-scale manufacturing; highly
focused R&D; and global logistics, which they have
down to a science. Their specialisation allows them
to be best in class, ahead of the competition in terms
of cost, innovation, and understanding of next-
generation customer needs. It also provides them
with a scaleable platform from which to drive global
industry consolidation, as well as to expand into new,
related niches.
Certain Indian players, such as Bharat Forge and
Crompton Greaves, while having principally
followed the engineering-led innovation approach,
have managed to establish strong positions in their
categories. Bharat Forge is today the world's second-
largest forging company.
The 12 out of our RDE 100 companies pursuing
global category leadership strategies fall mainly into
the category of industrial products manufacturers.
These 12 companies had combined revenues of $36
billion in 2004, of which 61 percent or $22 billion
came from abroad. Their average annual growth
over the past four years has been 23 percent. A
particularly high number of RDE companies in this
category are from Brazil and China.
Of our RDE 100, 13 are growing interna-
tionally by marketing products that exploit advan-
tages based on domestic natural resources. A
representative example from India is Hindalco,
worth $2.5 billion, Asia's largest producer of finished
aluminium and alumina and India's largest inte-
grated copper producer. With India having the fifth
largest reserves of bauxite in the world, reserves that
could last for more than 20 years, Hindalco has an
Model 3: Assuming Global Category Leadership.
Model 4: Monetising RDE Natural Resources
Globally.
inherent competitive advantage. Similarly, in steel-
making, India has access to some of the richest
supplies of iron ore in the world, which gives Tata
Steel a competitive edge as it globalises.
Companies in this category build their global
expansion on natural resources that are low cost by
international standards, without having to compro-
mise quality. The natural resource advantage stems
from rich supplies of energy, minerals, agricultural
feedstock, or some combination of these.
The 13 companies in our RDE 100 group that fall
into this category are active in fossil fuels, mining
and metals, and agricultural products. Brazil's
CVRD, for example, builds its global advantage and
growth on rich low-cost iron-ore reserves, and
Brazil's Perdigão and Sadia on highly productive
grain and soya-bean yields. In addition to leveraging
abundant natural resources, companies in this group
have generally developed high-class operating
models for their industries.
The 13 companies pursuing this model had com-
bined revenues of $110 billion in 2004, of which 66
percent or $73 billion was earned abroad. Their
average annual growth over the past four years has
been 26 percent. Companies in this category are
almost entirely from Brazil or Russia, with a few from
India and other countries.
Of our RDE 100, 13 are building
up regional or global portfolios in their respective
areas by extending business models that have
generally been pioneered in their home markets.
These 13 companies had combined revenues of $93
billion in 2004, with 29 percent or $27 billion
coming from abroad. Their average annual growth
between 2000 and 2004 was 28 percent.
A number the companies in this category are still in
the early stages of globalisation. Contenders
represent a variety of industries, including cement,
chemicals, food products, and telecommunication
services. These companies' expansion tends to follow
one of three models. They may have a comprehen-
sive formula for acquisitions, markets, and
operational excellence. Or they may operate in a
manner that creates superiority along a critical
dimension, as with Thailand's Charoen Pokphand's
approach to operational efficiency in agricultural
production through technology and scale. Or
finally, they may exploit a regional advantage in the
form of cultural similarities, shared language, or
Model 5: Rolling Out New Business Models to
Multiple Markets.
India's Emerging Global ChallengersCII-BCG
20
political ties that provide privileged access to
markets, as for example in the case of Egypt's
Orascom Telecom, using its Egyptian home base to
expand into neighbouring countries.
Indian companies adopting this globalisation
approach include VSNL, Reliance and Tata Steel,
with a combined annual turnover of $21 billion.
In contrast
to most emerging challengers, 12 of our RDE 100
companies are expanding overseas not in order to
tap new sources of profit but to acquire vital raw
materials for their home markets. A good example of
this is ONGC, the $13.8 billion oil and gas group.
Domestically, ONGC owns and operates more than
11,000 kilometres of pipeline, two offshore termi-
nals, 75 drilling rigs, 131 well platforms, and 28
process platforms. To gain access to global oil
resources, ONGC has expanded into global markets,
with committed investments of $4.3 billion in
overseas exploration projects.
The 12 RDE-based companies on our list that fall
into this category are active in either fossil fuels or
metal and mining products. Nine of them are from
China, which consumes far more oil, gas, and iron
ore than it produces. Irrespective of their countries
of origin, these 12 companies typically enjoy solid
government backing for their attempts to acquire
assets abroad. Following the build-up of
overcapacities in some sectors (for example steel in
China) and a further upgrade in their operational
capabilities, some of them seem set to compete in
global product markets. The 12 companies pursuing
this model had a combined revenue of $282 billion
in 2004, with only 10 percent or $30 billion coming
from abroad. Their average annual growth between
2000 and 2004 was 25 percent.
While much public attention has been focused on the
multi-billion-dollar acquisitions of a handful of
RDE-based companies, these transactions account
for less than 20 percent of the international growth
of our RDE 100. These companies have achieved the
remaining 80 percent of their international growth
organically, either by exporting from their home-
country bases or by establishing international
operations, in some cases via joint ventures. Only 24
companies on our list conducted more than three
M&A deals between 1988 and 2005, while 27
Model 6: Acquiring Natural Resources.
How They Are Growing: by Buying or Building
conducted no such deals at all. This being said, we
need to make two important qualifications.
First, acquisitions form an integral part of interna-
tional expansion in some globalisation models. For
instance, they are very important for companies
rolling out their business models to other parts of the
world. VSNL, for example, made two acquisitions in
North America in 2005 alone for around $370
million, while Tata Steel has invested around $360
million in acquiring Natsteel and Millennium Steel.
The same is true for raw-materials companies,
especially those attempting to secure access to vital
supplies. At the other extreme, companies launching
their home-market brands onto global markets have
seldom done this through M&As. (See Exhibit 5.)
Second, the M&A activities of our RDE 100 are on
the increase. In 2000 they recorded only 15 acquisi-
tions. In 2004 this number had risen to 40, and in
2005 to 59. Acquisitions by Indian companies have
similarly increased. From 28 in 2002, the number of
overseas acquisitions by Indian companies (not only
the 21 selected for this study) reached 192 in 2005.
(See Exhibit 6.)
Most of the deals made by the RDE 100 are small and
with specific objectives in mind. They are usually
intended to help an RDE-based company establish a
commercial beachhead through existing brands,
distribution channels, or local management. In
addition, many RDE-based companies, such as
India's Bharat Forge (automotive equipment), have
used M&As to obtain immediate access to vital
technologies. Some RDE companies have purchased
underperforming companies established in foreign
markets or dormant brands with the aim of turning
them around. An example of this is VSNL's acquisi-
tion of the North America-based Tyco Global at a
cost of $130 million.
