Multi-Polar World 2: The Rise of the Emerging-Market Multinational

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Emerging-market multinationals (EMMs)—enterprises based in emerging markets with operations in more than one country—are expanding at a speed and scale that is transforming the nature and norms of global business. The rising international prominence of these new players is both a cause and consequence of the multi-polar world, characterized by growing economic interdependence across five dimensions: capital, talent, resources, consumers and innovation.

This study, based on in-depth interviews with executives of emerging-market multinationals and international experts, extensive research and our experience of working with companies across the world, inverts the lens to examine what the multi-polar world looks like from the standpoint of EMMs and identifies the challenges they may face on their journey towards high performance.

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In many respects, multinationals are a defining invention of Western economies. But like much else in the multi-polar world, they are no longer the preserve of the developed world. As a result it is no longer sufficient to view globalization solely or mainly through a Western-centric prism.

Emerging economies are producing business giants at a staggering rate. They now boast 70 companies in the Fortune Global 500 list of the world's biggest companies, up from just 20 a decade ago. They have been expanding and acquiring new businesses at a frenetic pace, conducting more than 1,100 mergers and acquisitions, altogether worth US$128 billion in 2006 alone. While these businesses share the scale and ambition of their developed-world counterparts, their perspectives, processes and patterns of growth are often dissimilar to those of their competitors in the developed world. No business leader or policymaker can afford to ignore the rise of these companies or the implications of their stories.

Although there is no set blueprint governing the ways in which EMMs expand their business internationally, our research and experience has identified at least five different models.

• Full-fledged globalizers tend to be older, more established EMMs that have attained a scale and geographic span on a par with the biggest Western multinationals.
  
  
• Regional players aim to break out of their domestic markets in search of greater scale but, for reasons of cultural affinity and geographic proximity, they fix their sights—initially at least—on neighboring regional markets.
  
  
• Global sourcers are interested principally in selling to their domestic market but, because of resource constraints at home, they source internationally.
  
  
• Global sellers are the mirror image of global sourcers; they primarily manufacture or source at home but seek new consumer markets abroad for sales.
  
  
• Multi-regional niche players tend to be smaller companies operating across multiple regions in niche sectors, usually on the basis of innovative technology or processes.

Three extraordinary capabilities

EMMs are succeeding across all five dimensions of the multi-polar world and often have significant advantages over developed-market multinationals as a result of three things they are doing extraordinarily well:

• Managing a broad range of risks—EMMs are "street smart" and politically savvy in a way that belies their relative youth and smaller degree of exposure to international markets. They have significant experience in building demand—often in difficult conditions—in their home markets and are often able to assume a bolder, longer-term view of expansion. All of these skills make them particularly suited to navigating the hazards involved in investing in other emerging markets.
  
  
• Mastering the art of improvisation—Whether overcoming talent shortages through innovative educational and training programs, tapping into new sources of consumer demand or adapting products and technologies to local market conditions, EMMs are adept at turning unpromising situations into competitive advantage.
  
  
• Recognizing the importance of culture and localization—EMMs have a keen sense of local culture that tends to permeate everything they do—whether sourcing skills from diaspora populations, cultivating local management talent or customizing products and services.

• Market focus and position: EMMs face competition not only from developed-market multinationals but from each other. The propensity of EMMs to expand initially into adjacent markets means that much of the competition they face comes from other EMMs. Growth can be sustained only if EMMs can ensure continued access to inputs such as talent, energy, raw materials and capital—a difficult task in the face of the increasing number of challengers.
  
  
• Distinctive capabilities: EMMs show themselves to be consummate improvisers when it comes to innovation. In the future, however, many will need to undertake innovation activities in a more replicable fashion and diversify from a focus on product development to include more invention and concept generation. Furthermore, as these companies grow they will be faced with a complex tapestry of regulatory regimes. While trade liberalization has opened global markets, EMMs will nevertheless need to be sensitive to the potential for protectionist backlash.
  
  
• Performance anatomy: Adapting to the needs and tastes of local consumers has been a key strength of EMM development. As EMMs grow and serve increasingly diverse consumer markets they will need to maintain this local knowledge on an international scale. Indeed, the key challenge facing all aspirational EMMs is how to achieve growth on a global scale while maintaining the local practices and mindsets that made them so successful in the first place. Evolving business models that combine the best of both worlds will be essential if they are to prevent their growing pains from becoming a constraint on their expansion—and if they are to achieve and sustain high performance.