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Break Through

Ambitious companies from emerging economies have stormed into global markets. They now face their biggest test ever.

Despite its striking red and silver pattern and a scroll-like shape that pays homage to China’s invention of paper, the Beijing-bound Olympic torch that leaves Greece next month looks essentially like any other Olympic torch. But there’s more to it than meets the eye. The torch, which will travel across 20 countries over five months, was designed by a 30-strong team of engineers from Lenovo, China’s biggest PC maker. Though Lenovo wants its brand to be known for laptop computers, the torch and its journey are fitting symbols of the company’s global aspirations. Starting out in Beijing in 1984 under the name Legend, the company has spent most of its life cracking China’s nascent computer market. As recently as three years ago, its entire annual turnover — HK$22.5 billion (€1.9 billion) — was generated domestically.

That’s not the case today. After its $1.75 billion (€1.2 billion) acquisition of IBM’s PC business three years ago, it embarked on a new journey, one that catapulted it from the world’s eighth largest PC player in terms of volume to number three, behind American heavyweights Hewlett-Packard and Dell. With turnover more than quadrupling since then, its business now reaches all corners of the world. Today China accounts for less than 40% of sales.

With expansion, Lenovo has joined the elite ranks of what Andy Miller, CFO for EMEA, calls the “new world” multinationals. This group of developing-economy companies has expanded far beyond their home countries and now competes head-on with mighty developed-world rivals. Many, like Lenovo, are bold dealmakers, bringing home-grown knowledge to bear on growth plans in developed markets. A case in point: India’s Mittal Steel, which grabbed the headlines two years ago during its €18.6 billion takeover of Luxembourg-based rival Arcelor. More recently, Tata Motors and Mahindra & Mahindra, both of India, have battled to buy Jaguar and Land Rover in the UK from Ford, while Brazil’s Vale, the world’s largest iron-ore exporter, just announced plans to bid for Switzerland-based rival Xstrata.

Now, as fears of recession grip the developed world, many are looking to these developing-country high flyers to become key global growth engines. With their vast experience conquering some of the world’s most difficult markets, The Boston Consulting Group (BCG) calls these companies the “new global challengers.” The consultancy recently published research that identifies 100 globetrotting companies from developing economies that deliver profitability and shareholder returns far higher than many developed-country rivals. Having grown revenue by nearly 30% a year between 2004 and 2006, BCG reckons that the combined sales of these top-performing 100 companies will reach $11.8 trillion in 2015. “What is certain is that the new global challengers will only strengthen and multiply,” the report notes. (See “Making the Grade” at the end of this article.)

Growth Engines

To make these projections a reality, says Janmejaya Sinha, a Mumbai-based senior partner and managing director at BCG, developing-economy “challengers” need to undergo far more aggressive change than they already have, reworking the business models that have served them well in the past, restructuring balance sheets to tap international sources of capital, and rethinking M&A to take them even farther afield.

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