Looking ahead, we can expect acquisitions to play an
increasingly important role. The desire among RDE
companies to expand, will in all probability exceed
their ability to develop the necessary capabilities in-
house, encouraging them to acquire other compa-
nies elsewhere. They will get better at identifying
and integrating their targets. Meanwhile, estab-
lished companies in mature markets may become
increasingly susceptible to M&As involving RDE
companies in similar sectors. Banks and private
equity companies will increasingly act as middlemen
in such deals.
India's Emerging Global ChallengersCII-BCG
21
E X H I B I T 5
Rolling outproven business
models
THE BCG TOP 100 PURSUE DIFFERENT EXPANSION MODELS
0.8
2.2
2.5
3.6
4.9
3.8
1.4 1.5
0.5
1.5
0.9
1.9
3.7
2.9
1.1
0.3
0.7
0.1
0
1
2
3
4
5
6
Acquiringnatural
resources
Monetisingresources
Assumingcategory
leadership
Taking brandsglobal
Turningengineering into
innovation
# of dealsper
company
19% 50% 61% 58% 37% 9%
Average share ofrevenue generatedabroad
Average numberof M&A deals percompany
Average numberof JVs percompany
Average numberof greenfieldinvestments percompany
Average numberof M&A deals percompany
Average numberof JVs percompany
Average numberof greenfieldinvestments percompany
Source: BCG RDE Challengers Database, BCG analysis
Exports and directinvestment
Exports andacquisitions
Acquisition-ledexpansion
E X H I B I T 6
M&A ACTIVITY OF INDIAN CHALLENGERS OVERSEAS ON THE RISE
0.2
1.7
4.5
1.78
192
6049
28
0
1
2
3
4
5
2002 2003 2004 2005
0
50
100
150
200
250
Deal value ($ Bn) No. of deals
4.5
Overseas acquisitions by all Indian companies(Number of deals and deal value, 2002-2005)
Source: Indian Advisory Partners; BCG analysis
Deal value
No. of deals
3
1
56
11
21
0
5
10
15
20
25
2000 2001 2002 2003 2004 2005
No. of deals
Overseas acquisitions by Indian 21(Number of deals, 2000-2005)
India's Emerging Global ChallengersCII-BCG
22
Where TheyAre Growing:NextDoorandAround the World
Looking at the markets our RDE 100 are targeting for their expansion, we found that the crucial decision -
whether first to test the waters in other emerging markets or to move directly into large and already devel-
oped markets - is closely related to the nature of the particular industries and business models.
(See Exhibit 7.)
E X H I B I T 7
TARGET REGIONS FOR EXPANSION ARE RELATED TO INDUSTRIESSelected Examples
8375
50
17
10
25
40
66
100
17
17
0
10
20
30
40
50
60
70
80
90
100%
HomeAppliances
EngineeredProducts
ConsumerElectronics
Food &Beverages
TelecomServices
Source: BCG RDE Challengers Database; BCG analysis
mass marketsin developedcountries
niche marketsin developedcountries
otheremergingmarkets
Initial expansionto ...
mass marketsin developedcountries
niche marketsin developedcountries
otheremergingmarkets
Initial expansionto ...
nies tend to target developed regions such as North
America.
The RDE 100 are directing their M&A strategies
both at companies in other developing countries
(43 percent of transactions) and at companies from
mature markets (57 percent). The Chinese and
Indian companies on our list have tended to
concentrate on competitors in the developed
world, whereas emerging companies based in
other RDEs have been focusing on interests in
other emerging markets. (See Exhibit 8.) Indian
companies in particular have been very active in
North America, driven by the growth in IT ser-
vices/BPO. Of companies that have focused on
other RDEs, most have targeted regions immedi-
ately adjacent to their home countries in prefer-
ence to more distant locations.
As mentioned above, providers of telecommunica-
tions services, such as Egypt's Orascom or Russia's
MTS, tend to expand into neighbouring regions with
close links to their home markets. This strategy is
also typical of branded Chinese consumer-
electronics manufacturers such as Skyworth, which
first penetrated smaller RDEs in Asia and the Middle
East before launching a broader roll-out.
Companies in the food and drinks industries and
in household appliances tend to adopt one of two
basic approaches. Companies pushing their own
brands, such as Mexico's Grupo Modelo (beer) or
China's Haier (household appliances), usually
start with other RDEs or niche markets, whereas
OEM suppliers such as Turkey's Koç (household
appliances) go directly to mature mass markets (in
this case Western Europe). In contrast, RDE-based
players such as the Indian IT services/BPO compa
India's Emerging Global ChallengersCII-BCG
23
E X H I B I T 8
0
20
40
60
80
100
THE BCG TOP 100 TARGET DIFFERENT REGIONSFOR M&A ACTIVITY
%
China(32%)
India(18%)
Target regions of 258 acquisitions of RDE Top 100, 1985-2005
Source: Thomson Mergers and Acquisitions Database; BCG RDE Challengers Database
Acquisitions inmature markets
Acquisitions inother RDEs
Mexico(14%)
Russia(14%)
Brazil(11%)
Turkey(3%)
Others(8%)
57%
43%
% of total
India's Emerging Global ChallengersCII-BCG
4 The Competitive Strengths and Weaknesses of
Emerging Global Challengers
The global success of RDE-based companies willdepend on the competitive advantages they developand maintain in the international marketplace.Clearly, one core advantage is access to low-costresources. Other advantages shared by many,include products that appeal to price-consciouscustomers, relatively modern and efficient plant andequipment, and access to huge talent pools. On theother hand, there are potential constraints to globalsuccess for some of these companies in the form of: alack of close relationships with overseas customers, aslow rate of innovation, a dearth of in-house intellec-tual property, a lack of strong brands and customerfranchises, problems with access to effective distribu-tion channels, and limited experience in managinginternational business portfolios.
The major area of advantage for RDE-based compa-nies lies in low-cost access to key resources. While, inprinciple, established MNCs that move into RDEs
Low-Cost Resources
may be able to gain access to similar resources, ourexperience indicates that RDE-based companiestypically retain an overall cost advantage. In addi-tion, for many MNCs RDE-based operationsrepresent a relatively small part of their globaloperations, whereas the opposite is true of RDE-based players. The RDE cost advantage primarilylies in labour, property and equipment, raw materi-als, and capital.
