Established western players are being challenged across a range of industries, writes Clifford Coonan.
GLOBALISATION PROVIDES opportunities for companies from wealthy industrial nations, bringing them new customers in new markets.
But globalisation is a two-way street. A new breed of fast-moving, sharp-toothed multinationals from rapidly developing economies is at the cutting edge of globalisation.
Companies in India, China, Egypt, Brazil and Russia that grew big at home by providing outsourcing services for western firms are coming of age - and turning the tables on their US and European rivals. "All the walls have fallen," says Zhang Ruimin, chief executive of Chinese whitegoods manufacturer Haier.
"In a business world without national boundaries, Chinese lions can eat American lambs."
As with Japan in the 1980s and South Korea in the 1990s, the new challengers from the so-called Bric countries - Brazil, Russia, India and China - are forcing their western counterparts to rethink their strategies.
"These multinational corporations from emerging markets have become very successful. They typically started with a cost advantage and moved beyond that. This phenomenon should make western multinationals look at their business and challenge it," says Bernd Waltermann, managing director of Boston Consulting Group in Singapore.
The most successful new challengers realise they cannot compete with established players in their core markets. Instead, they look for opportunities the big players have neglected.
Embraer of Brazil, for example, has become the world's third-largest aircraft company by making a bet on regional jets with between 70 and 120 seats, a market its bigger rivals, Boeing and Airbus, thought had no potential. It also formed a joint venture with China Aviation Industry Corporation to help fulfil its goal to become a global producer and give it a cost advantage over its US and European rivals. In 2006, more than 95 per cent of Embraer's $3.8 billion (€2.41 billion) in sales were outside Brazil.
Spurred into action by Embraer's success, its rivals are responding. Boeing converted passenger jets, such as the 737, for private use. Its wholly-owned subsidiary, Aviall, one of the largest providers of aviation parts and aftermarket services in the industry, plans to open an office in India this year to take advantage of lower manufacturing costs and distribution opportunities.
Power is also shifting to new challengers in the mobile communications industry. Two of the world's top-10 telecoms firms by market capitalisation are in emerging markets, including the world's largest mobile-phone operator, China Mobile.
Companies such as Orascom of Egypt and Mobile TeleSystems of Russia now constitute almost 60 per cent of the world's share of mobile communications' market value, which was $1.1 trillion in 2007, according to a report by consultancy Oliver Wyman.
Consider Orascom's expansion drive. It operates in nine countries in the Middle East and Africa. It is listed in Cairo, but has a secondary listing in London, from where it runs its international business. Egyptian entrepreneur Naguib Sawiris controls Orascom through his investment vehicle, Weather Investments.
In 2005, Weather bought Wind, Italy's third-largest mobile operator, from Italian energy company Enel, in a deal worth €12.2 billion. Weather then bought Tim Hellas, Greece's third-largest mobile operator, from private-equity firms Texas Pacific Group and Apax, in a deal worth €3.4 billion.
China Mobile has a firm grip on 70 per cent of its home market, which has 369 million customers and growing. It has just opened an office in London to direct expansion into European, Middle Eastern and African markets. It also aims to sell services to Chinese users abroad, targeting business executives and tourists.
These challengers from Asia and the Middle East believe their western rivals can learn from them. "Multinationals from emerging markets are usually very efficient from capital expenditure and operating expenditure perspectives, in order to be profitable in markets with low or declining average revenues per user," says Orascom chief technology officer Tamer El Mahdy.
One way of dealing with the challenge of an emerging market company is to buy that company. Orascom's success has made it an object of takeover speculation from a number of European companies, including Deutsche Telekom, Vodafone, Spain's Telefónica and France Telecom.
Vodafone, the world's largest mobile operator by revenue, built its global footprint through a series of acquisitions and strategic alliances. Analysts say it could apply its successful European growth strategy to emerging markets. That was clearly the logic behind its decision to buy a 3.3 per cent stake in China Mobile in 2002. Although only a minority stake, the message is clear: go straight to the lion's den.
Zhang Ruimin of Haier is not about to let a western competitor have a say in his company, however. His policy is to invest profits in new markets. Haier set up factories in the US in 2000 so that it could be in one of the world's most important markets, and to ensure it remained independent.
Haier now competes with the likes of Electrolux, the world's second-largest home appliance producer, particularly at the lower-cost end of the market.
Electrolux chief executive Hans Straberg says the challenge from these new competitors forced the Swedish appliance maker to reorganise to become more competitive at both the high and low ends of the market.
Arthur Kroeber of the Dragonomics research group says emerging multinationals have the advantages of low costs and being well-placed in the world's fastest-growing markets. But they have a long way to go before they can compete at all levels with their western competitors.
"In certain traditional manufacturing industries, high-cost western producers will have to go out of business," he says. "In others, such as telecoms equipment, Chinese competition is leading to consolidation among the incumbents, but those incumbents retain a strong technological edge."