RDE-based labour is typically 10-20 times cheaper than labour in highly developedmarkets. This advantage alone translates into netsavings of 20 to 40 percent in the cost of many endproducts and services landed into most targetmarkets. Full employment costs for manufacturingworkers in RDEs are anything from $1 per hour inIndia to $6 per hour, the typical high-end rate inEastern Europe in either case a fraction of the $20-40 per hour typical in North America, WesternEurope, or Japan. (See Exhibit 9.) Similar differen-tials apply to labour rates in many service areas, suchas software programming, call-centre operations, orbasic engineering services.
Low-Cost Labour.
India's Emerging Global Challengers
E X H I B I T 9
(5)
0
5
10
15
20
25
0 5 10 15 20 25
RDE LABOUR COST ADVANTAGES ARE SIGNIFICANT
(1) GDP excluding agriculture and services
Source: S&P DRI; EIU; IMD; BCG analysis
Annualgrowth ofindustrialproduction’99–’04(%)
Average industrial manufacturingcompensation 2004 ($/hour)
China
Russia
BrazilMexico
India Canada
WesternEurope
Indonesia
Korea
U.S.
CzechRep.
ThailandMalaysia
Hungary
Poland
Japan
Rapidly Developing Economies
= Industrial(1) GDP $500 Bn
CII-BCG24
Low-Cost Property and Equipment.
Low-Cost Raw Materials.
In many RDEs,
setting up a manufacturing site complete with
grounds, buildings, access, and power and water
supplies can cost only 60 percent of a comparable
facility in a developed country. Savings come, not
only in the form of substantially cheaper construc-
tion labour, engineering, and architectural services,
but also from less expensive construction materials.
Another area of savings is machinery and equip-
ment, which often cost 20 to 60 percent less than
comparable items in developed markets. This
advantage is set to increase, as more locally made
state-of-the-art equipment becomes available over
the next few years. In addition, local communities
within RDEs compete fiercely for investment and
often make land available on favourable terms.
In India specifically, assets also cost less than in
developed countries. It is often possible to set up a
fully functional manufacturing facility in India,
including roads, power and buildings, for about 60-
80 percent of what this might cost in a developed
market, thanks to savings in the costs of materials,
equipment and construction services. Furthermore,
companies often have to invest in less and smaller
equipment than they would in developed countries.
Most plants in developed markets are heavily
equipped with sophisticated machinery designed to
replace high-cost labour. In India, this situation is
reversed: companies are able to reduce the capital
costs of complex machinery and replace it with cheap
labour. In addition, Indian companies are able to
reduce costs by outsourcing elements of their
manufacturing to cost-effective component suppli-
ers.
Depending on the
country, raw materials and energy can be plentiful or
very limited. Of the 12 countries we studied in depth,
the global advantages of Brazil and Russia are in
large part founded on low-cost natural resources.
Brazilian companies share privileged access to low-
cost hydroelectric power. Brazil also has a broad
resource base, ranging from rich and low-cost iron
ore (the main global advantage for domestic steel
producers such as Gerdau) to low-cost agricultural
feedstock that forms the basis for a thriving food-
processing industry. Russia markets its rich energy
resources either through direct exports, as in the case
of natural gas (Gazprom), or indirectly, as in the case
of aluminium (Rusal).
India also has significant advantages in certain areas
through its natural resources and raw materials. For
example, it has one of the world's richest sources of
iron ore, providing the key to the competitiveness of
Indian steel companies. It is also rich in certain other
raw materials such as bauxite, giving the country a
competitive advantage in aluminium and alu-
minium compounds. Another significant advantage
lies in materials for the textile industry, providing
incentives for any producer looking to convert these
materials into higher-value-added products for
adjacent markets.
Financing options for RDE-based
companies vary widely. Some, such as those in the
raw-materials sector, generate substantial free
operating cash flows that they can reinvest. Many
have access to relatively generous debt markets
(though approval standards are becoming more
rigorous in all RDEs). At least 60 of our RDE 100
have access to equity markets in Hong Kong,
London, Mumbai, and New York. In addition, some
companies are supported by governments eager to
promote the international growth of key industries;
one example is China's telecommunications equip-
ment industry. In combination, these factors put
most expanding RDE companies on at least an equal
footing with their western competitors.
Low-Cost Capital.
Although operating environments are difficult in
many RDEs, they can arguably provide real advan-
tages for local companies. Domestic markets are
often very large and among the fastest growing in the
world. In China, for instance, steel consumption is
2.3 times greater than in the US and car sales are
currently an impressive 29 percent of US levels and
growing by 10-12 percent a year. The markets in
Brazil, India, and Russia, though much smaller than
in China, are also significant.
These large home markets, with hard-to-please,
price-sensitive customers, provide a strong founda-
tion for building up export businesses in the future.
Many RDE markets also provide their domestic
companies with an opportunity to compete directly
with foreign companies established on their home
turf, helping to prepare them for expansion abroad.
The automotive market in India is one such exam-
ple, with local firms being forced to maximise their
engineering and research talent to create new
products for the value-conscious Indian consumer.
Home-Market Environments
India's Emerging Global ChallengersCII-BCG 25
Operations
Innovation
Many RDE-based companies have surprisingly
strong operating platforms. Their assets are often
much newer than those of established multinational
players. A survey by the US-based Manufacturing
Performance Institute identified the average asset
age of the Chinese companies it surveyed to be 7.2
years, as opposed to 16.9 years for their US counter-
parts. RDE-based production systems, similarly,
tend to be more flexible than those in highly devel-
oped countries because RDE-based companies often
use labour to replace machinery in their plants. For
example, rather than installing automated packing
lines, these companies may have the packing done
by hand. They also tend to buy their machinery from
domestic manufacturers whose products are 20 to 60
percent less expensive than comparable western
equipment.
In addition, RDE-based companies often achieve
higher capital productivity as a result of a longer
working week and fewer fixed assets than their
western counterparts. In world-class factories in
India, notably in pharmaceuticals, textiles, and auto
ancillary units, recent productivity levels have been
among the highest in all the emerging economies.
These factors may also help to provide greater
flexibility when coping with fluctuations in demand,
and to enable new products to be launched more
quickly and smaller order sizes to be handled.
Only a handful of RDE-based companies operate at
the cutting edge of innovation. Their general
weakness in intellectual property is reflected in the
small number of patents they hold. Between 1999
and 2003 all the companies based in the five largest
RDEs were granted only a total of 3,900 US patents,
as compared to companies from Japan and
Germany, with 166,000 and 54,000 respectively.
However, other factors are beginning to offset this
apparent weakness. First, RDEs are fast developing
R&D talent. For example, by 2010 the number of
engineers, mathematicians, technicians, and
scientists graduating in India is expected to reach
600,000 a year. This represents approximately five
times the output of the US university system in the
same disciplines.
In addition, R&D resources are far less expensive in
RDEs than in highly developed countries. With
approximately a fifth of the development costs of its
western competitors, a company such as India's
Ranbaxy (pharmaceuticals) can achieve a great deal
with its $87 million R&D budget. Little wonder that
MNCs are already rushing to RDEs to establish R&D
centres. RDE-based companies, however, may well
have an advantage in maximising local talent
effectively. For example, China's Haier claims to
develop two new household-appliance products
every day. While few current RDE-based innovations
are cutting-edge, with time the most successful RDE-
based companies will without doubt become true
innovators.
Effectively connecting RDE sources with remote
markets remains a challenge. The Asia-US supply
chain, for example, takes on average 60 to 90 days
from original order to delivery at the point of sale,
and adds 10 to 30 percent to RDE manufacturing
costs, wiping out up to half of the RDE manufactur-
ing cost savings. Our experience indicates that 20 to
60 percent of these supply-chain costs are due to
goods being out of stock, emergency shipments, or
permanent backups built into the system.
Optimising the overall performance of a long-
distance supply chain requires considerable skill,
first-rate processes, and organisational discipline. A
few RDE-based companies, such as China's Li &
Fung (textiles) have mastered this skill and turned it
into a central plank of their business. For many RDE-
based players, however, supply-chain management is
still a greater challenge than for established MNCs
that have well-developed supply-chain operations.
One way to address the supply-chain problem is to
establish production beachheads within the target
markets. Of our RDE 100, some 39 companies have
already done so. This strategy is particularly useful in
cases where products have high transportation costs
relative to their value, where products are exposed to
extreme demand volatility or short lead times, where
there are significant trade barriers, or where being
local still constitutes a strong selling point.
Supply-Chain Management
India's Emerging Global ChallengersCII-BCG26
Going to Market
Establishing a foothold in a new market, particularly
a highly developed one, is still difficult for most
RDE-based companies. The hurdles are many:
building up familiarity with customers and channels,
understanding their needs, designing the right
products, and creating competitive distribution
capabilities. While many RDE-based companies
have adjusted well to new requirements in their
home countries, transferring these skills to foreign
markets usually means moving up into a different
league of competition.
The more successful RDE-based companies are
aware of the issues involved and employ one or more
of the following approaches to help them extend
their operations into foreign markets:
Using acquisitions to gain access to markets and
the required commercial structures (for exam-
ple, Dr. Reddy's acquisition of Germany's
Betapharm Arzneimittel in 2006).
Building up strong relationships with a limited
number of large retailers (for example, Midea's
sales contracts for air conditioners with Home
Depot and Wal-Mart).
Targeting high-volume sales at a relatively small
number of large industrial/OEM purchasers (for
example, BYD's contract for mobile-phone
battery supplies with Motorola, Nokia, and Sony-
Ericsson).
Concentrating their efforts on developed
markets that are a lower priority for existing
companies on these markets (for example,
Konka's sales in Australia, where it ranks second
in the TV market).
Serving other RDE markets with characteristics
similar to their own home markets before
moving out into more highly developed markets
(for example, Skyworth's building up of a strong
position in consumer electronics in Malaysia,
Mexico, and Russia before attempting to move
into Western Europe).
Management Talent
Strategy and Roadmaps
Our study of the globalisation patterns of the RDE
100 revealed quality of management to be an
important success factor. RDE-based countries face a
major constraint in the shortage of managers with
international experience. The need is great, both for
people who can develop global business strategies at
the corporate level and for those who can operate
effectively on the ground in the target markets.
Among our RDE 100, only a handful of companies
have foreigners among their directors and few have
foreigners in senior management positions.
Most RDE-based companies recognise this short-
coming and are grooming management talent
within their organisations. Many have established
international job-rotation programmes for their
local managers and are now hiring internationally
experienced managers, often tapping into the pool
of native-born executives working abroad.
For example, today Dr. Reddy's has around 1,100
international employees out of a total workforce of
7,000; Ranbaxy around 1,600 out of 9,000, and
Bharat Forge around 1,800 out of 5,300.
As mentioned earlier, many of the RDE 100 are still
in the early stages of globalisation. For these compa-
nies in particular it will be important to go beyond
haphazard and opportunistic moves towards
globalisation and develop more coherent strategies.
Vital elements for success include a well-defined,
long-term globalisation strategy solid financial
management, and a roadmap with specifically laid-
down targets. For example, Brazil's Natura
Cosméticos (cosmetics) has set out a long-term
globalisation plan to guide the company's moves into
international markets. Combining its operating
capabilities with a systematic approach to accessing
new markets, the company aims to spread its value
proposition and strengthen its brand recognition
abroad.
India's Emerging Global ChallengersCII-BCG 27
5 Lessons for and from Indian Companies
In this brave new world of international business, Indian industry is prominently represented. Global
competitiveness is a challenge that Indian companies are eager to meet. In targeting global markets, many
Indian firms are already among the most competitive in their industries. A brief excursion will place this
competitiveness into historical perspective. (See Exhibit 10)
Evolution of Indian industry
Indian industry as it is today has been shaped by four
recent historical phases. The first phase, from 1947
to 1965, was characterised by government-led
investments in manufacturing – investments aimed
at creating a strong industrial foundation. Several
large public-sector units in steel, chemicals, and
power were set up. Many of these companies still
exist, and are among the largest in their sectors.
The second phase, from 1965 to 1980, was marked
by continued high levels of government involvement
in industry, the introduction of strong licensing laws
and a sustained focus on import substitution. This
combination led to further growth in public-sector
units on the one hand, and to the formation of
several low-scale private-sector manufacturing
entities on the other. It also led to the broaden-
ing/diversification of the country's manufacturing
base.
In the third phase, from 1980 to 1990, India partially
opened its economy to external trade and de-
licensed some major sectors for private participa-
tion, leading to strong growth in a few sectors. A key
event was the formation of the Maruti-Suzuki JV
between the Government of India and Suzuki of
Japan: it reflected a new, more liberal attitude, and
marked the beginning of technology transfers into
the country.
In phase four, in the early 1990s, Indian industry was
further liberalised. The scope of licensing was
E X H I B I T 1 0
• Government investmentscontributed 53% of totalGross Capital Formationand 92% of all investmentsin greenfield projects
• Growth led bymanufacturing andinfrastructure sectors;electricity and water grew at11.2%
• Government investmentscontributed 53% of totalGross Capital Formationand 92% of all investmentsin greenfield projects
• Growth led bymanufacturing andinfrastructure sectors;electricity and water grew at11.2%
• Oil shock (1970s) and de-valuation of rupee
• Licensing restrictionsand continued public-sector investments
• Import substitution policy
• Oil shock (1970s) and de-valuation of rupee
• Licensing restrictionsand continued public-sector investments
• Import substitution policy
• De-licensing insome keysectors; allowedgrowth ofprivatecompanies
• Opening ofcapital goodsimports
• De-licensing insome keysectors; allowedgrowth ofprivatecompanies
• Opening ofcapital goodsimports
• Broad reforms,reduction oflicensing
• Higher compe-tition, access totechnology andimported inputs
• Higher share ofprivate sector infixed investment
• Increased threatperception fromChina
• Broad reforms,reduction oflicensing
• Higher compe-tition, access totechnology andimported inputs
• Higher share ofprivate sector infixed investment
• Increased threatperception fromChina
• Removal of mostimport controls
• Resurgence ofkey industries
• Indiancompaniesacquiringcompaniesabroad, gainingglobal identity
• Outsourcingboom inmanufacturing
• Removal of mostimport controls
• Resurgence ofkey industries
• Indiancompaniesacquiringcompaniesabroad, gainingglobal identity
• Outsourcingboom inmanufacturing
1950-1965Industrial foundation
1965-1980Import substitution
1980-1990De-licensing
1990-2000Liberalisation
2000 onwardsGlobal competition
• PSUs• Basic industries
• PSUs• Basic industries
• Growth• Cost-cutting
• Growth• Cost-cutting
• Technologytransfers
• Technologytransfers
• Innovation• Globalisation
• Innovation• Globalisation
• Diversification• Vertical
integration• Ancillarisation
• Diversification• Vertical
integration• AncillarisationO
utc
om
es
EVOLUTION OF INDIAN INDUSTRY
India's Emerging Global ChallengersCII-BCG28
significantly reduced, custom duties were slashed,
and foreign direct investment (FDI) in various
sectors was permitted. Accordingly, global competi-
tion made its presence felt within the domestic
Indian market in the late 1990s, especially from
Chinese and South East Asian companies, and
anxious Indian manufacturers resolutely set about
enhancing their productivity, scale, and efficiency.
During these four phases, Indian firms have risen to
the various challenges, and have acquired unique
capabilities. Companies that had to be self-reliant for
equipment and technology, for example, developed
a deep knowledge of manufacturing processes. This
“forced” domain knowledge is proving advanta-
geous in the “upstream” steps of the manufacturing
value chain, even before assembly. Companies that
had to diversify and/or vertically integrate owing to
the license raj have helped create the diversity and
breadth of India's manufacturing base. Companies
that invested strongly in operational and productiv-
ity improvements have achieved cost competitive-
ness with key global companies, and indeed are the
cost leaders in some areas. Complementing this
evolution has been the growth of the Indian service
sector in the last decade.
Today, Indian industry is in phase five – a phase best
characterised as one of confidence and global
aspirations. Companies are reaping the rewards of
all the development and learning that took place in
the earlier phases, and many are becoming a force to
reckon with in global markets.
What kind of firms constitute the Indian 21 global
challengers identified in the BCG RDE 100, and
what drives their global pursuits?
Their sectoral composition is interestingly different
from those in other RDEs. The Indian globalising
companies come mainly from three sectors –
technical and commercial services, automotive, and
healthcare (with a few representatives from con-
sumer durables, resources, and other industries).
While China is a comparable contender in the
automotive sector, India appears unique in its focus
on the other two sectors. (See Exhibit 11)
The Indian 21: An Overview
E X H I B I T 1 1
RELATIVE WEIGHT OF SECTORS FOR INDIANVS CHINESE AND OTHER RDE100 FIRMS
Sources: BCG RDE Challenger Database; BCG analysis
0
20
40
60
80
100
0
20
40
60
80
100
24%
24%
14%
14%
10%
India (21)0
20
40
60
80
100
Sectors (in %)
China (44) Brazil (12)
Russia (7)
Others(2)
Malaysia (2)Thailand (2)
Tech. & Comm. Services
Telecom Services
Food Processing &Cosmetics
Tech. Equipment
Transport
Automotive
Healthcare
Other Industrial Goods
Raw Material Extraction
Consumer Durables
Mexico (6)
Turkey(4)
India's Emerging Global ChallengersCII-BCG 29
Among the firms that have brought India onto the
global map are these:
• Automotive manufacturers such as Bajaj Auto,
Mahindra & Mahindra, Tata Motors and TVS
Motors. Bharat Forge, India's largest exporter of
auto components, is the world's leading chassis-
component manufacturer.
In the IT/BPO space – Infosys, Satyam, Tata
Consultancy Services and Wipro.
Larsen & Toubro is a major engineering &
construction conglomerate.
In healthcare, leading pharmaceutical compa-
nies – such as Ranbaxy, Cipla and Dr. Reddy's –
with a focus on exploiting the US generics
market.
From other sectors – ONGC, Reliance
Industries, Videocon, VSNL and Tata Tea, for
instance; and industrial goods companies such
as Hindalco, Tata Steel and Crompton Greaves.
When companies are questioned about their
globalising thrust, they sometimes cite reasons such
as access to complementary technology or access to
global raw material sources. But almost always the
primary motive is growth. Many Indian firms are
now targeting global profit pools. In healthcare, for
example, Indian firms are taking advantage of their
low-cost manufacturing to deliver generic drugs in
global markets.
Much of the Indian corporate growth into interna-
tional markets has been organic, but some at least has
been through M&A activity overseas. Such activity is
on the rise, and is supported by the changing policies
of the Indian Government. Indian entities are today
permitted to invest up to 200 percent of their net
worth without prior approval, as opposed to 25
percent in 2001. Indian firms can also automatically
utilise ADR/GDR proceeds freely, or they can take
the stock-swap route.
Over the period 2000-2004, Indian firms accounted
•
•
•
•
Primary Motive for Internationalising
Form of Entry and Underlying Globalisation Models
M&A Activity
for about 15 percent of all RDE-based companies'
M&A activity overseas – and about 26 percent in
mature markets, more than any other RDE can
claim. In fact, some 60 percent of Indian M&A
activity overseas takes place in mature markets. This
emphasis, shared perhaps with South Africa, is quite
different from that of most RDEs, which concentrate
their M&A activity in developing economies.
For its mature-markets acquisitions, India has been
most active in North America, followed by Western
Europe. This concentration on North America is
driven to a considerable extent by the entry of Indian
firms into the IT services/BPO space in the region.
The only other country with a North-American focus
is Mexico. For other RDEs – South Africa, and those
in Central Europe and South East Asia – the focus
tends to be on Europe. (See Exhibit 12.)
Globalisation Strategies
Indian companies have followed several different
globalisation strategies, sometimes overlapping in
practice, as with the other RDE 100 companies.
Given India's great advantage in its inherent
engineering talent, the lion's share of the Indian 21
have used the engineering-led innovation approach.
Dominating the list are firms in healthcare and IT
services/BPO. While IT services/BPO firms have
been offering promising value propositions, pharma
companies such as Ranbaxy and Cipla have been
engineering low-cost generic drugs. Other firms
using this model include Larsen & Toubro, and
companies in the engineered-products sector, such
as Bharat Forge, Crompton Greaves, and TVS
Motors.
Bharat Forge and Crompton Greaves, which were
among the earlier Indian firms to internationalise,
have also built category leadership today. The auto
companies, which internationalised more recently,
have concentrated on taking their brands global.
ONGC, by contrast, has focused on acquiring
natural resources internationally, and Hindalco on
monetising the existing natural resources. VSNL and
Reliance have been rolling out business models
pioneered in their home markets. Others have used
a combination of approaches: Tata Tea, for example,
has been both monetising natural resources and
taking its brand global; and Tata Steel has been
rolling out its business model and leveraging its
captive sources of iron ore.
India's Emerging Global ChallengersCII-BCG30
E X H I B I T 1 2
PERCENTAGE OF ALL RDE ACQUISITIONS IN MATURE MARKETSBY TARGET REGION VS ACQUIRER (2000-2004)
0
20
40
60
80
100Japan
Australia & New Zealand
Western Europe
North America
(%)
India26 %
South Africa22 %
SEA14 %
China11 %
CentralEurope
9 %
Russia8 %
Mexico7 %
Brazil3 %
58
35
7
22
46
32
25
33
39
3
49
24
20
7
19
78
11
26
72
2
88
11
2
56
44
Percentage of RDE acquisitions in high-cost countries bytarget region and acquirer (2000-2004)
Source: Thompson Mergers and Acquisitions Database; BCG analysis
n = 776
India's Emerging Global ChallengersCII-BCG
The India Advantage
India's core advantage, as everyone knows, is its
manpower resource pool. What is less well known is
what the underlying elements of this advantage are,
and whether they are likely to continue.
The manpower advantage extends from manual
labour to skilled manpower. Labour-wage levels in
India are among the lowest in the world. In 2003,
they averaged $1.12 per hour for a production
worker – well below that of most low-cost countries,
which average $2.10 per hour. What's more, India's
wage rate is not likely to increase disproportionately
in the near future, but is expected to grow in line with
average growth of low-cost countries at about 6-7
percent per year.
The country's labour advantage extends beyond low
wage rates. It involves the demographic profile too.
India has a demographic bulge in the most salient
age bracket of 20 to 35. (See Exhibit 13.) And the
future scenario appears even more attractive. India's
workforce surplus is likely to persist, while other
countries (including key developed economies such
as the US, Europe, and Japan, as well as fast-
developing China and Russia) are likely to face
manpower shortages.
Savings due to lower labour costs can account for
anywhere between 25 and 90 percent of the cost
advantage that India offers, depending on the
nature of the industry. (It is in areas such as mainte-
nance, overheads and repairs that the 90 percent
savings might be achieved.) And India's productivity
levels have been some of the highest among the
emerging economies, especially in its world-class
factories in pharmaceuticals, textiles and auto
ancillary units.
Complementing the labour-resource advantage is
that of skilled manpower – an enormous and high-
quality pool, with the bonus of widespread compe-
tence in English. Indian universities produce
engineers, chemists, MBAs, and so on in large
numbers – some three million graduates and
700,000 post-graduates every year, whose average
salaries generally remain well below those of other
low-cost countries. So India enjoys not only a cost
advantage but also a great access advantage to highly
skilled manpower, even in areas where global
companies are generally facing bottlenecks.
31
32
E X H I B I T 1 3
FUTURE DEMOGRAPHIC PROFILE OF INDIAVS. CHINA AND FRANCE
India Demographic Profile (2020) China Demographic Profile (2020) France Demographic Profile (2025)
-60 -40 -20 0 20 40 60
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80+
Mn people
Age group
Female Male
-60 -40 -20 0 20 40 60
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80+
Mn people
Age group
-3 -2 -1 0 1 2 3
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80+
Mn people
Age group
204060204060 123
Source: CII Conference 2002; CSFB Report; UN Population Division; BCG analysis
20 - 35 age group :
325 mn people (~25 %)
20 - 35 age group :
308 mn people (~21 %)
20 - 35 age group :
11 mn people (~17 %)
India's Emerging Global ChallengersCII-BCG
The impact of abundant talent is already manifesting
itself in many ways. Over the last few years, India has
been the largest filer of patents among the develop-
ing economie s . In indus t r i e s such a s
pharmaceuticals, Indian companies have achieved
great cost advantages by leveraging process
improvements in manufacturing. In engineering-
related areas, Indian engineers develop tools and
designs at a fraction of the cost in international
markets, thereby transforming the economics of
their companies. Strong Indian research teams have
developed low-cost product ranges in the automotive
arena, while in auto ancillaries they have been able to
design customised products with great rapidity.
Bharat Forge, for example, engineers a new product
in 3-4 weeks, compared to the 6-12 weeks that its
competitors might take. The advantage is even more
marked in the software and IT services/BPO space,
where the need for skilled manpower is more critical
still (and where India enjoys the further advantage of
a strong client base, which includes some of the key
Fortune 500 companies).
Next, India also has a capital-cost advantage – one
that that can enhance the return on investment in a
manufacturing facility. The benefits here go beyond
cost, to include: reduction in hurdle rates for
investments, lower fixed costs, greater flexibility, and
easier risk-management. This capital-cost advan-
tage flows from three key sources. First, assets can
often cost less to buy in India than in developed
countries: thanks to savings in materials costs,
equipment and construction services, you could set
up a fully fledged manufacturing facility in India,
including roads, power and buildings, for about 60-
80 percent of the cost in a developed market.
Secondly, Indian companies often use fewer, smaller
and less complex assets than their developed-
country counterparts do, often by the simple
expedient of using more labour instead of sophisti-
cated machinery. Thirdly, Indian companies
outsource their components to a considerable
extent, thereby often lowering costs.
One last advantage: some Indian industries secure a
competitive edge from the country's natural
resources and raw materials, such as iron ore and
bauxite.
What then might restrict the India advantage? The
following are a couple of likely culprits. The brands
of the Indian challengers, though typically very
strong in the home market, remain little recognised
in developed markets. Further, Indian firms tend to
33India's Emerging Global ChallengersCII-BCG
lack the benefits of scale, and also to suffer from
some significant product-portfolio gaps.
Today India is indeed uniquely positioned. Indian
firms have a set of extremely valuable capabilities
and resources. Low cost in manufacturing, domain
knowledge in different sectors, and home-grown
strengths in engineering and research – jointly these
place India on a very strong platform. At the same
time, Indian firms need to meet several challenges:
enhancing their go-to-market and management
capabilities, building scaleble business models, and
so on.
Now is perhaps the right time for Indian firms to
start introspecting again, and to ask themselves a
series of questions:
The Future Global Agenda
• Do we really realise and leverage our advantage
to the fullest?
• Can we bring together different elements of our
strengths, to create new and sustainable sources
of competitive advantage that could transform
our business economics or value propositions?
• Should we be looking to further horizons now,
beyond our inherent resource advantage?
• And finally, what really are our global aspirations
– do we want to create a quantum shift in our
global growth?
As Indian firms once again begin to go through the
process of self-discovery, they could start to drive
their global agenda forward more actively.
34
6 Looking Ahead
Until recently, only a dozen or so RDE-based
companies could have been described as emerging
global challengers. Today, these challengers number
in the hundreds. Among them, the RDE 100 will play
important roles in shaping the global marketplace.
While some of them are already in positions of
relative strength, many are still gearing up for major
global growth campaigns. All are hungry for global
expansion. They are increasingly cash-rich. They are
aware of their advantages and know how to deploy
them. They are also actively working to overcome
their traditional weaknesses. In this effort, many
have the strong support of their home governments.
We expect that by 2010, our RDE 100 will double
their international revenues. At the same time, the
portion of revenues they derive from international
operations will probably rise from its current 28
percent to more than 40 percent. Perhaps 20 or more
of these companies will be among the top five
companies in their categories globally, up from five
currently. We further expect that the number of
prominent RDE-based globalisers will expand into
the hundreds in the years ahead. The implications
are massive, both for emerging challengers and for
incumbents.
As noted, many of the RDE 100 are already well
along the path to globalisation. The essential
capabilities are listed below, and most of them have,
in general, already been put in place by the more
advanced companies on our list. Other companies
on the list are still in the early stages of globalisation
and will need to strengthen their positions in several
areas to advance their international growth success-
fully.
All companies need to clarify “why and
how” they are going about globalisation. Some of the
companies on our list have begun globalising only
opportunistically. To succeed in the longer term,
they will need a clearer vision and purpose, set from
the top, and detailed roadmaps for their
globalisation endeavours.
Clear, long-term globalisation targets and
roadmaps.
Implications for Challengers
Internationally capable management teams.
Enhanced overseas selling, marketing, and
supply-chain capabilities.
Going beyond low cost.
Expertise in partnering, M&A, and leveraging
suppliers.
An effective global organisation.
While
some companies on our RDE 100 list already have
global management teams, others have only just
begun to address this issue. For example, very few of
the Chinese companies profiled have any foreigners
in their senior management ranks. A globally
capable management team will be essential to
success abroad.
RDE-based companies
need to move beyond being “secondary suppliers”
for global customers, and become primary suppliers.
To move up to this level will require matching or
beating incumbent suppliers in selling, marketing,
and supply-chain capabilities.
As RDE-based challengers
seek sustainable global positions, they will need to
move beyond cost-based differentiation. Otherwise,
they will face incumbent competitors who will be
cutting their own costs while building market
barriers based on innovation and other advantages.
Just as leading Japanese and Korean companies have
become true innovators, so our current crop of RDE-
based challengers need to innovate their way to long-
term success. The abundance of affordable engi-
neering talent in markets such as China, India, and
Russia, gives companies based in these locations the
potential to become innovation powerhouses.
In the race to compete, the most success-
ful RDE challengers will include those that leverage
others. Some will create this leverage through
successful M&A activities. Others will do it by
forming strategic partnerships or by leveraging the
innovation of suppliers at home and abroad.
For long-term
success, RDE-based challengers – like incumbent
MNCs – must redesign their entire organisations to
be truly global. There is an enormous transition
involved in moving from being mainly domestic with
some overseas sales, on the one hand, to being truly a
global organisation on the other. The move requires
difficult decisions regarding the composition of the
management team, the centralisation or decentrali-
sation of various key functions, and the extent to
which organising is done geographically rather than
by business line.
India's Emerging Global ChallengersCII-BCG
35
Implications for Incumbents
The impact of emerging RDE-based challengers on
individual companies varies from industry to
industry, as well as reflecting companies' current
competitive positions. Many incumbents are
successfully riding the wave of globalisation, by
engaging in sourcing, manufacturing, selling, and
conducting R&D both at home and around the
globe. Others, however, have not yet adapted to the
challenges of globalisation, and the emergence of
strong RDE-based competitors will both raise the
stakes and reshape the playing field. How to
respond?
The first step seems
obvious: you need to identify and understand the
RDE-based challengers in your industry. Who are
they? Where are they operating today? What are
their strengths and vulnerabilities? How are they
changing the competitive landscape? Which steps of
the value chain are affected? How big an impact do
you expect? Will the impact create threats or oppor-
tunities or both? RDE-based challengers are some-
times hard to get to know: they are based far away,
they may not be well covered by the business media,
they may not publish financial results, and they are
evolving rapidly. So you need to make extra efforts
simply to understand them.
Envision your global
priorities in an environment inhabited by successful
RDE-based competitors. What are the implications
for the segments and businesses you can defend?
Which segments and businesses might you want to
exit? What new growth opportunities and competi-
tive imperatives do you see?
The exercise
described above will trigger important decisions
about how you will contend with these new challeng-
ers. Your choices might include:
• Competing head-on with the challengers,
erecting obstacles to keep them out of key
markets, or attacking their home markets
Partnering with one or more challengers in
order to strengthen your global position and
defend against other challengers
Creating your own challenger by establishing a
subsidiary in an RDE, designed explicitly to
capture the same kinds of advantages that RDE
challengers possess
Know your challengers.
Take a hard look ahead.
Design strategy for the new reality.
•
•
• Selectively exiting some lines of business or some
value-added steps, and putting these activities
into a JV with a challenger company. For exam-
ple, you might build a new business model that
benefits from this JV through royalties and
service fees.
For most incumbents, the main
arena of competition with RDE-based companies
will be in product markets. Here, in our experience,
most incumbents still have considerable room for
improvement in their key operations, by developing
cutting-edge new products, manufacturing them
efficiently, getting them to market effectively, and
servicing customers well. In their home markets,
incumbents are often closer to customers than
challengers are. They should take full advantage of
that relationship. While incumbents focus on
improving their performance in their domestic
operations, they should also systematically assess
options to relocate production to low-cost countries.
Incumbents and
challengers alike should consider opportunities to
create value by acquiring, investing in, or partnering
with each other. Many are already systematically
assessing and pursuing options to cooperate as a way
of advancing their own growth objectives.
Opportunities exist in many areas. In sourcing, for
example, RDE-based companies can become new
suppliers to incumbents (as exemplified in the
market for automotive equipment) or partners in
exploiting raw material resources (as is happening in
the oil industry). Conversely, the RDE 100 challeng-
ers are already purchasing huge volumes of materi-
als, parts and components, and services, and should
thus be regarded as potential customers of incum-
bents.
Similarly, partnerships between incumbents and
challengers figure prominently in the globalisation
of R&D – for example in the pharmaceutical indus-
try, where global giants are starting to conduct joint
research programmes with companies in India and
China. Glaxo, for example, has forged an exciting
partnership with Ranbaxy for joint R&D work, and
Wyeth, in a deal estimated at $40 million, has
commissioned GVK Biosciences to set up a dedi-
cated R&D centre, to be staffed with 150 scientists.
In operations, subcontracting and outsourcing are
now common in almost every industry. Indeed, the
business models of some challengers are built
entirely on serving multinational players in this way
Hone your operations and reinforce your cus-
tomer relationships.
Find ways to ride the wave.
India's Emerging Global ChallengersCII-BCG
36
(in such industries as IT services/BPO, technology
equipment, and household appliances). Many
incumbents also enter JVs or distribution partner-
ships with RDE-based companies to tap into their
growing home markets (for example in the Chinese
automotive equipment and consumer electronics
industries).
RDE-based companies can also be partners in
incumbents' exit strategies. When an incumbent's
management team decides to retreat from a market
segment in a mature market, partnerships with RDE-
based players can help to stage this exit. In the case
of an outright sale, an RDE-based company might be
willing to pay more for a business than a domestic
competitor would, because the purchase might
provide exactly the sorts of assets that the RDE-based
company needs in order to offset current weaknesses
(for example, IP, brands, or distribution channels in
mature markets). In other cases, a temporary
partnership with an RDE-based acquirer might
create more value than an outright sale would.
Incumbents have recently pursued this model in
M&A deals with Chinese companies, generally in the
form of JVs.
From the incumbent's perspective, partnerships
make sense for at least three reasons. First, the assets
of the acquisition target sometimes need to be carved
out of the seller's operations, making it impossible to
complete an immediate sale. Secondly, the incum-
bent may want to retain some of the most attractive
assets – such as IP, including brands and patents, or
jointly used operations such as sales channels – and
provide them to the acquirer for a fee. Finally, the
acquirer may be an attractive partner for the seller in
penetrating an RDE market, or even as a client.
Ultimately, incumbent companies in global indus-
tries must quickly become comfortable with a world
full of RDE-based challengers. It will be critically
important to get to know these challengers well and
to use that knowledge in making key business
decisions. Decisions made without such insights
stand little chance of success.
Closing Thoughts
We are entering a new era, in which RDE-based
challengers populate the world's largest industries.
These challengers will be major participants,
reshaping many markets and forcing incumbent
companies to respond.
The rise of these challengers takes place amidst the
rise of RDE economies generally – and of China and
India in particular. By 2050 China and India will be
two of the world's three largest economies. At that
point, any truly global company must by definition
have a major presence in China and/or India, as well
is in North America, or Europe, or Japan.
Our list of 100 companies represents just a small
sample of the RDE-based challengers that will
ultimately emerge on the world stage. Of course, not
all will survive. Success will require strategic deci-
sions and the building of capable organisations
possessing competitive advantage.
Survival for today's incumbent companies is also not
guaranteed. Clearly, one success factor will be the
ability to identify, understand, and anticipate the
new wave of RDE challengers, and to quickly devise
the new strategies and capabilities required to deal
with the challenges they pose. The future looks very
interesting indeed.
India's Emerging Global ChallengersCII-BCG
37India's Emerging Global ChallengersCII-BCG
The Boston Consulting Group publishes other
reports and articles that may be of interest to senior
executives. Recent examples include:
A report by The Boston Consulting Group, March
2006
A report by The Boston Consulting Group, 2006
Opportunities for Action in Industrial Goods,
November 2005
Opportunities for Action in Operations, July 2005
Opportunities for Action in the Automotive
Industry, June 2005
Opportunities for Action in Operations, May 2005
Opportunities for Action in Operations, May 2005
“Organising for Global Advantage in China, India,
and Other Rapidly Developing Economies”
“China Outbound M&A. How Chinese Companies
are Entering the World Stage”
“Spurring Innovation Productivity”
“The New Economics of Global Advantage: Not
Just Lower Costs but Higher Returns on Capital”
“Winning in Today's Chinese Automotive Market”
“Globalizing R&D: Knocking Down the Barriers”
“Globalizing R&D: Building a Pathway to Profits”
“Avoiding Supply Chain Shipwrecks: Navigating
Outsourcing's Rocky Shoals”
Opportunities for Action in Operations, March 2005
“ The Central and Eastern European Opportunity:
Creating Global Advantage in Serving Western
Europe”
“Navigating the Five Currents of Globalization:
How Leading Companies Are Capturing Global
Advantage”
Capturing Global Advantage: How Leading
Industrial Companies Are Transforming Their
Industries by Sourcing and Selling in China, India,
and Other Low-Cost Countries”
“What Is Globalization Doing to Your Business?”
A Focus by The Boston Consulting Group, January
2005
A Focus by The Boston Consulting Group, January
2005
A report by The Boston Consulting Group, April
2004
Opportunities for Action in Industrial Goods,
February 2004
For a complete list of BCG publications and informa-
tion about how to obtain copies, please visit our Web
site at www.bcg.com.
To receive future publications in electronic form
about this topic or others, please visit our subscrip-
tion Web site at www.bcg.com/subscribe.
“
For More Information
India's Emerging Global ChallengersCII-BCG38
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